HC Deb 16 July 1920 vol 131 cc2847-53

Notwithstanding any provisions to the contrary in the Finance (No. 2) Act, 1915, or other Finance Acts since, any excess profits assessment shall be amended upon application by the person assessed to the surveyor of taxes, on the following basis:—

(1) Any taxpayer whose financial year ended within three months after the fourth day of August, nineteen hundred and fourteen, then the pre-War standard shall be amended so that the pre-War years shall be taken on any accounts ending on or within these dates, and the first accounting year shall start on and from the end of such pre-War years;

The assessments shall be amended so that the revised pre-War standard shall be taken throughout the entire period of Excess Profits Duty just as if such periods had been in all respects originally taken for the purpose. Any reduction of assessments arising out of such amended assessments shall be adjusted, either by allowance on future assessments or by repayment of tax overpaid.—[Captain Bowyer.]

Brought up, and read the First time.

Captain BOWYER

I beg to move, "That the Clause be read a Second time."

The anomaly which this seeks to abolish is so glaring and unjust that I appeal with the greatest confidence to the Chancellor of the Exchequer. The case I wish to bring forward is the case of those firms, and especially the small and progressive firms, whose financial year ended just after 4th August, 1914. The pre-War standard in those cases should, I submit, be the average of any two out of the three pre-War years, 1912, 1913 or 1914. The end of the financial year being the 31st August, 1914, or 27 days after the War started, such companies were thrown back to the 31st August, 1913, with the result that their first year of war profits began on the 1st September, 1913, and ended on 31st August, 1914. An actual case was submitted to the right hon. Gentleman's predecessor on the 4th December, 1915, and I give the facts from the letter which is in the office of the Chancellor. This was the case of a young firm which, until the year 1910, made no profit at all. In its three pre-War years 1911, 1912 and 1913 the profits were: 1911, £2,084; 1912, £3,000; 1913, £6,002. Choos- ing the two best years, we arrive at a pre-War standard of £4,500. If the year 1914 is taken into account, up to the 31st August, the end of their financial year, the profit in that year was £10,240, and if they were enabled to take that year along with 1913 for the calculation of the standard, the result would be, by adding £6,000 and £10,000 together and averaging, the pre-War standard would be £8,120 instead of £4,500. To show the glaring nature of this case, let me tell what actually happened. On the 31st August, 1914, this firm under the Regulations became responsible for one year's Excess Profits Duty, although the War was only 27 days old. In fact, this firm has paid for that period to the 31st August, 1914 a sum of £2,737 or, roughly, £100 for every day of the War. That £2,737 was arrived at as follows: The profit in 1914 was £10,000. The pre-War standard, adding the years 1912 and 1913 together, was £4,500. Therefore you deduct £4,500 from the £10,000 profit made up to 31st August, 1914, and the Excess Profit was £5,670. If you deduct £200 allowed under Section 38 of the Finance Act, 1915, that is £5,475. The Excess Profits Duty was at that time 50 per cent., and, taking half of £5,475, that gives £2,737, which was, in fact, paid to the State in Excess Profits Duty as due on 31st August, 1914. The next year the firm increased its profits, and made £11,000. It deducted the same pre-War standard, namely, £4,500, leaving a total of £6,478. It deducted the allowance, under Section 38, of £200, leaving a total of £6,278. Dividing that by two, to give the 50 per cent., you get £3,139, and in the two years 1914 and 1915 a total of £5,876.

