HC Deb 03 June 1918 vol 106 cc1336-65

(1) Where the Commissioners of Inland Revenue are satisfied on an application made to them for the purpose that any considerable number of persons engaged in any class of trade or business are dissatisfied with the amount of any deduction for wear and tear, the Com missioners, unless they are of opinion that the application is frivolous or vexatious or relates to matters already decided by a Board of Referees, shall refer the case to the Board of Referees, and that Board shall deal with the case and determine the deduction to be allowed.

In this Section— The expression "deduction for wear and tear" has the same meaning as in Section twenty-six of the Finance Act, 1907; and The expression "class of trade or business" means a class of trade or business which may be determined to be such for the purposes of this Section by the Commissioners of Inland Revenue; and The expression "Board of Referees" means any Board of Referees appointed for the purpose of Part III. of the Finance (No. 2) Act, 1915, or if there is no such Board, a Board of Referees to be appointed for the purpose of this Section by the Treasury.

(2) In estimating the profits or gains of any trade, manufacture, adventure, or concern in the nature of trade chargeable under Schedule D, or the profits of any concern chargeable by reference to the rules of that Schedule, there shall be allowed to be deducted as expenses incurred in any year so much of any amount expended in that year in replacing any plant or machinery which has become obsolete as is. equivalent to the cost of the plant or machinery replaced after deducting from that cost the total amount of any allowances which have at any time been made in estimating profits or gains as aforesaid on account of the wear and tear of that plant and machinery and any sum realised by the sale of that machinery or plant.

(3) Section nine of the Finance Act, 1898 (which relates to the amount of the deduction to be allowed on account of the annual value of premises), shall not apply in the case of any premises being mills, factories, or other similar premises.


I beg to move to leave out the words "Where the Commissioners of Inland Revenue are satisfied on an application made to them for the purpose that any considerable number of persons," and to insert instead thereof the words "If any person."

There are a number of Amendments on the Paper in my name, and perhaps it would be convenient if I took them altogether, because they all relate to one subject which on several occasions we have had before the House— namely, the allowances which are made by the Treasury for depreciation of plant and machinery and other assets. It will clear the ground if I state, for the information of the Committee, what has happened in the last eighteen months. An Amendment was moved to the Finance Bill of last year asking that allowance such as a prudent owner would make should be allowed for wear and tear and obsolescence on all assets, buildings, and so on. Immediately after that Amendment was put on the Notice Paper the Treasury issued a White Paper which to some extent met the claim, but of course it did not go half far enough. On 16th July an Amendment was moved, but was not pressed to a Division. A great many arguments were used pressing upon the Government the extreme importance, urgency, and necessity of giving attention to this matter. In December last the Report of Lord Balfour of Burleigh's Committee was published. As many hon. Members are aware, that Report contained the recommendation that greater allowances should be granted for depreciation. Still the Treasury did nothing until 16th April of the present year, when a further White Paper was issued, also undated, by which some additional concessions were granted. Two or three days after the issue of that White Paper the Report of Lord Balfour of Burleigh's Committee was issued, and we then understood why the concessions contained in the White Paper were granted. The Committee will recollect the Motion we made on the 1st May on the Financial Resolution. We again pressed our point and asked that the allowances which a prudent owner would think reasonable should be granted. That was pressed to a Division but, unfortunately,. we were unable to carry our point.

I am glad to see that the Government are still moving and still realise that this is a subject which cannot be allowed to drop and which will be pressed until the reasonable concessions which manufacturers are demanding are granted. "We are now on the Finance Bill and Clause 26 is, in spirit, a substantial advance in the right direction. In substance, effect and practice, however, it is of no use at all. Under the Clause, before anyone can get the benefit of the right of appeal, he has to be one of a considerable number of persons engaged in any class of trade or business. In other words, he has to get a considerable number of persons together, who are engaged in the same class of trade or business and they have to work in agreement with him. They jointly have-to make representations to the Treasury,. and, if they are successful— the Treasury have it absolutely in their discretion to turn them down if they think that the application is frivolous or vexatious— then, and only then, can they get to a Board of Referees and have their case fairly adjudicated upon. That is not a concession at all, because you can never get there. No individual could ever get to a Board of Referees. He has to be one of a considerable class of persons engaged in a particular trade; in other words, he has to get together practically everybody who is engaged in a particular class of trade, and they have to make a joint representation to the Treasury. Is that possible? Is it practicable? It is simply trifling with the question to concede to a great extent what we are asking for, and then to hedge it round with a condition which makes it utterly impossible for any one ever to obtain it. From that point of view it is necessary to consider what Amendment should be introduced to meet the case. The Amendment which stands in my name is so framed that the Clause will read: If any person engaged in any class of trade or business is dissatisfied with the amount of any deduction for wear and tear, special depreciation or obsolescence, the Commissioners, unless they are of opinion that the application is frivolous or vexatious, shall refer the case to the Board of Referees. That is putting the matter on a reason able basis, so that any individual has his right of appeal. It still reserves to the Treasury the power to turn the application down if the case is frivolous or vexatious. I do not think it can be seriously con tended that they are to turn down the whole of a particular trade if they make an application, but under the Clause as framed the Treasury would have the power to do so. It is quite reasonable and only fair to the Treasury— we do not want to do anything that is unreasonable— that, if an individual makes a demand or claim which is obviously frivolous or vexatious, then the Treasury, in the exercise of their discretion, should have the right to turn the application down. This is an attempt, so far as we are concerned, to meet the case fairly and in a straightforward manner. There is one point which we have raised on every occasion on which this subject has been before the House, that is the question of buildings and other wasting assets. Over and over again we have asked that an allowance should be made for depreciation of buildings. It is curious that though these Motions and Amendments have been moved, and the same point has been raised in regard to buildings, it has never once been answered. The Government have always found it convenient to ride off on other issues and ignore the question of buildings. I should have thought that the question of buildings was a subject which would have interested hon. Members who usually sit on the Labour Benches, because it is essentially a question which interests working men. In all the old factories you see dark, dreary, and dismal workshops. To a great extent that is due to the fact that buildings are not written off in the same way as plant and machinery are written off. If you attempt to write them off, and create a fund, that fund is taxed. That is not much encouragement to manufacturers to provide newer, better and modern buildings. There is also the question of patents, the question of mines, and a variety of other forms of what are known as wasting assets, and in all these cases full, reason able rates of depreciation should be allowed. The question is why you should tax anything more than net income, because under the present system without a doubt you are taxing something consider- ably more than net income. We are not seeking to evade any taxation. We know taxes have to be paid, but in the case of right hon. Gentlemen on the Treasury Bench it is net incomes which are taxed, and we ask for equality of sacrifice. We ask that when the Income Tax, as it now is, is 6s. in the £, the pound that you tax is really a pound, and not something considerably less. That, I think, is a reasonable demand, and I trust my hon. Friend will see his way to meet the Amendment. It is not put forward in any spirit of hostility. We consider that we have a just grievance, and that it is a matter which affects all the industries, trades, and manufactures of the country, and we hope he will regard it in that light and meet the claim which we have put forward. It is not only a claim which is made, we will say. by certain manufacturers' organisations, although, of course, they are at the back of the movement, but it has been recommended by one of the most influential and important Committees which the Government has ever appointed. I refer to the Lord Balfour of Burleigh Committee. It recommends these allowances, and the different Departmental Committees which have considered the question of trade after the War, each in their turn, have also recommended that proper allowances should be granted. I trust my hon. Friend recognises that we regard this matter as of very great importance, and I hope he will see his way to meet our claim.


