HC Deb 01 May 1918 vol 105 cc1603-29

14. "That—

  1. (a) Income Tax shall be charged for the year beginning the sixth day of April, nineteen hundred and eighteen, at the rate of six shillings in the pound, and the same additional Income Tax on the income from certain securities shall be charged for that year as was charged for the year beginning the sixth day of April, nineteen hundred and seventeen;
  2. (b) the like provisions shall have effect with respect to the Income Tax so charged (including the said additional Income Tax) and the annual value of property has had effect with respect to the Income Tax charged for the year beginning the sixth day of April, nineteen hundred and seventeen, and the value of property during that year; and
  3. (c) it is declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of The Provisional Collection of Taxes Act, 1913."

Resolution read a second time.


I beg to move, at the end of paragraph (b), to insert the words: Provided that such proper deductions for wear and tear, depreciation and obsolescence of all assets, buildings, machinery, and plant employed in trade or business shall be allowed to such amount as appears to the Commissioners of Inland Revenue to be the amount which would be deducted by a prudent owner desirous of maintaining his trade or business in a state of efficiency.


I think it would be far preferable if the hon. Member would move his Amendment in Committee, for he would then get a better opportunity; and one Amendment will not be sufficient at this stage. It may turn out that when we reach the Committee stage what the hon. Member wants to do might be best met by a new Clause rather than by an Amendment. It would be open to the hon. Member on this Resolution to bring forward anything he wishes to say on his Amendment, but he would leave the House much freer to discuss other questions if he would postpone moving his Amendment now.


I very much desire, Mr. Speaker, to fall in with the view which you have just expressed, but my Amendment simply deals with a matter of principle. When we come to the Committee stage of the Finance Bill it may be necessary to amend the Bill in several details, and it may be necessary to consider some way back how far other Acts which deal with the Income Tax and which are on the Statute Book have to be modified so as bring them into line with this Amendment. Therefore, Mr. Speaker, with all deference and respect to your suggestion, I should much prefer to have this opportunity of submitting to the House the principle which is involved in my Amendment, in order to ascertain whether the Government will accept it or not, and then it will stand to be incorporated suitably in the Finance Bill when it comes before the House.


Of course, I cannot prevent the hon. Member from moving his Amendment if he persists, but I may point out that the moving of this Amendment will confine the discussion to this particular Amendment, and the Debate will be very much limited.


That may be so, as far as my Amendment goes, but I should like to explain to the House that this is to some extent the same Amendment which was moved in Committee on the Finance Bill of last year. It has been modified and made simple in order to meet various criticisms which were made by the Treasury, and what we now ask is the settlement of a question which has been in the minds of all manufacturers for a great number of years. As the law stands at present, it is in the uncontrolled power of the Commissioners of Inland Revenue to fix such a figure for depreciation as in their discretion they consider right. There is nothing whatever to control them or to indicate how they are to exercise that discretion. We ask that they should be guided in the exercise of their discretion by what a prudent owner would consider a just allowance for depreciation. It is easy to ascertain what a prudent owner considers just.


On a point of Order. Might I appeal to my hon. Friend? I am supporting him, but one can see, as you, Sir, have said, that this Amendment will prevent discussion of other elements of the Income Tax. There are a great number of Members who are anxious to discuss various questions, and they would be debarred from doing so by this Amendment. I would ask my hon. Friend to withdraw, and at the proper time I shall be prepared to support him.


Might I ask whether it is in conformity with the usual procedure on these Resolutions for a general discussion to take place on the Resolution and for Amendments to be moved at a later stage?


That is the reverse of the order. Amendments are taken first. The hon. Member by bringing in this Amendment now, as I have pointed out, limits the discussion, and, as he in his first sentence showed, the proper place to deal with the matter is in Committee, because he said that it was in Committee that he had raised the question last year.


When this Amendment is disposed of, will it not then be possible to have a general discussion?




