EXCESS PROFITS DUTY (TRADING STOCKS). (Hansard, 1 May 1918)

§ Mr. CURRIE
I think most people will feel that the Chancellor of the Exchequer has acted justly, and not too quickly, in bringing to an end the possibility of these transactions escaping their fair share of Excess Profits Duty. He indicated the other night that there were difficulties in the way of any retrospective action, and so far as I know, while he might have been willing had it been practicable to reach back in somewhat the same way as was done regarding shipping, or in some other way, he does not think that is practicable. But I think a distinction can be drawn between transactions begun some time ago and finished before this date and others which were begun some time ago but have not yet quite reached the final stages. For instance, there is a well-known case in Scotland where a whisky business was bought a few years ago by a body of enterprising business men, and, according to current rumour, I believe well founded, bought up another well-known whisky business for £2,000,000, and on the ground that this was a capital transaction not a single farthing of Excess Profits Duty was paid, an injustice being brought about, very hard to bear, upon the general body of taxpayers, and not merely other Excess Profits Duty taxpayers. My belief is that a good many transactions of that class entered into some time ago were entered into on the understanding that the price representing the consideration of the transaction was to be paid by instalments as the goods were sold to the public, and if that is so it follows that many of these transactions am still in the stage of incompletion. If the Chancellor of the Exchequer could lay his finger upon any transaction in that stage he could fairly, without committing himself to the principle that retrospective legislation was justifiable, still rope these people in for their 80 per cent. of Excess Profits Duty, and if the facts are as I believe they are I think the thing could be done, because a great injustice has been 1656 worked to the general body of taxpayers by people who acted in that way, knowing perfectly well that they were practically evading the tax. The general objection to retrospective legislation is that it is unfair to tax a man in that way unless you have given him some warning. But people who have traded in that way had ample warning, because it has been a matter of current criticism for eighteen months that a good deal of public indignation was arising at the spectacle of these transactions being run through and escaping the Chancellor of the Exchequer's sieve. On that ground, also, retrospective taxation, which would otherwise be objectionable, would certainly be morally justifiable, and I do not think in the present case it would be impossible. I should like to hear what the Chancellor of the Exchequer has to say, if he is inclined to say anything at the present stage, as to transactions of that kind.

§ Mr. J. HENDERSON
I give the Chancellor of the Exchequer notice that when he brings in his Bill I am going to move to make this retrospective. I know ho has said there is a great deal of objection to retrospective legislation. If he had been in the House the other night he would have found a measure in respect of rent going back to September, notwithstanding that in the interval a great many agreements were made. The Act itself was retrospective. It was not passed until July, 1915, and it related back to 6th August of the previous year, and a man or a company had to account for profits made in a prewar year all except a couple of days of the War. The right hon. Gentleman said the money may have been distributed. So it was there. I agree that retrospective legislation is bad in normal times, but these are not normal times, and this is not a normal Act. It was retrospective from the very beginning. I only want to strengthen the right hon. Gentleman's hands, and I am quite sure the House will support him in making this retrospective. I will tell the House what I know. Some whisky people bought up six wine merchants. They all had large stocks of whisky, wine, liqueur, and all the rest of it, and they bought them all up, goodwill and everything, by that process attempting to get rid of the Excess Profits Duty. The fiction is that at the last moment of purchase what was before an element of profit, namely, all these liquors, during that operation turned into solid capital 1657 which could not be taxed. That will not do in war time, and in face of the Excess Profits Duty. I want the right hon. Gentleman to consider it and say whether such a sale could not be treated as an ordinary sale. Suppose any of these wine merchants had an accounting period on 30th June, 1913. They make a profit in July. They make a profit in August, September. October, November, December, and then at the tenth or eleventh month they say, "Now we will avoid the Excess Profits Duty by selling the whole thing as a going concern. "That is not right. They ought to be accountable for all these months of profit. What I would have done would be this, that they should account from the last accounting period, and that for the purpose of profit and loss accounts when that sale took place the stock should be valued and esteemed at the value which they realise from it on the sale to the purchaser. That is perfectly honest and perfectly simple, although there may be some difficulty, because they may have mixed the thing up. I have probably said more on the subject of excess profits than any other Back Bench Member. I have always supported the Excess Profits Duty, although I have criticised it where it was unfair in its incidence. That anyone at this stage, in the fourth year of the War, should escape by such an attempt as that I have described is very wrong. I was in the company of a large whisky merchant the other day, and he said to me, "If I sold my whisky to-day I could make millions; but I am not going to do it, even if they allowed me. I am not going to pay 80 per cent. to the Chancellor of the Exchequer." My advice to the Chancellor is to commandeer these supplies, and then whatever price you get you will get 80 per cent. of it back. These transactions which have taken place for the purpose of avoiding the Excess Profits Duty ought not to be allowed to pass. Considerations which stand in the way of making this legislation retrospective are not valid, because this Act itself is retrospective, and the Chancellor of the Exchequer made the 80 per cent. duty retrospective last year. Although it was only introduced in the summer, it was made retrospective to January.