I think we should treat the Treasury Bench fairly, and admit that in this matter of depreciation traders have been better treated under the last Budget and under this than under Budgets put forward on either side of the House in the old days before the Coalition. I should like, while appreciating what they have done, to ask them to go a little further on the good road they have started upon. This question of the right of the individual, or of trade combinations, to depreciation has had a year's trial, and the experience of traders is that it is practically impossible for any individual trader to get the depreciation that he considers himself justified in asking by means of a combination in his own trade. During the year many large traders have tried, and the result of their failure is that combinations of the largest bodies of traders in the country have taken the matter in hand and are interesting themselves in it in the interest not of the whole body, but of the individual. It is the company, after all, which pays the tax, and not any body of men, and it is only fair that the people who have to pay the tax should have a direct appeal to the referee. One objection to this matter being referred to the members of a trade is that a particular manufacturer may not, in very many cases does not, want to put the whole of the details of his processes and the particulars of the machinery that he has before all his competitors, still less the grounds on which he claims depreciation. Another point is that traders are not by any means always congregated in the same district. Supposing a manufacturer is alone, as is very often the case, in a large industrial district. You often find in one city one or two sole manufacturers of a particular product. There are no people in that trade in the district. They are in another part of the country. There are not the same Income Tax Commissioners. Yet these may be very large businesses. A man in a particular branch of the cotton trade in another part of the country has an equal right to depreciation of machinery as those who are congregated round Liverpool and Manchester. Or take some engineering firm which may be in the Midlands, quite away from the manufacturers in his own trade. He surely has an equal right to go before the referees as the whole group of engineers who may be situated in the district around Sheffield. It is very often the man with a special process, unlike anyone else's, who is most in need of protection, and whose special process needs special consideration in this matter. But, under the Bill as it stands, he is the one man who cannot get it.

I have spoken of the interests and rights of the manufacturers, but that is not the point of view from which I am really looking at this matter. I am not looking at it, and I do not think the trade is looking at it, purely from the point of view of the manufacturer. It is not in the interests of trade in general, and it is not in the interests of the country that special processes and special machinery, much less the general machinery of the great trades, should be subject to an unfair tax. There are a great many things in Income Tax that are unfair; we are all agreed upon that. When Income Tax law has been over hauled and codified many anomalies and grievances will be altered. We have to deal now with points of injustice in the Income Tax, not merely injustice to individuals, but injustices which are a detriment to trade and are hindering trade. The experience of the largest manufacturers, of those who are most progressive in scrapping old machinery and in putting in new machinery, and of those who initiate the newest processes, is that the Income Tax Commissioners are very difficult to deal with in regard to reasonable depreciation. At the present time it is practically impossible to get to the referees who, we believe, are a more able and more considerate type of men, and whose duty it is to take a wider view, and who, if they do not take a wider view, the House of Commons will have to take care in future that that wider view is taken in these matters. I want the Treasury Bench to look at it from this point of view, and not from the point of view that if they agree to this alternation they are going to lose a small sum of money. The amount of money is not the greatest question. The money will have to be found, but the money ought not to be found by penalising industry in this particular way at the pre sent time, when we need the Government to give every facility that it possibly can to industry. There is nothing that will be more needed after the War than that every manufacturer shall depreciate his machinery and everything that concerns his processes very fully, and that every manufacturer shall be ready, and shall be encouraged by the State, to scrap old machinery and replace it by new, and shall scrap old methods and replace them by new methods. The only thing we are asking the Government to do is to alter this Clause so as to give the manufacturer what is fair and just in the first place, and something that will be an encouragement for the manufacturer to carry on his business in the best form as soon as the War comes to a close.


I suppose I must deal with the question as it relates to the Amendment to line 10.


I do not wish to shut off a general discussion.


Do you mean on the whole series of Amendments?


I am not disposed to intervene to prevent a general discussion on the main proposals. I am not relying upon the particular form of Amendment now before the Committee.


Am I right in assuming that in the event of the Amendment on line 10 being carried or reversed that would not affect the Amendment to leave out line 16 to 19 inclusive, which is a very important Amendment and which stands apart.


Certainly. The decision on this Amendment will only dispose of Amendments which are absolutely related to it.