I had arranged to hand this Amendment in when the Budget Resolutions were before the House on the first day, but I was asked not to do it at that stage, because it would limit the general discussion. I, therefore, purposely postponed the Amendment and put it down on the Order Paper in the form in which it appears to-day so as to give hon. Members who wished to discuss the general question a full opportunity of doing so. It is a little unreasonable now, considering that this is not the Amendment of an individual Member but is one which is supported by a very large number of members, if the opportunity is to be denied me of presenting it. I, therefore, much regret that I cannot accede to the request which my hon. Friend has made to me. As the Income Tax law is at present administered, the Treasury or the Commissioners have the fullest and most complete uncontrolled discretion to award any sum which they like for depreciation. That has been the practice for the past forty years, and the result is that they have never allowed sufficient depreciation. They have never allowed depreciation on buildings, on patents, on goodwill, and on other assets which obviously, if the business is to be conducted in a prudent manner, should from year to year be depreciated. It is not the desire of any manufacturers to attempt to evade any just contribution to taxation. We do not quarrel with the rates of the Income Tax, or, for the matter of that, with the rates of the Excess Profits Tax, but we claim that when you tax income the income should be net, and should not be something more than income. The tax at present, to the extent that it is levied on a sum in excess of income, is a tax on capital. That is most unfair, and what we demand is that there should be equality of sacrifice for all payers of Income Tax. It is common knowledge, and it has been ruled over and over again, that these allowances are wholly insufficient. I should like to refer to the Report of the Committee of Lord Balfour of Burleigh, which was issued only a few days ago. There is in that Report a special reference to this question of depreciation, and I should just like to quote to the House the different findings of the Committee, which I think are important. The Committee refers to reports of various Departmental Committees which have reported on this very question, and, first of all, they say: The Textile Trades Committee recommend that in making allowances the Commissioners should take into account the circumstances of each industry and should sanction larger allowances. The Shipping and Shipbuilding Industries Committee, in their report on shipbuilding, state: The usual rates now allowed for depreciation vary from 5 to 7½per cent., and in rare cases to 10 per cent. on the decrease in value of machinery and plant, while the experience of the most successful firms show that it is often necessary to put aside a sum up to 100 per cent. in excess of that allowance. In other words, successful firms allow double the amount which is allowed by the Income Tax Commissioners. The Iron. and Steel Trades Committee say: Manufacturers were unanimously of opinion that the allowances now made for depreciation are quite inadequate under modern conditions of working, and they urge that the allowances should be heavily increased and should be calculated upon the efficient working life of plant and machinery. Then there is the Engineering Trades Committee. It is rather a heavy and important Committee; and it considered this subject at great length: The Engineering Trades Committee also agree that the usual rates of from 5 to 7½per cent. are far too low to be attributed to depreciation in these progressive days. The Engineering Committee consider that up to 10 per cent. for day use and 15 per cent. for day and night use should be allowed, and that a reasonable depreciation on workshop buildings should also be allowed. The Committee then goes on to point out: No depreciation, however, is allowed in respect of buildings, except the statutory allowance of one-sixth on the rack rent value to cover maintenance and repairs. The Report goes on: The Departmental Committee on Income Tax of 1905 recommended that the law should be amended in order to enable allowances to be made in the case of owner occupiers of trade premises, but their recommendation does not appear to have been carried into effect. The final reference to this question is contained in Article 349, in which the Committee specifically recommends as follows: We are of opinion that depreciation should be allowed for income Tax purposes on an adequate scale according to the circumstances of each Case, and we recommend that immediate steps should be taken for this purpose by the Treasury. The Government have had this Report for five months, and the outcome of it is that they have within the last few days issued a new White Paper in regard to the matter, but they still stick to the old phrase of forty years ago that "depreciation is to be limited to the amount which the Commissioners in their discretion think just and reasonable." That does not meet the case at all. It is not nearly enough, as can be seen by reference to the Report which I have read. The Government or the Treasury in this White Paper refer to the rates fixed by agreement in certain trades, and they say: These allowances are accepted by the taxpayers and generally adopted. The taxpayers were practically forced to accept these rates. It was a matter of Hobson's choice. Certain rates had been allowed by the Commissioners in the exercise of their discretion. Those rates were submitted to certain trades, and possibly some slight concession in some direction or another was made, but they were forced to accept them. I wish to state most definitely that these rates are wholly insufficient, and in no sense meet what all manufacturers and all traders consider a very grave grievance indeed. Of course, depreciation was not a matter of very great concern in the days when the Income Tax was only 1s. in the £l, but now, when you have an Income Tax of 6s., and when on top of that you have an Excess Profits Tax, and for a favoured few a Super-tax, these allowances become a matter of very grave concern, and I trust that my right hon. Friend opposite will see his way to meet the Amendment which is on the Paper in a reasonable spirit. When the subject was before the House, my hon. Friend the Financial Secretary rather scoffed at the term "a prudent owner." He thought that it was a term which would open the door to evasion, a door through which all the Excess Profits, as he put it, might escape. The term "a prudent owner" is easily understandable. It is not difficult to determine in any trade what is or what is not prudent. All that you have to do—the Treasury have the means at their disposal—is to look up the back balance-sheets of the firms and see what the Income Tax Commissioners have allowed, and what on top of that the firms have themselves allowed for depreciation. They can take as a fairly satisfactory guide that what the people who are engaged in the business are allowing is a prudent allowance, and if they met us in that spirit it would be a matter of great satisfaction to the whole of the industrial classes in the country.

One word on the question of buildings. The Amendment proposes to extend the scope to which depreciation is allowed. Hitherto no allowance has been made upon workshop buildings. I should have thought that this was a matter which interested the Labour party, in view of the miserable, dreary factory buildings one sees all over the country in all the old works. The secret of that is that the Treasury have refused to allow any depreciation whatever upon workshop buildings. If an owner sets up a fund, that fund is taxed, and all that the owner can get is one-sixth of the annual rack rent value of the property for repairs. That, as everyone knows, particularly those who have to deal with some of the older works, is a wholly insufficient allowance. You cannot lay down any hard and fast scale, because it stands to reason that in some trade the buildings will last a great number of years, while in other trades the buildings depreciate very rapidly. It is a matter in which the Commissioners should be guided in each case by what a prudent owner thinks necessary and desirable. I urge the matter upon the House, and beg the Government to give it their consideration. In conclusion, let me say that we look upon this as a very urgent and pressing matter. I have been asked to press this Amendment to-day. I was hoping that, after the discussion we had last year on the subject, some proposal would come from the Government, particularly after the findings of Lord Balfour of Burleigh's Committee. The Government have had that Committee's Report in their hands for five months, and, if they had intended to do anything, they would have done it before now. They must have known that this subject was very much in the minds of manufacturers from one end of the country to the other. I trust that the Chancellor of the Exchequer will see his way to accept this Amendment, or will hold out some hope that a wide and generous scale of depreciation will be framed and brought into operation before we get to the Finance Bill. I hope he will meet us in that way, but I must say that the inaction of the Government up to the present has been a matter of very great disappointment.


I beg to second the Amendment.

As my hon. Friend who moved it has said, Lord Balfour of Burleigh's Committee has tabled a Report which has been in the hands of the Government for a number of months. Within recent days we have had issued to us, without, so far as I know, any request for it from Members of the House, a White Paper which is headed on the outside: Statement respecting allowances for wear and tear, obsolescence of plant and machinery. I do not know whether we are to take this as an answer to the recommendations of Lord Balfour of Burleigh's Committee. If it is the answer, and is all the Treasury have to submit to the House by way of answer to the very solid and serious observations made by that Committee, it is a very unsatisfactory answer. I find fault with the present condition of things, first of all, because of the inadequacy of the present allowances, and also because of their inequality. The hon. Member for Chippenham (Mr. G. Terrell) spoke at some length of the inadequacy. I should think there is no doubt in the mind of any business man in this House that the inadequacy pervades almost all branches of trades. It goes further than trade, because it goes to the property — that is to say, the buildings which are associated with enterprises. Looking at the question of the inequality of these allowances for a moment, if hon. Members have the White Paper before them they will see that, in connection with electric light undertakings, the allowance made by the Treasury is 5 per cent. on the written down value of plant and machinery. In the case of flour-milling machinery an allowance is made of 7½ per cent., and in the case of meters, cookers, and gas fires connected with gas undertakings the allowance is 10 per cent. I do not know how this inequality of treatment can be justified. The fact that an electric plant, which is high-running plant, and which everybody knows wears out quickly, should only have an allowance of 5 per cent., and that not on prime cost, but on the written down value, whereas 10 per cent. is allowed on a gas fire, seems to be unjustifiable. If that is all the answer the Treasury have to give in defence of the inequality, it is a very poor defence indeed.