§ Colonel GRETTON
The argument which has been addressed to the House has been based on a very limited subject, namely, the realisation of stock-in-trade and the- transfer of a class of business 1658 which at the present time consists entirely of stock accumulated because there is at the moment no reduction. This Resolution is rather obscure, but in so far as I understand it it applies to the sale of businesses of this kind. If it applies to a business which is an earning business and does not consist of stock-in-trade, but consists of potential earnings and not of stock, then the Resolution is of a very wide character. I would remind the House that if they are going to make a transaction of that kind retrospective they will disturb very vast transactions which have taken place within a recent period. It is very well known that there have been amalgamations of shipping businesses. A certain class of steamer known as the tramp steamer, which was not earning very large profits before the War, has during the period of the War become exceedingly valuable, and companies engaged in businesses of that kind have realised their steamships as going concerns and made very high profits. Is it intended to tax transactions of that kind? There are two distinct classes of transactions, the realisation of stock-in-trade which lies there for sale, and the transfer from one control to another of an earning business which does not consist of stock-in-trade but potential powers of earning revenue and dividend. The matter requires to be cleared up, and it was in the hope of getting an explanation that I rose.

§ Mr. BONAR LAW
As my hon. Friend has promised to bring this subject forward later I hope he will not mind if I do not deal with it now at any length. I came to the conclusion which I announced in this matter after a good deal of consideration and a good deal of inquiry. If I believed that all, as I believe there are some, cases where transactions took place for the express purpose of avoiding the Excess Profits Duty, I would have had no hesitation whatever in making it retrospective, but I am led to believe that there were a good many transactions of that kind which were really done in the ordinary way of business. That being so, I felt very strongly that I was right in the course I was taking. I have considered it very carefully. My hon. Friend was wrong in saying that this is on the same footing as the 80 per cent. duty last year, which he says was made retrospective. I was very careful not to make it retrospective in any sense. We gave notice in January that we intended to raise the Excess. 1659 Profits Duty, and we only made it retrospective to the extent of that indication of what we intended to do. However, this matter will be brought forward at a later stage and can be considered then. I have listened carefully to what my hon. Friend and others have said, and I hope the House will be satisfied to let us have the Resolution now.

§ Mr. CURRIE
If the Resolution is passed as it stands, will it be possible on the Committee stage to say anything at all as to imposing a further charge by making this retrospective, or does this finish the matter completely?

§ Mr. DEPUTY-SPEAKER
I do not think it would be impossible to say anything, but it would be impossible to do much unless the Committee persuaded the Government to bring in a further Resolution in Ways and Means. It is always open to do that. If the proposal is to impose fresh taxation, neither to-night on the Report stage nor on the Committee stage can that be done. Any proposal for additional taxation must originate in Committee of Ways and Means.

§ Mr. BONAR LAW
I think I am right in saying that the House will be in the same position on the Committee stage as it is to-night in connection with the Resolution.

§ Mr. CURRIE
Will the right hon. Gentleman say something about incomplete transactions? There are transactions still hanging over for settlement.

§ Mr. BONAR LAW
I would rather not say anything about that, because it is rather difficult to say when a transaction is complete. My hon. Friend has had a lot of business experience, and so have I. I have always regarded a transaction as complete when the contract is signed.

§ Mr. CURRIE
The settlement is not complete.

§ Mr. BONAR LAW
That is a subject on which I would rather not say anything at this stage.

§ Mr. HENDERSON
Supposing for months since the date of the last accounting period they had been earning profit in this ordinary daily business, are they to escape from that?

§ Mr. BONAR LAW
I would rather leave that point now.