In regard to this particular Amendment I strongly support it, and I fear that it has not been quite appreciated that this Clause is hedging round the concession to such an extent that it will be of little value. First of all, you have to get a considerable number of persons and then when you have got them the class of trade has to be decided by the Commissioners of the Inland Revenue. Therefore, you have two gates to pass before you get to the referee. Then there is also a question about frivolous and vexatious applications. So that you have three gates to get through before you reach the Board of Referee. It has been forgotten that the words, "a considerable number of persons," are going to be very difficult. In trades there are many degrees of depreciation according to the situation of the work. This country is a great trading and venturing community, which ventures its money in enterprises in every part of the world. In some parts of the world you have a climate which is dry: where it never rains. In another part of the world you have a climate where it rains almost continuously, and in another part of the world you have tropical heat, while in another part you have almost arctic cold. In these different places the amount of depreciation varies very greatly. If you have works in the tropics the depreciation is very rapid in certain kinds of machinery and especially in the buildings connected with those works. Again, if you have works situated close to the sea the action of the sea air and the salt upon some of those works is very rapid— it very rapidly corrodes metal. You have all kinds of conditions arising, and if people are engaged in the same class of business you cannot get a fair and equal rate of depreciation for the same class of business situated in these different places.

Take the oil industry. That would come under the definition "class of trade or business." If the same rate of depreciation was to be applied in the case of an oil well in Mexico as to the case of an oil well in Peru we should be treating the Peruvian oil well very unreasonably and unfairly. The rate in one case might be something like four or five years as the average life, while in the other case it might be ten, fifteen, or twenty years. So that the rate of depreciation on the wells in these two cases would be grossly unfair if it were fixed on the basis of the Mexico figures for the case of the wells in Peru. I only give that as an example. The same argument may be applied to most industries which are scattered all over the world. When we are passing laws in this country it must be remembered that we are not dealing only with manufactures in Lancashire and Yorkshire. We are dealing with industries all over the world, but we are very apt to forget that. I hope that the Government will see their way to allow any person in any class that is dissatisfied to go before the Board of Referees, unless it be a frivolous or vexatious application, which, of course, must beshut out. Such cases, however, are not likely to be very numerous. I think you might have omitted referring to frivolous or vexatious applications, because people are not going to waste time in going before the Board of Referees on a case which they know has no substance. It ought to be in the power of any person, and not merely of a considerable number of persons to go before the Board of Referees. I hope the Treasury are prepared to meet what are the feelings of the Committee in this matter that anyone who has a good case to put forward should Be entitled to come forward and state his case. I hope I have said enough to show the Committee that no one class of case can cover all the cases within that class, because of the different situation of these works, and there is also a variation in the wear and tear even of the same kind of machinery, so that it is very difficult to lay down one rate of depreciation for any particular class of trade. Therefore I have much pleasure in supporting the Amendment.


I desire to sup port what has been said with regard to giving the power of appeal to anyone. I have myself in questions of Excess Profits Duties which go before the Commissioners very considerable difficulty in respect of particular trades. In one case in which I had to go before them they would not give their decision until they had summoned everybody known to be engaged in the trade, and asked them whether they would raise any objection to the decision which was to be given. I therefore think that it ought not to be left to the Com missioners to decide, and that the same right which you give to a trade to go before a special or an ordinary Commission ought to be given in each case. With regard to these wasting assets we have had for many years a promise in which it was admitted that great hardships arose, and that these, with other anomalies of Income Tax, were to be submitted to a committee. But though it is four or five— and I am not sure if it is not six— years since that promise was made, we are exactly where we were. If an allowance for depreciation is to be made for Excess Profits Duties there is no earthly reason for not allowing similar depreciation for ordinary Income Tax. As my right hon. Friend has said, business is not conducted in this way. I have to account for a business in Liberia where the white ant is always very busy destroying property, books of account as well as everything else

9.0 p.m.

There is another special thing which the Treasury themselves have since the passing of the Act granted by Regulation. I pressed for the Regulation, and got it. That is with regard to expiring patents. If you go before the Income Tax Commissioners and ask them to make an allowance for expiring patents they will laugh at you. But the Commissioners for Excess Profits. Duty have made an allowance in certain cases. After deducting a certain sum for goodwill the balance should be divided over the life of the patent and so much per annum deducted from the profits. Is not that fair for an ordinary business? A man may make a great deal of profit and pay Income Tax on it, and in a few years' time his patent expires and it must go, or only so much of it remains as his good will has created. But there is an instance in which the Commissioners for Excess Profits Duty themselves have admitted that it is right to have a deduction for a wasting asset in the life of a patent which is not applicable to Schedule D as Income Tax. That is an instance of a great many of the same kind. Also there are other allowances. Allowance was made the other day for new premises under the Excess Profits Duties of 57 per cent. running over three years— that is to say, 19 per cent. per annum. The Income Tax Commissioners, under Schedule D, would never think of allowing that. Yet it was only just and fair. There was no attempt to say that it was an unjust claim. They would not have allowed it if there had been. My experience of these referees and of the judgments which they have given points very clearly to this. There is a large number of instances. As my right hon. Friend will remember, the original standard of profit was 6 or 7 per cent. That has gone. He himself has seen the necessity of raising it to 9. But the referees have in a large number of cases run that up to 10, 12, 16, and even 18 per cent. on the pre-war standard— a percentage standard and allowances for additional happenings. That all points to this, that fixed Regulations, which have been put down and acted upon for many years under Schedule D, are themselves altogether obsolescent. They do not apply to modern business, and especially where that modern business is spread not only over this country, but all over the world. Take, for instance, motor lorries. I had a case before the Commissioners in which some of the motor lorries were engaged in this country and some were engaged in South Africa, where the roads are exceedingly bad. They were bound to admit that the life of a motor lorry in this country was at the best six or seven years, whereas in South Africa, with the roads there, it was not four.