With regard to the representatives of the trades who are supposed to have assented to these deductions, the hon. Member for Chippenham very properly said that when the taxpayer appears and argues that a larger allowance by way of depreciation should be made, he is told, ''Oh, so much is all we allow." There is no answer except an appeal, which very few people are willing to undertake. I know of no representatives of industries generally who have met as an association with the Treasury to settle these matters. It may be that in the case of shipowners there has been such a representative meeting. I do not know. At any rate, there are many trades, some of them in this list, which I can assert have not been consulted as trades, although individual traders may have been dealt with individually. I am quite sure that if it were put to these traders, instead of their assenting to the statement that they accept these allowances, the answer made to the Government would be that they were dissatisfied with the allowances and that they were very inadequate. I spoke just now of the differences. The engineering trades tell us, through Lord Balfour of Burleigh's Committee, that they consider the allowances should be 10 per cent. for day-running machinery, and 15 per cent. for day and night-running machinery. Manufacturers of iron and steel also tell us that they find the allowance for depreciation quite inadequate under modern conditions. Everyone knows that modern conditions demand faster running machinery than the conditions in times past. I have been sitting on a Committee connected with electric power. So far as I can see from the evidence put before that Committee, we in this country are on the eve of a very great change in connection with the driving power of our machinery. It is quite likely that in a few years' time a great deal of the machinery of the country will be driven by electric power. That means that the machinery of the country will go faster. There will be a speeding up, and with that speeding up there will be greater wear and tear, and the life of the machinery will be shortened. Therefore, this subject is more and more pressing, and requires the attention of the Government more and more urgently. The fact that the machinery is driven more rapidly brings about a more rapid obsolescence of the machinery.

One thing which Lord Balfour of Burleigh's Committee had put very strongly before them was the need for scrapping inefficient plant. It was held that one of the reasons why this country was apt to get behindhand in the competition with Germany, and especially with the United States, was that we were content to go on too long with machinery that was not the best. The policy of the Government, as shown in this White Paper, discourages manufacturers from scrapping plant. That is a great disadvantage to the country. The policy of the Government, in my judgment, ought to be such as to make adequate allowance for depreciation and obsolescence, and thereby to encourage manufacturers — so far as the tax-gatherer can encourage manufacturers — to replace old machinery by more efficient machinery. With regard to buildings and other assets, it seems as if the Government had not realised that there were certain buildings which are put up only for the purpose of a trade or industry. For example, in the building of a flour mill, the silos that hold the wheat are put up only for that one purpose. They have very little value for any other purpose. Consequently, the depreciation of the buildings and of the silos is practically the same thing as the depreciation of the plant, but under the present condition of the law no allowance whatever is given for depreciation of the buildings.

The same thing applies to enterprises. We must not forget that we are taxing enterprises in foreign countries as well as at home. Take the case of oil fields in a foreign country, where a number of galvanised and wooden buildings are run up to house the people engaged in the field and to provide offices, warehouses, stores and so forth. Surely those buildings have no value at all except as machinery for the running of the enterprise? Most of our business people hold that a good deal of depreciation should be allowed on those buildings, just as it is allowed on the rest of the enterprise. The higher the tax, the more urgent this matter becomes. A 6s. Income Tax is very different from a 1s. Income Tax. Therefore, those of us who have from year to year asked the Government to give more attention to this matter can do so with all the more emphasis now, when the tax is so exceedingly heavy. I would warn the Government that unless enterprises which are situated in foreign countries meet with sympathetic treatment there is great danger that those enterprises will be formed into foreign companies, and not into British companies. In the case of milling enterprises, of cement industries and of oil enterprises abroad which I know, it will be quite possible for all three of them to be formed into foreign companies instead of British companies. At the present time they are British companies, but if they are not to be treated with some consideration in the matter of depreciation, more consideration than they have yet had, and if the rate of Income Tax is 6s. in the £, and may possibly some day be more, those enterprises will be bound, in order to face competition which they have to meet locally, to remove their headquarters to foreign countries, which would be a great disadvantage to this country. The policy with regard to oil and wasting securities of that sort is a very disastrous policy, because no allowance is made for the exhaustion of the properties. When the oil is taken from the oil-fields, when the nitrate is taken from the nitrate-fields, when the clay is taken from the deposits where it is got for cement manufacture, no allowance is made for wasting securities, and that is a matter of the most urgent importance, and deserves, and I hope will receive, the sympathetic attention of the Government, particularly having in view, as they ought to have, foreign enterprises, in which the citizens of this country are so largely engaged. It is a very curious fact that a certain depreciation is allowed in connection with an oil well. The well is sunk. It costs so much to sink it. Casing has to be done, which is costly, and by the time it is built it may have cost anything from £8,000 to £15,000. When you have drilled it to a depth of perhaps 3,000 feet or more, you may find no oil at all. Consequently your twelve or sixteen months of labour has gone, much of your casing cannot be withdrawn and is lost, and you are allowed by the Treasury 10 per cent. depreciation. The whole thing is valueless. It is all gone when there is no oil. The proper course in such a case, if the whole thing is written off at a loss, would be to allow it as a whole loss, but that is not what is done. They assume that the well still exists, and they go on allowing depreciation for ten or fifteen years. That is only an instance where the thing is done. But a far more important thing is the wasting assets and the allowance for the extraction of raw material on such enterprises as oil-fields. I hope the Chancellor of the Exchequer, whom I am sure has heard this subject urged before him ad nauseam, will now take that practical step, seeing that Lord Balfour of Burleigh's Committee has given it such very strong backing, and allow some more reasonable allowance for depreciation and also an allowance for wasting securities.


I have heard of this subject before, as the hon. Baronet has reminded the House. The same Amendment in effect was brought before the House last year, and as my hon. Friend (Mr. Terrell) means to get it ventilated as much as possible and have it introduced at all subsequent stages, I am certain we shall hear it in Committee later on, and I would therefore ask the House to excuse me if I do not go very deeply into it now, and I rather hope the discussion will take place more in detail on the Committee stage. But there are one or two general remarks which I must make now. First of all I have found, as every Chancellor of the Exchequer during the War has found, that taking the country as a whole the readiness with which all classes have borne taxation is very remarkable and very creditable, and a proof of that is that we have borne it to an extent far in excess of any other belligerent country, and in a way entirely different from our chief enemy. But every Chancellor of the Exchequer finds that each particular class of person, while he is personally willing to pay what he thinks fair, is always strongly inclined to think that the burden being placed upon him is inequitable as compared with that which has fallen on other people. I receive ever so many deputations. They are all quite sincere, and they are all satisfied that the particular industry, whatever it is, is paying more than its fair share. We have had an example of that to-day. First of all, we have the Sugar Tax. If anyone had come to the House and looked at those who were sitting here at that time and then come and looked at the House at this moment, it would see an entirely new generation occupying the benches. [HON. MEMBERS: "No!"] Largely, I am sure. The result is that the Chancellor of the Exchequer is faced on every particular tax by a section of the House which thinks it is not quite fair, and would like to see it altered. In these circumstances he has to rely, and can always successfully rely, on the sense of the House as a whole to check any tendency towards individual desire in regard to one particular trade or industry.

In regard to this I recognise quite as strongly as hon. Members who have spoken that the fact that the tax is so high makes it essentially necessary that it should be fair and just in its incidence, but I really do not think those who are pressing for this Amendment quite realise what the position is. The Treasury has no power to grant this relief. It is done by the Commissioners of Taxes, who are independent of the Treasury. We cannot give them orders. It is quite true that, to a large extent, they take advice from the Treasury, but in particular districts there are people who might, and sometimes do, take a view entirely different from the Treasury, and, if so, we have no redress. We simply have to accept their view. As an example of that, the hon. Baronet (Sir A. Williamson) has talked about unfairness in regard to oil machinery. I am told by an hon. Member of the House that that grievance arose in connection with the business in which he was interested. He made an appeal to the Commissioners of Taxes, and got at once the very thing that the hon. Baronet is asking for. That is an illustration that they have now the right to go to the Commissioners and make sure that fair depreciation is allowed. There is another point which I think is not realised. The hon. Baronet dwelt on the great necessity of getting rid of obsolete machinery and replacing it by new. He said that is the one thing the Government ought to encourage. I pointed out last year — it is rather strange that the arguments should be used again — that the custom now is that if any manufacturer desires to scrap particular machinery the Commissioners of Inland Revenue give him credit for the whole of it.




It is so.


I know a case exactly the reverse.


It is stated in the White Paper, and my advisers tell me it is invariably so. If it not so there is a right to appeal to the Commissioners of Taxes. The custom is in these cases to give them credit for the full value, less the scrap value, of the old machinery. Nothing could be fairer than that, and that, I am told, is the custom. In what fairer way can you arrive at a fair basis in a case of this kind. The hon. Member (Mr. Terrell) spoke almost with emotion of the fact that forty years ago cases used to be decided by the Commissioners of Taxes in the way they thought fair and just. The Amendment is that it is to be decided by the trade which is interested in the way that trade thinks fair and just. If it is to be decided between two sets of people — the Government on the one hand and the trade on the other—I do not know which I prefer. I think there is an interest in both cases, but I cannot think of any better method than that which exists now: to have a right of appeal to the Commissioners of Taxes, who are independent.


I would like to refer the right hon. Gentleman to the Amendment. It is that depreciation is to be allowed to such an amount as appears to the Commissioners to be the amount which would be deducted by a prudent owner.

7.0 P.M.


I thought my hon. Friend would understand, but I will explain why I think it amounts to the same thing. If you have to decide between the trade and the Government, I know no fairer way than to leave it to the Commissioners, with the full power which they possess now. That method is in effect what I have stated, and that is proved precisely by my hon. Friend's own illustration. He says "as a prudent owner would think right." What in the world does that mean? How can anyone, judge cases of that kind? My hon. Friend says it is quite simple. Turn up their books and find what the firm has allowed in the past, and that is fair and prudent. He has been in business, and so have I. He knows the difference. He knows that if you have a limited liability company with directors who want to make a good show and give big dividends, their prudence will probably not go beyond what the Commissioners of Taxes would allow. On the other hand, if you have a business owned entirely by a man and his son, they will very likely write off an amount which to anyone in the other category would seem altogether absurd. Here is an illustration which shows where we should be landed. I have been told that the Bank of England, acting as a prudent owner, has written down the value of the ground on which the bank buildings stand to £5. There are many cases of that kind. That is the prudent owner. The real effect of the Amendment, if it were possible to work it upon the lines my hon. Friend suggests, would be that the depreciation would wipe off a large part of the income, and in reality it is giving an instruction which would lead to absolute chaos if there were an attempt to work upon it, and I think would be altogether impracticable from every point of view. If it is raised again I suppose I must argue it, but I hope it will be delayed till Committee. The Government really does not want to be unfair to that or any other trade. We realise quite as strongly as the federation for which my hon. Friend speaks that it is all very well to get taxation in big amounts like £300,000,000 from the Excess Profits Duty. There are some people from whom you can take it, but in the long run if the result of that is to cripple the industry of the country for a long time after the War, the very people who tell us we should not dream of putting a tax on anything that is bought by the poorer classes will be the first to realise that we should be injuring the working class more than any other class. Unless there is some strong case of injustice — I have seen a great many deputations, and I do not think there is — this is not the time when we should alter the system on which Income Tax has been collected, for I do not know how long, against the Treasury, which needs the money. There is another thing I would tell my hon. Friend. Last year a very great effort was made to bring about a change in regard to the Excess Profits Duty. There is a very strong feeling outside the House, and I think it is pretty strong in some quarters inside the House, that the Government, now that it has greater need of money, ought to have taken a larger share of the excess profits. We have not done it for the very reason I have given, that I thought we had gone as far as wisdom entitled us to go. I think so, but many people do not.