Take the case of buildings. I never could understand why the Income Tax Commissioners have not allowed for depreciation on buildings. My own view, which may be a peculiar one, is that every building becomes unwholesome after it has been up for fifty or sixty years. The whole place, particularly if it is a manufacturing place, becomes so impregnated with microbes that it really becomes in sanitary; and every manufacturing building ought to be overhauled, at all events much more often than it is. If you did that, you would have much better health conditions for the workers in them. There are a great many other things in the way of wasting assets. There are leaseholds. A leasehold may have twenty years to run, and you may have paid a big premium on it. No allowance is made, and at the end of the term you will have nothing to get back for the buildings which you have put up, but probably you will have to make a payment to the land lord for dilapidations. I think the old answer for these anomalies connected with the Income Tax ought not to be repeated to-day. For five or six years we have had promises of a Commission, and even if peace were declared to-morrow I do not suppose that a Commission could be set up for a year, and possibly it could not give a decision until another twelve months after its appointment. In the meantime, this is what is going on, and all sorts of difficulties arise. There is not only obsolescence, there is not only scrapping of machinery, and other matters of that character, but there is this fact, that where you have been making provision for 5 per cent., 6 per cent. or 7 per cent. before the War to replace machinery, it is altogether another question at present in regard to subject of taxation. Five per cent. for a number of years would pro vide you with £ 100, and when the time comes for you to get that £ 100, probably you want £ 100, £ 200, £ 300 or £ 400. These are all reasons why a fair allowance should be made under Schedule D of the Income Tax. I would again point out that we ought to have an allowance for machinery consistent with the life of the machinery, consistent with the price we have to pay for machinery afterwards. Unless all that is fairly considered, there cannot be any justice done under Schedule D.

I would further point out that there has never been allowed any deduction for the cost of restoring capital. The Courts have decided that the Commissioners are not allowed to consider that, and, there fore, for a number of years we have received no allowance, the Court having held that it was capital. That, I submit, was essentially wrong. If you pay £ 5,000 to get £ 100,000, where is the £ 5,000 to come from? It is an expense. The £ 100,000, or whatever the amount may be, remains a charge upon the capital of the business, and you have got to pay it when the time comes, while the only source from which you can repay yourselves, and put the company in a proper position, is out of profits. I appeal very strongly to my right hon. Friend the Chancellor of the Exchequer that this and other matters should not be left to the views of the Commissioners, but that the man who is concerned should himself be entitled to put his case. Further than that, there ought to be an enlargement of the scope of allowances for machinery and buildings.


This is one of the discussions in the House which makes the heart of anybody shrink within him if he is connected with the trade and commerce of this country, and what has been said by the hon. Member (Mr. G. Terrell) is well worthy of attention. I have myself brought before the right hon. Gentleman suggestions for some slight reform, only a small reform, and he held up his hands with holy horror, "The whole thing would go if I did what you ask." I did not use the word "nonsense," nor could I have done so with so great an authority as the right hon. Gentleman the Chancellor of the Exchequer, but my proposal was merely a thing that would have greased the wheels of business, and would have enabled him to get on with his Bill. But nothing could produce the slightest effect upon him. These cases which have been put forward in the course of this discussion illustrate the struggles which go on between the business mind and the official mind. I remember well that the Government was asked for a grant of free alcohol in order to develop the dye industry, but that industry passed away to Germany, because this House had not the sense to allow alcohol free from any duty in order to give the same facilities to our manufacturers as manufacturers in every other civilised land enjoyed. These cases which we are now discussing are of the same kind. Any impartial man listening to this Debate, and looking at the words in the Bill, will be struck by the repeated mention of officials who apparently regard it as their business to stifle industry, and prevent the development of any great manufacture in this country. All that the Amendment asks is that a person who thinks he has a good' case should be in a position to bring it forward and have it examined. Yet this House of Commons has already been engaged for a considerable time in asking that the business man should be able to appeal on his case. Look at the words in the Bill, "Where the Commissioners-are satisfied on an application." How can you satisfy the Commissioners? I have never satisfied them, nor can any body else satisfy them. When they are satisfied "on application made to them for the purpose, that any considerable number of business men." According to these words you are to have a consider able number of business men, or else you cannot make any progress in setting up an industry of any importance in this country. How can you get a considerable number of men? What is the first difficulty 1 Trade jealousy. A man who has any business to promote, any scheme which he wants to develop, does not want to take everybody into his confidence; he does not wish to tell them his business, or everything that is running through his mind. Bather than do that, he says, "If I cannot get this thing through my self, I will drop it."

The words of this measure bristle with officials who are to be satisfied. The Commissioners have to see a "consider able number of people," whereas the fact is that there is never a considerable number of people taking part in enterprises such as those which are now engaging our attention. It is generally some one genius who is concerned in some of his own ideas which he wishes to develop him self if he can do so. Cases have been brought out here in which the circum stances are not alike. Then there is the motor wagon case, one in South Africa and the other on Tower Hill. These cases are too simple for argument, and one would think that they would not have to be mentioned to the Chancellor of the Exchequer in the House of Commons. In any two factories in this country, standing alongside of one another, or not ten miles from one another, you would find entirely different circumstances, and well worthy of consideration from these officials.