You know.


I am very much obliged to my hon. Friend, and I hope he will give me credit for knowing about this subject also. I do impress upon the House that, whether it was wise or unwise, we have left that tax at its present level, and I think those who are interested should take that into account when they are pressing for changes in regard to a matter of this kind. The class which my hon. Friend represents is a class in which I have spent a large part of my life. I know them very well. They are neither better nor worse than other people, but I do think that that class ought, if possible, to set the highest example they can. The Chancellor of the Exchequer is in a much better position when standing firm in regard to indirect taxation which he thinks just when other classes who are suffering as they do are prepared, without making too much fuss, to pay the burden which falls upon them.


The right hon. Gentleman, in the latter part of his speech, seems to me to have gone a long way to advocate the necessity of the Amendment which we recommend. He has pointed out that the Excess Profits Duty in itself is a very considerable burden on industry, and might even become a danger to industry. I believe it is that conviction which very largely prevents him from proposing to increase it. My right hon. Friend also said that he saw no reason to alter the basis on which Income Tax had been collected for a great number of years. He seems to forget the fact that when the Income Tax was at 9d. in the £ it was not a very important affair for industry, and there was not the same injustice.


I did not say that this tax was unjust. The argument I used was a reason against altering the basis of the tax, unless there was some great injustice.


The point is that the incidence of the Income Tax has been greatly increased in its effect upon industry by the amount having been raised from 9d. or 1s. in the £ to 6s. in the £. My right hon. Friend spoke quite accurately of the cheerfulness with which individuals have supported increased taxation. I think everybody will agree that, on the whole, the country has borne its burden in a most meritorious manner; but the burden of Income Tax upon industry must be looked at in a different light from the burden of Income Tax upon individuals. When we are considering the burden upon individuals it is a question of hardship to those individuals only, but when we are considering the burden by industry we have to consider the effect it will have on the safety and the future development of those industries as a whole, and I cannot help thinking that now that industry has to bear Excess Profits Duty and in addition Income Tax amounting to nearly one-third of the balance, that really that which is proposed to be dealt with by this Amendment ought to be seriously considered without loss of time. Last year the Financial Secretary said that this might be dealt with when the whole of the Income Tax law was revised. We are a very long way off having time to revise the Income Tax law. We have been talking of that for years, and there is no likelihood of that being done in the near future. It is for that reason and for the sake of industry and the development of industry in this country that this question ought to be dealt with, although, as the Chancellor of the Exchequer says, we cannot afford to give away any money from the Exchequer. It is very important to the industry of the country in the future that something should be done, because we cannot afford to wait much longer before this is put on a better and a firm basis. Nobody in industry will or does object to paying fair taxation which is due from industry, whether it be in Excess Profits Duty or in Income Tax, but what everybody feels is unsafe is that this tax should be on a false basis and that the tax should not be justly and fairly fixed. I agree with my hon. Friend opposite who dealt very much on the necessity of providing for depreciation and obsolescence. So long as the estimation for depreciation and especially for obsolescence is devised fairly and justly industry can safely look forward to the future. On the other hand, anything like uncertainty, with the rate of taxation as high as it is now, is fraught with danger to industry as a whole.


The Mover and Seconder of the Amendment referred to the recommendation of Lord Balfour of Burleigh's Committee. They omitted to give the final recommendation, which was to the effect that the whole matter of the incidence of taxation should be inquired into at the earliest possible date. Although I am in favour of the Amendment in part, I could not vote for it as it stands on the Paper. I do not see why you should give a preference to obsolescence in machinery and not to wastage in connection with mines and other things. The Chancellor of the Exchequer has the recommendations of the Balfour of Burleigh Committee before him, and we know that the Government have already undertaken to set up an inquiry after the War into Income Tax. The recommendations of the Committee go further and urge that the inquiry should be instituted at the earliest possible date. We all recognise the necessity of that inquiry and the necessity of considering the incidence of Income Tax, especially at its present high level. I would ask my right hon. Friend whether he could not find some way of dealing with this matter now, instead of waiting until after the War before setting up the inquiry? It is of the utmost importance, and, though I am fully aware of the heavy tax that is made upon Treasury officials, I can conceive no matter of greater urgency than this. The recommendations urge it as a means of enabling "the State to raise by means of Income Tax at least as much revenue as at present with less individual hardship and less damage to productive industry." Therefore, if the Chancellor of the Exchequer could find means of getting up the inquiry without waiting, it would satisfy the public and especially the industrial classes. I am aware of the difficulty, and I think the whole House is aware of it, but as this is such a great matter of urgency and of vital importance I do think the inquiry should not be longer delayed.


The last speaker referred to the promise that has been made year after year of a Committee of Inquiry into the Income Tax. I do not see any reason why that Committee should not be appointed at once. We have a great many Committees, and there are plenty of Members who would be quite willing to go into this very serious question which presses so much upon the people of the country. Take the case of wasting assets which has been a standing case for many years in this House. That has been recognised in other countries. New Zealand recognises it. In the case of a mining property in this country the tax is based upon the full amount of the profits of the company, but in New Zealand it is only on one-half. It is recognised there that a mine has only twenty-five years of life. In South Africa mining property and other property of a wasting nature have allowances made to them, and if the right hon. Gentleman will look at the last Act where they have Excess Profits Duty in South Africa he will find that that is so. I see no earthly reason why a similar thing should not be done here. It is a very great hardship in this country in the case of a mining property which deals with a wasting commodity, which will disappear at the end of a certain number of years, that you levy your tax upon the present basis. As regards depreciation, I have in my profession constantly met with the greatest difficulty. There is a different practice in almost every surveyor's office. The Chancellor of the Exchequer said that when machinery was scrapped the whole value of that machinery was allowed. All I can say is that that does not coincide with my experience. I had a case in Liverpool in regard to some new invention which would enable people to make an article at half the cost. About £17,000 worth of material was scrapped in one year, and not one penny piece was allowed except the 10 per cent. Why there should be no allowance for depreciation of buildings I do not know. Buildings break down or tumble down like anything else, and why we should have to struggle to get 7½, 10, 15 or 20 per cent. I cannot understand. Sometimes you can get 20 per cent. on a motor lorry. Twenty per cent. on a motor lorry is not enough. No motor lorry which is doing heavy work can last five years. A motor car for pleasure may last five or ten years, but a motor lorry will not last so long. Then there is the business about allowing certain repairs, which is really very difficult. My right hon. Friend takes refuge behind the Commissioners, and they take refuge behind the Treasury. Why they should not have some fixed principle upon which to go, so that one could know what allowance you are going to get, I cannot understand. It would save a tremendous lot of trouble and a tremendous lot of appeals to the Commissioners.

We need some definite lines of allowance. Take the 7½ per cent. which is sometimes allowed on machinery. In the prewar days that was all right. But now, supposing you have a machine, say, a turbine, which cost £1,000 before the War, and you were writing off 7½ per cent., that is of no use now, because, when you replace that turbine, two or three years hence, it will cost you £3,000. The cost of everything has gone up so enormously that the old percentages are absolutely useless. That is an element which ought to be taken into consideration. But my right hon. Friend says it lies with the Commissioners. The Commissioners' fiat is final, and I do not think there is any appeal to the Court on a question of depreciation; it is left to their discretion. I cannot see why the Commissioners should not lay their heads together and classify these things — there is no difficulty in classifying machinery — so as to enable a proper deduction to be made. You have this anomaly that whereas the Income Tax Commissioners are only allowing 7½ per cent., they are allowing 12 per cent. for excess profits, while for munitions which are doing work they are allowing 20 per cent. There is all that difference, and there is no homogeneity whatever about the deduction allowed for depreciation.

I would urge my right hon. Friend to appoint a Committee at once to deal with the various difficulties which press under the Income Tax, the ramifications of which and the hardships of which are very great. I should like to mention one other point. When his predecessor was Chancellor he promised that the return of Income Tax from trades should be expedited. I admit it has been expedited to a very considerable extent, but the right hon. Gentleman must be aware that the number and variety of the claims under the various gradings is extremely difficult, and the number of people who are mulcted and who never get any advantage under this is enormous. Let me give him a simple example. You get a big trust estate — it may not be very large, but, say, a trust estate of about £50,000. There are ten beneficiaries, each one of whom has only an income of £200. They are all entitled to reclaim. These investments may be in a long schedule of some forty or fifty—


On a point of Order. Is the hon. Member dealing with the question of depreciation which is now before the House?


I think the hon. Member is aware that that is the only point which we can now discuss.


Perhaps I must apologise to the House for a digression, but I would again press the Chancellor of the Exchequer carefully to consider this matter, for there is a great deal of hardship. It cannot be said that the percentages allowed by the Commissioners on the principle they seem to have adopted are sufficient to replace the machinery at present in use, particularly in view of the high pressure of work, and more especially in regard to the enormous increase in the cost of production of these very machines. I am perfectly satisfied that the right hon. Gentleman must come to the conclusion that the allowances are not sufficient, and that they ought to be regulated in a manner which would be satisfactory.


I hope the Government will realise that this discussion has not been raised in the interests of any particular industry. It has been forced on the attention of the House to-night because the whole industrial conditions of the country have so changed that the allowance of 5 per cent. for depreciation on the part of the Revenue authorities has become absolutely insufficient. Unless this question is dealt with the whole industry of the country is likely to get into a parlous condition, and to be quite unable to meet the conditions after the War, when we shall have to face an enormous amount of competition from America and Germany. We cannot afford to wait until the whole of the Income Tax anomalies are put right. This matter requires to be rectified at once. I remember speaking on the point last year. I then ventured to prophesy that any Committee which the right hon. Gentleman might appoint would tell him that it was absolutely necessary to reconsider this one claim of the Income Tax assessors at once. The Balfour of Burleigh Committee has had it before them, and refers to the matter, going on to say that the situation with regardto depreciation and obsolescence should be taken in hand at once. I happened to serve on another Departmental Committee, which considered the position of two large branches of industry. Half the members of that Committee were from various Government offices. The Treasury was not represented there, but the Board of Trade, the Food Controller, the Board of Agriculture, the Ministry of Munitions were; while there were other officials which made up half of this Departmental Committee. Their recommendation went much farther than that of the Balfour of Burleigh Committee. They said, in specific words, that the Government must recognise that the whole conditions had changed. They recommended, not only that the 5 per cent. should be increased to 10 per cent., but that the 10 per cent. should be made retrospective. The Government appointed another Committee, whose Report I have not seen, and which sat about a year ago and dealt with this very point. I am quite certain they must have reported in the same sense. I want the Government to understand to-night that we are not here in the interests of any particular section, but that it is necessary, if the industry of the country is not going to be seriously handicapped, and even possibly half ruined, that this should be taken in hand. These allowances should be recast in a very much more handsome manner, and instead of 5 per cent. being the ordinary official standard, 10 per cent., or thereabouts, is the very least which ought to be allowed.