I will mention one case, and I will tell the Committee what I did in it, because they will recognise just the same spirit about this remark as about the one which I addressed to my right hon. Friend opposite on the Second Reading stage. A friend of mine is making margarine in a small way, producing 100 lbs. a week. He said, "I could double my output, but I cannot arrange with the Income Tax people about the depreciation they give me on the new machinery I am putting in." I could hardly believe the story, and I said to him, "Can you get the machinery?" He replied, "Yes; I can get the machinery. I shall have to pay double or two and a half times as much as I have had to pay, but I could double the output of margarine in a few weeks." Then I took the side of the Income Tax Commissioners, and I said," Depreciation does not matter much. You had better get on with the business and make a good thing out of it, now that it is wanted for the War." He said, "I will not— not I. I do not know when the War will be over, and they ought to meet me on it." I said, "What will they allow you?" He replied, "Something between 7½ per cent. and 15 per cent. "For this difference between 7½ per cent. and 15 per cent. this improvement is being choked and stopped. I wish the Chancellor of the Exchequer would try and work out this case. What would the country lose by this manufacturer getting 'this? I do not know what the country would lose, but I imagine that upon £ 1,000 they would lose £ 75. What would the country gain? There might be a profit of £ 3,000 or £ 4,000, on which Income Tax would be paid in that year on this little venture. It seems to me ridiculous that the development of any industry should be checked by a trivial thing of this kind. My Friend who spoke last commented on the words in the Clause, "unless it is frivolous," and so on. He said that no business man would bring forward anything that was frivolous. But the Amendment contains this very word "frivolous." It is hedged round with safeguards. The whole point we are arguing now is that the wheels of production should not be choked by these official rules. I appeal to my right hon. Friend to consider the circumstances of the moment. Old official rules, made twenty or thirty, or even ten years ago, are of no use and no help to business men who are trying to grapple with the difficulties of present-day war necessities. Prices are different to-day, and everything is different from any previous time of which we have had experience in this country. I do think that the case put forward from many parts of the House, and the example which I have quoted, must carry conviction to my right hon. Friend. What is the use of his sitting. there and listening for an hour and a half to business men on a reasonable point of this nature, instead of jumping up at once and saying, "I will accept it"? What do we meet here for? [An HON. Member: "Talk!"] Talk? Perhaps I ought to sit down myself, and I will not prolong the Debate-; but business men have a. right to express an opinion on a thing like this, which they understand and about which they know. Is my right hon. Friend aware that this matter is brought forward with the consent of that powerful organisaion, the Federation of British Industries? That alone ought to satisfy him. These men are not unreasonable, and if they cannot do anything through their own representatives in their own House of Commons, when the case is so admirably presented as it has been on two occasions, then it is a poor look out for British industry.


After listening to this discussion for the last hour, I feel like a man who has not got a single friend. All the same, I shall try and discuss the subject as temperately and as reasonably as it has been discussed by my hon. Friend who followed the hon. Member for Wiltshire. I think I cannot do better, especially having regard to the interesting and amusing speech of my right hon. Friend opposite a moment ago, than to begin by looking at the Clause which we are discussing and seeing what it is. You, Sir, I think very wisely, if I may say so, have allowed the discussion to cover somewhat wide ground, as so many of these Amendments hang together, and perhaps I may be excused if I follow the example set by other speakers and speak somewhat broadly on the subject, and without special reference to one Amendment only. We discussed this question of depreciation at length last year, and this 26th Clause is the outcome of a good deal of thought and discussion which has taken place arising from what passed then. It is very obvious to what we owe the prominence which this subject has attained in the last year or so. It is one more instance of the way in which the incidence of Income Tax is being increasingly felt wherever it operates, owing to the figure to which that tax has risen. All kinds of difficulties, and perhaps even anomalies which were tolerable under Is. Income Tax, become much more serious under the present Income Tax. We see exactly the same effect which we have seen in the Excess Profits Duty, where the Duty was carried on for a longer period than was at one time contemplated, and the rate has had to be increased through the continuance of the War, and where, in some cases, provision has had to be made to ease the incidence of that duty. There was a great deal of truth in what the hon. Member for Aberdeen said. He said that one year follows another. Nothing is done to settle the matter, and my right hon. Friend (Mr. Lough) with his enthusiasm follows along that line of country. But the fact remains that the War goes on, and while the War goes on, it is most unfortunate— as I am. the first to recognise— that it is a physical impossibility to examine this subject and the very kindred subjects in the Income Tax as they can be examined when the War ends. That is so, for the very simple reason that we cannot get together the personnel that would be required for a committee to perform these investigations, nor secure the attendance of the experts of all kinds who would be wanted to assist them. Men of the calibre who would be required for so complicated, technical, and difficult a subject are al ready engaged in work which it is impossible for them to leave, and which gives them no spare time for other purposes, however important they may be. I have felt the need of this, and so has my right hon. Friend. We have looked into it recently, to see whether even now it might not be possible to set up this Committee, and we have had, with the greatest possible reluctance, to abandon all idea of it for the present.

But until that Committee can undertake this work, it will be impossible to give full investigation to a subject which goes down to the very root of the incidence of Income Tax, and until that is done it will be impossible for us to do more than meet, as far as we can, the greatest difficulties, and try to ease the burden with out giving away important principles, and without yielding up what may be an enormous amount of revenue.

To look for a moment at this Clause, for which, except for some very friendly remarks of the hon. Baronet, we have had very little commendation so far, I think the Committee must remember that there has been a good deal of discussion about this right of appeal to referees we are proposing to give. My right hon. Friend the Member for Islington spoke as though there was not already a right of appeal. This right of appeal is a secondary right. There is already a right of appeal of the individual to the Commissioners. I quite agree as to the difficulty. Very often the individual fails to give satisfaction in appealing to the general Commissioners. But here we propose that a secondary right of appeal should lie to the referees. It seems to us— and I still hold the same view, although I listened very carefully to that which was advocated on the other side— that in giving this secondary right of appeal there is no reason for letting the individual as such, when dissatisfied with the first Court, go to the second Court. I think the second Court should be more safeguarded, and the safeguard of the second Court is given by saying that it shall not be open to any individual, which might— and I think very often would— lead to complaints of a frivolous nature— perhaps not so frivolous that they might be at once dismissed as frivolous, but complaints which certainly would not be brought in concert with several members of an industry who felt that they were not being dealt with fairly. It is an extension of the right of appeal. It is not all that my hon. Friends want, perhaps, but it is a move forward in that direction, and I must ask them to-night to be satisfied with that as far as it goes.