It may not be a convenient time for those who are interested in the manufacturing industries of the country to press the Chancellor of the Exchequer to comply with this Amendment, but I think there is a principle involved which it is highly important that the House should present to the Chancellor, and should ask him to take it into careful consideration. Of course, we know, when the working classes are being asked to contribute out of their more limited means to the indirect taxation of the country, that it may not be desirable for the manufacturing industry to press immediately for the reduction which is claimed here. But when you remember that this Amendment is of a character which strikes at a weakness in the administration, I think it is desirable that the Chancellor should have regard to this one item in the list which is now before the House. In the matter of buildings it is well known that no depreciation whatever is allowed. One-sixth is allowed from the rental value to provide for the repairs. In many businesses buildings have been erected which are of no use whatever unless they are continually used for that one particular trade. Hence, it is held by many of us that where such buildings are erected there ought to be a corresponding treatment of such items standing in the capital accounts of the firms, as is the case in regard to depreciation of machinery. The amount of the yearly allowance for the depreciation of machinery is a matter which stands upon another footing, and it has been argued to-night with regard to the changing times through which we are passing. I think that if an inquiry were instituted it would be found that the allowances that have been made have not been equal to the necessities of the case where machinery has been very heavily used, and where the wear and tear has been excessive. I would only ask the Chancellor of the Exchequer, in these few words, to take into account this one aspect to which I have alluded — namely, that no depreciation whatever is allowed upon buildings. That is a thing that I hope may be remedied, and also that all other items may be taken into account.


I was glad to see my right hon. Friend the Chancellor of the Exchequer recognise that in these days of heavy war taxation the question of the trading interests of this country having a fair and adequate allowance for depreciation and wear and tear has become of vital importance to our future trade and prosperity. I consider that the Amendment put down by my hon. Friend the Member for Chippenham is not wide enough in its scope. I hope that he will withdraw it, and between now and the Committee stage draft a well-considered and more comprehensive Clause dealing with this question. I hope the Chancellor of the Exchequer will consider, between now and the Committee stage, after that new Clause is put down, whether he cannot either accept it or, at any rate, agree to appoint a Committee to go into the whole question without further delay. The present Amendment, as far as I understand it, does not include depreciation which is essentially necessary through wasting assets, as in the case of coal mines, where large sums of money are spent to win a certain area of coal. When the coal is exhausted the plant is worth a mere bagatelle, even if £500,000 has been spent in establishing the colliery. It is only sound business that there should be allowances in the way of depreciation, so that the capital should be restored for further investment at the expiration of the working of a particular colliery. The same thing applies to iron ore mines, to clay, and to other minerals. Also, there should be included depreciation for the expiry of leaseholds. Much hardship and loss is occasioned in connection with leaseholds. The whole question is a wide one, and is most important, but I do not desire to go into it in detail to-night, because I think it will be much more properly dealt with on the Committee stage of the Finance Bill. Speaking about machinery, we know perfectly well that in these days it is being adapted more on American lines of light construction. It works at a high speed, and naturally has a much shorter life than our old, substantial machinery used to have. That is especially the fact when this machinery is worked a much larger number of hours out of the twenty-four.

The Chancellor of the Exchequer told us that it had been suggested to him that he should make the Excess Profits Duty higher than 80 per cent., but I would point out to him that, so far as the coal trade is concerned, we have, in addition, another tax of 15 per cent. to pay, making in all 95 per cent. Excess Profits Duty. So that in the case of that trade, at all events, there is not very much room for an increase of the Excess Profits Duty. In conclusion, I would remark, upon this subject, that we have, first, to spare money in order to win this War, no matter what the burdens and sacrifices may be that are put upon us. Secondly, our object must be to safeguard the trade and commerce of this country, so that, after the War, we may be in a position to develop our industries, our shipping, and our trade, in order to ensure a rapid economic recovery, and to enable us to compete against the United States, Germany, Japan, and other countries, whose competition will be greater than ever it was in pre-war years. Therefore, if we are wise, we shall do nothing to deplete our financial resources by taxation or otherwise, in order that we may develop all our resources, if we are to maintain our industrial and commercial prosperity against other nations of the world.


I should like to impress upon the Chancellor of the Exchequer the importance of this Amendment. The right hon. Gentleman has said it is important that the Government should get all the money they possibly can, in view of this War, and I am sure we all thoroughly appreciate that; but I would put to him this question, whether, by the proposal which we now submit, the Treasury would not in a very short time get more revenue than they will obtain by continuing the present practice as to depreciation? Let them cast their bread upon the waters, and it will be returned to them tenfold before many days. It has already been pointed out that this country will have to meet the competition of Germany, America, and other countries after the War, and it may safely be said that competition will be very keen indeed. The late Mr. Chamberlain on one occasion came to South Wales in connection with his campaign for Colonial Preference, or Tariff Reform, and he pointed to the fact that large quantities of iron and steel were imported by South Wales and Monmouthshire from America and Germany, which, he said, was a great drawback to the interests of this country. I remember that the late Mr. Keene, chairman of Nettlefold's, that large industrial concern, when he returned from America, stated that in South Wales the iron and steel works there were obsolete, and he added that in America they renewed their steel works at the end of about each five years.

If we had adopted that practice in South Wales, and seen to it that we had good modern works, up to date, and capable of renewal after the lapse of five years, it would have been impossible for Germany or America to dump their iron and steel in South Wales. It was only because our works were old and obsolete that we could not compete with modern installations. Unless, in South Wales, we renew our machinery, instead of continuing with obsolete steel plant, we certainly shall not be able to compete with America, Japan, and other countries. I am not now speaking on behalf of the coal trade, in which I am interested, but on behalf of the trade and industry of the country generally, and unless we take all necessary steps in time, and act upon such principles as those which have been advocated to-day, I fear that we shall fall behind in the competition of the world. I trust that the Chancellor of the Exchequer will take this Amendment into serious and favourable consideration, for I believe it will pay him to do so, and that, by acting on the suggestions which have been offered to him, he would get a much greater revenue in the future