The second Sub-section of this Clause is, I think, a very valuable concession, because we take a practice of giving obsolescence, and we make that statutory. It is generally considered to be a mark of progress when you convert practice into a statutory form. We have done that here, and it is a very real benefit. With regard to the third Sub section, it is perfectly well known to members of this Committee that in pre paring the Income Tax assessment under Schedule D you deduct from that what you have under Schedule A, and you are not to be taxed twice over. Schedule A pays on five-sixths of the annual value of the property. Up to now that five-sixths has been allowed to be claimed against Schedule D, but we allow the extra one-sixth, which makes five-sixths into six-sixths, to be deducted in making the deduction for Schedule D, which one-sixth you can put straight away towards depreciation of your buildings. It has been calculated by my experts— and I do not pretend to make calculations of this nature, because I never was a mathematician— that this one-sixth which has been given in Sub-section (3) will, at com pound interest, write off the value of the premises in thirty years. That is a free gift, and one which, I think, is not of in considerable value. I admit, as I have admitted before, that we do not go all the way— perhaps not half the way— to meet my hon. Friends, but we have gone some of the way, and I can assure the Committee that we have given a great deal of consideration to the subject. We feel that we have gone to the utmost limit that we can go with safety until we have had an opportunity, or our successors in this place may have an opportunity, of examining this subject as it ought to be examined before permanent statutory changes are made in a matter of such vital importance.

I would like to touch on one of two smaller points referred to by my hon. Friend the Member for West Aberdeen-shire (Mr. J. M. Henderson). He spoke about leaseholds, and said how unfair it was that depreciation was not allowed. I venture to think, although no one has more respect than I have for his wide. experience in all these matters, that here he spoke without having given due consideration to the subject, as I think people are so liable to do in assuming that they are being overtaxed, and that they are being required to pay something which in equity they ought not to pay. It has always seemed to me since I looked into this matter that the question of what tax would have to be borne operates on the purchaser's mind in fixing the price, and that he knows pretty well what liabilities will fall upon him when he makes his offer. The reason people are feeling the pinch to-day is that in many cases they have made their bargains in reference to a state of things which has passed away for a generation, that is, with reference to a period of low taxation.


I did not refer to the purchase. What I meant was a house built on a lease, and when the lease expires the whole value goes.


The case is just the same. I was saying that the hard ship caused was where people had calculated prices at a rate of Income Tax which has passed away, but, after all, that is a common hardship we feel in every relation of life owing to increased taxation. It is no greater hardship on a man who has made a bargain in commercial affairs in that way than it is on a man who has been living in a certain way of life, and who finds his expenditure curtailed by increase of taxation rising to to a point which he never possibly anticipated. We shall have to adjust' ourselves to these new conditions, and, I think, industry will have to do so, too. I should like to add that there is one Amendment, that of my right hon. Friend (Sir A. Williamson), which, I think, it will be only fair to accept. It proposes to leave out of Sub section (1) the words "or relates to matters already decided by a Board of Referees." If I am not out of order, I should like to say that we cannot accept Amendments dealing with the question of depreciation.

Mr. CURRIE:I think when those concerned read to-morrow the closely reasoned statement of the Financial Secretary to the Treasury they will feel that there is not very much to be said for the Amendment with which the hon. Gentle man has just been dealing. One admits that if we were engaged in a general discussion as to what should be done permanently with reference to the question of depreciation, etc., we would agree with much that has been said. But that is not the position with which we are dealing. In his opening remarks my hon. Friend said that he felt that he was a man without Friends. I do not think that is the feeling that most of us in Committee have towards him at present. I think it may be interesting to the House, and it is right it should be known in the country, that the executive of the Associated Chambers of Commerce, who presumably know their own business and their own interests as well as any other people, take the view that the way in which the Chancellor of the Exchequer has dealt with all these questions up to this point of depreciation, and so on, is so fair and reasonable that they feel quite unable to place difficulties in his way in passing this Clause of the Budget; on the contrary, they feel grateful to him for the line of broad justice with which he has met all the contentions which were brought forward some time ago.


Before the Amendment is put I should like to say one word in regard to the question of special depreciation and also as to wasting assets, machinery, etc. The Financial Secretary's whole argument on this point was not as to the merits of the case, but on the fact that we have not got an adequate body of experts that are free to deal with the question. That argument will apply quite equally against Clause 26 as a whole. If, under the third Sub-section of the Clause, the amount of the deduction to be allowed on the account of the annual value of premises can be calculated as to the extra sixth of the annual value of buildings taxed under Schedule A, and to be given back— if that has been worked out and calculated as to exactly the period of redemption of the value of the buildings, I cannot see why rough, substantial justice should not be done now, even though the Income Tax has been raised to 6s. in the£The hon. Member for Aberdeen (Mr. Henderson) raised a point in regard to leaseholds. The answer of the Financial Secretary was that you could not deal with such hings as leaseholds and mines and put them all together. He did not think it necessary to deal with that. He gave us as a reason that it was always present in the mind of the person who purchased leasehold or a mine as to what was the effect of taxation; it was calculated in the price. He destroyed the point of that argument in his next sentence. The argument from the fact that the purchaser calculated perhaps at Is. Income Tax in 1912 in the purchase of a mine or an undertaking was vitiated, as the whole basis of the transaction was changed when the Income Tax had been doubled, and still further when it multiplied by six in the present year. The question of wasting assets is entirely separate from that of leaseholds. There is something in the contention of the hon. Gentleman who has just addressed the House when what he has said is applied not only to leaseholds, but not when it is applied to all wasting assets. I cannot see why a commercial undertaking which is dealing with one particular kind of industry, such as, for instance, mining, and the more rapidly perishing mineral deposits, such as nitrates, should be taxed in such an excessive manner, or so entirely differently to other undertakings that are engaged in commercial industry. It makes a perfectly crushing burden upon these companies. It would be a heavy burden in any case if you assume that their extraction of minerals is necessarily income, and is therefore subject to profit, or Income Tax. It is nothing of the kind. The extraction of minerals, whether you calculate it in making your purchase price of the mineral grounds on the tax of Is. in the £, or any other rate, is a mere substitution of one form of capital for another. It has nothing whatever to do with the annual income derived. I do not for one moment agree with the hon. Member for Leith Burghs, who said that when the business world to-morrow reads the very carefully reasoned apology— for it is more apology than speech!— we have just had from the Treasury Bench, that they will be satisfied that substantial justice has been done. What they will say will be that if we can deal with this question of wear and tear, why cannot we deal with the item of mining Income Tax, or, rather, Profit Tax, upon all commercial undertakings which is now based upon a rate of 6s. in the £ l, and that, therefore, what was an injustice five or six years ago, has now become an intolerable burden, and inequality between one business and another. Therefore, I say that, so far as I am concerned, I am not satisfied with the result of this Debate. I cannot see why the subject, if dealt with at all, cannot be adequately dealt with. If there are experts commissioned to deal with wear and tear, why are they not at liberty, even in this time of war, to deal with what is far more important, the question of wasting assets? The question at issue is at the very root of fairly taxing the different industries upon an equitable and equal basis. The question of obsolescence and wasting assets should be


I beg to move, in Sub-Section (1), to leave out the words

properly and adequately dealt with. I cannot see anything complicated or difficult in these Amendments which have been, moved by my hon. colleagues. I think i they merely do scanty justice, considering the amount of notice which has been given to the Treasury that this question was one exercising the business community, and particularly the manufacturing Community throughout the country. It is not a question of trying to escape taxation. It is simply the absolute obligation placed upon the Treasury of seeing something is done which is more equitable and fair under present conditions.

Question put, "That the words pro posed to be left out stand part of the Clause."

The Committee divided: Ayes, 78; Noes, 67.

"or relates to matters already decided by a board of referees."

I understand that the Government propose to accept this Amendment, and I would therefore formally move it.



Amendment agreed to.


I beg to move, in Sub-section (1), after the words "the Finance Act, 1907," to insert the, words "amended by the addition of the words whether such machinery or plant is working or, owing to causes of temporary operations, is out of work at the time."

This is really a very small matter, but at the same time it is important and, moreover, it is one which I feel certain the Chancellor of the Exchequer will be only too delighted to accept, as it will right a wrong, and that, I am sure, the right hon. Gentleman is most anxious should be done. I will not trouble the Committee by reading the whole of the words of Section 26, but I will content myself with repeating the lines to which I wish to get this addition made: The expression ' deduction for wear and tear' has the same meaning as in Section 26 of the Finance Act, 1907. It is after these words that I desire to get inserted the words I have moved. Section 26 of the Act of 1907 runs: For the purpose of enabling deductions for i wear and tear to be allowed and claims in respect of those deductions shall be included in the annual statement of the profits or gains of the concern.…and the additional Commissioners in assessing those profits and gains shall make such allowances in respect of those claims as they think just and reasonable. 10.0 p.m.

But for the purposes of assessing the Com missioners of Inland Revenue draw a distinction between machinery in use and machinery not in use. I think, however, that every member of the Committee will agree that when machinery is not in use it deteriorates very much faster than machinery which is in use, and what I have to ask the Chancellor of the Exchequer to do is to do away with this very unfair distinction and to give power to the Commissioners of Inland Revenue to say that this allowance shall be made whether the machinery is in use or not in use owing to causes of temporary operation. I will give an instance which has come to my notice recently. A friend of mine had a difference of opinion with the surveyor of taxes as to the rate of depreciation on certain plant and machinery. He appealed from the surveyor of taxes to the Commissioners, and they admitted that the plant in certain Colonies was lying idle owing to the War and was in consequence depreciating, but they said that no allowance could be made for such depreciation as the plant was not being used for the purposes for which it was intended, and, accordingly my friend was non-suited. I venture to think that that is not what the Chancellor of the Exchequer in tended. He does not intend that on such matters an unfair distinction like this should be continued, and I appeal to the right hon. Gentleman to put this wrong right to-night, and to give the Commissioners of Inland Revenue power to say that whether the machinery is being used or whether it is lying idle for some temporary purpose this concession shall be given in regard to Income Tax. It is, of course, at the present moment the fact that owing to the War machinery in all parts of the world is out of work, and it is for this reason that I propose this Amendment.


I have the same case to bring before the Committee, but I propose to do it in a rather different form, namely, by moving the new Clause which appears on the Paper in my name, and is to the effect that allowance be made for the non-user of machinery and plant. I have also an Amendment on the Paper to insert in the Sub-section which the hon and gallant Member who has just spoken also proposes to amend, the words "as amended by this Act." The points raised by my hon. and gallant Friend and myself are really the same.


As the hon. and gallant Gentleman who has just spoken has said, the points raised in these two Amendments are really the same, and I feel it would be much more convenient that the matter should be raised on the suggested new Clause. If the hon. and gallant Gentleman the Member for Devonport agrees to that, perhaps he will withdraw his Amendment and allow the matter to be dealt with on the new Clause.


I am quite willing to do that.

Amendment, by leave, withdrawn.


Is it not necessary at this point to put in my Amendment, "as amended by this Act"?


I took it that that Amendment had reference to the new Clause. It is not necessary, however, to bring in those words here. I understand that the question will remain open on the new Clause, and it will be dealt with when we reach that point.


In with drawing my Amendment I understood the new Clause would cover the point which I intended to raise.