Division No. 33.] AYES. [7.38 p.m.
Agnew, Sir George William Foster, Philip Staveley Runciman, Sir Walter (Hartlepool)
Archdale, Lieut. E. M. Helme, Sir Norval Watson Rutherford, Sir W. (L'pool, W. Derby)
Banbury, Rt. Hon. Sir Frederick G. Henderson, John M. (Aberdeen, S.) Samuel, Samuel (Wandsworth)
Barlow, Sir John Emmott (Somerset) Hinds, John Sutherland, John E.
Bigland, Alfred Jardine, Ernest (Somerset, E.) Taylor, Theodore C. (Radcliffe)
Boles, Lieut.-Colonel Dennis Fortescue Jones, Rt. Hon. Leif (Notts, Rushcliffe) Terrell, George (Wilts, N. W.)
Bryce, John Annan Maden, Sir John Henry Tickler, T. G.
Cator, John Marks, Sir George Croydon Toulmin, Sir George
Coats, Sir Stuart A. (Wimbledon) Marriott, J. A. R. Walker, Colonel William Hall
Cochrane, Cecil Algernon Mason, James F. (Windsor) Walton, Sir Joseph
Cory, Sir Clifford John (St. Ives) Middlebrook, Sir William Williamson, Sir Archibald
Davies, Sir W. Howel, (Bristol, S.) Pennefather, De Fonblanque
Duncan, Sir J. Hastings (Yorks, Otley) Peto, Basil Edward TELLERS FOR THE AYES.—Sir W. Pearce and Sir J. Harmood-Banner.
Du Pre, Major W. Baring Richardson, Arthur (Rotherham)
Essex, Sir Richard Walter
Adamson, William Guest, Capt. Hon. Fred. E. (Dorset, E.) Sanders, Col. Robert Arthur
Agg-Gardner, Sir James Tynte Hamilton, Rt. Hon. Lord C. J. (K'ton) Shortt, Edward
Arnold, Sydney Harcourt, Robert V. (Montrose) Somervell, William Henry
Baldwin, Stanley Havelock-Allan, Sir Henry Smith, Albert (Lancs., Clitheroe)
Barnes, Rt. Hon. George N. Henry Sir Charles Spear, Sir John Ward
Barnston, Major Harry Hewins, William Albert Samuel Stanley, Rt. Hon. Sir A. H. (Asht'n-u-Lyne)
Barton, Sir William Higham, John Sharp Stewart, Gershom
Bathurst, Col. Hon. A. B. (Glouc., E.) Hodge, Rt. Hon. John Stoker, R. B.
Beckett, Hon. Gervase Hope, James Fitzalan (Sheffield) Strauss, Edward A. (Southwark, West)
Bellairs, Commander C. W. Hudson, Walter Thomas, Sir A. G. (Monmouth, S.)
Benn, Arthur Shirley (Plymouth) Jones, J. Towyn (Carmarthen, East) Thomas, Rt. Hon. James Henry
Bird, Alfred Jones, W. Kennedy (Hornsey) Thorne, William (West Ham)
Boscawen, Sir Arthur S. T. Griffith- Jowett, Frederick William Tootill, Robert
Bowerman, Rt. Hon. C. W. Joynson-Hicks, William Tryon, Captain George Clement
Boyton, Sir James Kellaway, Frederick George Turton, Edmund R.
Brace, Rt. Hon. William King, Joseph Walsh, Stephen (Lancs, Ince)
Bridgeman, William Clive Lambert, Richard (Wilts, Cricklade) Wardle, George J.
Carew, Charles R. S. (Tiverton) Law, Rt. Hon. A. Bonar (Bootle) Waring, Major Walter
Cautley, Henry Strother Lee, Sir Arthur Hamilton Weston, J. W.
Clough, William Levy, Sir Maurice White, J. Dundas (Glasgow, Tradeston)
Clyde, James Avon Lindsay, William Arthur Whiteley, Sir H. J.
Coates, Major Sir Edward Feetham McCalmont, Brig.-Gen. Robert C. A. Wilkie, Alexander
Compton-Rickett, Rt. Hon. Sir J. Macmaster, Donald Williams, Aneurin (Durham, N. W.)
Cornwall, Sir Edwin A. Macpherson, James Ian Williams, Llewelyn (Carmarthen)
Craig, Herbert J. (Tynemouth) Munro, Rt. Hon. Robert Williams, Penry (Middlesbrough)
Craik, Rt. Hon. Sir Henry Parker, James (Halifax) Williams, Col. Sir Robert (Dorset, W.)
Currie, George W. Pearce, Sir Robert (Staffs, Leek) Williams, Thomas J. (Swansea)
Dalziel, Rt. Hon. Sir J. H. (Kirkcaldy) Pease, Rt. Hon Herbert Pike (Darlington) Willoughby, Lt.-Col. Hon Claud
Dawes, James Arthur Perkins, Walter Frank Wilson, Rt. Hon. J. W. (Worcs., N.)
Duncan, C. (Barrow-in-Furness) Price, C. E. (Edinburgh, Central) Wilson, W. T. (Westhoughton)
Fell, Sir Arthur Pryce-Jones, Colonel E. Wing, Thomas Edward
Ferens, Rt. Hon. Thomas Robinson Raffan, Peter Wilson Wood, Sir John (Stalybridge)
Fisher, Rt. Hon. H. A. L. (Hallam) Randall, Athelstan Younger, Sir George
Gibbs, Colonel George Abraham Richardson, Albion (Peckham)
Gilmour, Lieut.-Col. John Roberts, George H. (Norwich) TELLERS FOR THE NOES.—Lord
Goulding, Sir Edward Alfred Robinson, Sidney Edmund Talbot and Mr. Dudley Ward.
Greenwood, Sir Hamar (Sunderland) Rowlands, James
Griffith, Rt. Hon. Sir Ellis J. Rowntree, Arnold

than he does at present. By assisting those concerned in our industries to have the means of providing themselves with modern and. up-to-date works, with all the equipment necessary to meet the competition of other countries, he will obtain greater revenue than ho will ever gain if we are to find ourselves compelled to continue with obsolete works.

Question put, "That those words be there inserted."

The House divided: Ayes, 40; Noes, 110.

Resolution reported,