I beg to move to leave out the word's The expression ' class of trade or business ' means a class of trade or business which may be determined to be such for the purposes of this Section by the Commissioners of Inland Revenue; and I regret that the Chancellor of the Exchequer has not seen his way to deal with the first part of this Clause, seeing that it makes it so difficult for anyone engaged in business to go to the Referees. I hope the right hon. Gentleman, however, will treat this proposition a little more generously. Surely the way the Board of Referees are hedged about by the first fifteen lines of this Clause is quite sufficient, this provision that it shall be left to the Inland Revenue Commissioners to decide what is a class of trade or business. You may, for instance, get a number of people going to them who are engaged in any class of trade or business, and it is open to the Commissioners to say, "Oh! you have already been dealt with." Take the mining industry. That is a class of trade or business which may have been dealt with. Yet the Commissioners may say, "We have had a reference to depreciation under that, and we are not going to reopen the question again." A consider able number of people say, "But this is a particular kind of mining which has no possible connection whatever with the classes with which you have dealt under the general class of mining, and we wish to be heard on it." The Commissioners say, "We have done with mining, and we will not listen to you." You go into York shire and may be dealing with the woollen trade. You ask for depreciation on some thing which is in the woollen industry and has not been dealt with. A question comes up that deals with worsted, or something that is neither woollen nor worsted, but they say it has been dealt with under the woollen industry, and decline to consider it under a sub-division of that industry. Practically everything in this Clause that is apparently given to the trader is being taken away or made extremely difficult by the manner in which the Treasury are hedging it round. I want to point out that it is not merely imaginary. You had a large number in the "No" lobby com pared with the "Aye" lobby, and it is because the manufacturers in this country during the last year have had the experience of trying to get their cases before the referees, and have either failed to get-there or to get satisfaction.

You have to-day a very strong feeling from the manufacturing interests in this country that they are not satisfied with the position in which this matter rests. I want to urge the Government to leave out these words. I think if you have in a district what is described here as a consider able number of commercial men representing a large and fair proportion of the trade of the district, and they think it worth their while to ask for a reference of an important case of depreciation to the Board of Referees, it is not in the interests of the commerce of that district that they should be ruled out because the wider category has already been heard, or that the Commissioners should be entitled to say, "You have been heard on this matter, and although you represent a very considerable interest we are going to deal with this thing as a matter that has been judged and are not going to hear it." What is the attitude of the Government? What is the advantage of leaving these words in? Do the Government suppose that in any great manufacturing district a large number of men are coming together to ask for a reference to the Referees without having any sensible case to put before them. If that is so, the Board of Referees can always dismiss it by the earlier words "that the application is frivolous or vexatious." I think it might be left to the people who understand the business, and the Commissioners of Income Tax do not understand, in the first instance, the different kinds of technicalities of the businesses with which they are dealing. They may understand them when the questions have been put before them, but initially the Commissioners of Income Tax do not understand the nice distinction of the different businesses, and why depreciation is justified in one case and not in another. There is no reason why a body of able business men desiring to save time, and without undue interference from the Commissioners of Income Tax, should be refused a hearing. If it is vexatious they can refuse it, and if it is wrong they can reject. it. I do ask the Treasury Bench, in view of the large body of opinion that ex pressed itself in the Lobby a few minutes ago, to leave out these words.


I must confess to the Committee that I am a little disappointed at the amount of pressure which is still put in regard to this question of depreciation. I should like to point out this fact to the Committee. I listened most carefully to all the discussions in the earlier stages, as I did also last year. I tried to find from those discussions anything which it was possible for the Treasury to do without giving away revenue which at this time it is not possible for us to give. As a result of that consideration I brought in three distinct improvements from the point of view of the manufacturers which are contained in the Bill as it is now brought forward, and it is not too much to say to the Committee that if we have not had additional discussion and additional Amendments in consequence of the Amendment I have made, this is certain, that we have not been saved any of the pressure which is brought on this subject. It is a very -difficult subject. The idea on the part of some Members seems to be that it is a case of officials against the trade of this country. It is nothing of the kind, and I think those who, like my hon. Friend the Member for Liverpool, who is an accountant and has himself had experience of the way in which these matters are dealt with by the Commissioners, will say that their experience is that they are really dealing with these matters fairly, and that certainly was my object in making these concessions. It must be obvious to the Committee that at a time like this, when it is absolutely necessary that the Government should obtain all the revenue that it possibly can to meet the expenses of the War, we cannot go as far in making concessions of this kind as even in some cases, on the merits of the proposition put before us, we should wish to go. It is true, on the other hand, that the higher Income Tax does make any inequality press with undue severity. All I want to say is that I have tried, and my hon. Friend besides me (Mr. Baldwin), who is a business man and understands all these problems from a business man's point of view, has tried with me to give every concession we felt we should be justified in giving in view of the demand for money. I wish the Committee to give us credit for that and to take into account that we are trying to meet them as far as we can. With all due respect to my hon. Friend (Sir E. Barran), that is due rather to the previous discussion than to the Amendment now before him. As regards this particular Amendment the reason the words were put in was that the Board of Revenue have found that one of the difficulties they have had to meet has been people saying, "There is something special in the way I do my business which brings me into a grade by myself." That they wish to avoid, but I agree with my hon. Friend, who has put the case with great moderation and which makes the case that we always try to meet, that the words in the earlier part of the Clause do seem to go far enough. I think that is so, but if my hon. Friend will leave it in this position, I will under take either to make the change on the Report stage or to give him another opportunity of bringing it up again.

Amendment, by leave, withdrawn.

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


I understand that the effect of Sub-section (3) is that in estimating the amount of annual profits or gains in respect of any mill, factory, or similar premises, the sum which is to be deducted on account of the annual value of the premises may be the full amount of the assessment of the premises for the purposes of the Income Tax, but may not exceed that sum.


My right hon. Friend has correctly explained it, but I should like to point out that before this Clause was introduced at all an allowance for repairs and maintenance was given, and this is something quite above that. It is a new concession.


What is the nature of it?


It was explained most minutely and clearly by my hon. Friend, and I hope that the Committee does not want me to go into it again. The net result is that it will mean paying off the full value in something like thirty years.


I am very sorry that the right hon. Gentleman has felt that great pressure has been brought to bear upon him in connection with these Amendments for depreciation, but we have felt very strongly that if it had been pressure brought to bear by Labour the Government would have shown a reasonable spirit, and would at once have gone out of their way to make some concession. As it happens to be brought by employers, the Government say, "Impossible," and they refuse to do anything. The result is that a Division is forced upon them in which they get a very small majority. I am glad, however, that my right hon. Friend is going to reconsider some of these questions upon the Report stage.

Question put, and agreed to.