5.0 P.M.

I want to show what would have been the Excess Profits Duty this firm would have had to pay if allowed to exclude its profits made in 1914 up to 31st August. On 31st August, 1914, it would have had to pay, of course, no Excess Profits Duty at all. On 31st August, 1915, its position would have been as follows:—In that year it made £11,043 profit. The pre-War standard, by bringing in the profit for the. year 1914, which was £10,000, would have been £8,121—a very different story from £4,500. Deducting £8,121, pre-War standard, from the £11,000 profit, we get a total of £2,922, and deducting £200 under Section 38, we get a total of £2,722. Dividing by two to give the 50 per cent. Excess Profits Duty, we get a total payable on 31st August, 1915, of £1,361, as against the total of £5,876 which this unfortunate firm has actually paid. I have taken the facts of an actual firm, of the circumstances of which I knew nothing until ten days ago. This pre-War standard is based on the principle of disallowing the profits of 1914 up to 31st August altogether. So that the firm is thrown back to find what was the pre-War profit to 31st August, 1913. This is double-barrelled, because not only is the pre-War standard much less than it would have been if the profits were taken up to the beginning of the War or to 31st August, but it is a recurring injustice every year. Not only do the firm pay Excess Profits Duty for eleven months of peace time, but every year that has followed since that, the excess profit was greater than it need have been with justice, because the pre-War standard had been artificially lowered. There are two possible alternatives to remedy the case. I am sure the right hon. Gentleman will point out Section 51 of the Finance Act, 1916, which attempted to deal with the case. That enabled a firm to take an interim account of its profits, but that section has become an absolutely dead letter. There have been three test cases, and in two of them the Revenue authorities made it impossible for firms to avail themselves, as I am informed, of that Section 51 for this reason. They said that to take an interim account of their profits it was essential to look at their stock. "All right," said the firm, "we will show you our books." The Revenue authorities said, "No, we must have an account ad hoc. You must go back to 1914,"—which, of course, it is impossible to do—"and have a special stock-taking and show exactly what your profits were." That being impossible, the whole of Section 51 has become a dead letter. The actual firm to which I am referring brought an action under Section 51, and failed under that section to get the interim account. To take an interim account is the only fair way.

The other alternative I suggest is the new Clause which stands in my name. I am informed that it will bring about a remedy of this extraordinary state of affairs, and if the Chancellor of the Exchequer cannot give me three months, perhaps he will give me two, and if not two then one. All I am pleading for is one of two things—either put the matter right in the way I have asked, or make it possible to have an interim assessment, so that in fact the opening day of the War shall be the day which divides the assessment of the pre-war standard from the assessment of the Excess Profits Duty, and in any case set right this glaring anomaly of a firm—and there are many of them—who have been compelled to pay Excess Profits Duty for eleven months of peace time, and whose financial year ending on 31st August, they have to pay a year's Excess Profits Duty for twenty-seven days of the War. The Chancellor of the Exchequer may say that it is impossible to go back—that it would spoil all his Budget. This is only a glaring anomaly in the case of the small and progressive firms. In the case of the young firm which I have mentioned, which was making £2,000, £3,000, £4,000, £6,000 and then £10,000—doubling profits nearly every year—the anomaly is as glaring as it can be. I would point out that the Amendment moved by my hon. and gallant Friend the other day in which he asked that there should be an appeal in hard cases like this raised a totally different issue. In that case I do not think he objected to the way the pre-war standard was arrived at. In my case I say a gross injustice is being done not only in law but in fact, because the pre-war profits were not allowed to run until the beginning of the War. It is not the principle of the Excess Profits Duty that this new Clause wishes to alter, but the method of its assessment. Finally, I would beseech the Chancellor, with all earnestness, if my method in the new Clause is no good, to put right this injustice, to tell men how it can be that so glaring an anomaly has not been set right up till now; how is that all this money has been paid to the State to which the State has had no earthly right? I implore him to suggest a method—in fact I appeal to him with the greatest confidence to suggest a method by which this injustice shall be put right.


In my hon. Friend's speech he gave us the circumstances of one firm as an illustration, and dwelt somewhat largely upon them. I do not know whether that is the firm which has been at the expense of sending as many as three telegrams to individual Members of Parliament—

Captain BOWYER

I hope the right hon. Gentleman does not suggest that I have anything to do with that. I do not know—well, I do not know about the thing, but I had nothing to do with it, nor am I aware of the arrangements made by the firm.


I do not suggest that the hon. and gallant Gentleman has a knowledge—

Captain BOWYER

Of course it is a very clear case.


I was not imputing to my hon. and gallant Friend any responsibility in this matter. I was only suggesting that the firm that spends money so freely was doing very well. The hon. and gallant Gentleman has produced a case which I daresay has struck Members of the Committee with more or less force; but he has not produced an offer. This matter was very fully discussed at the time the tax was first imposed. All the difficulties, points, and allegations of injustice which have been suggested by my hon. and gallant Friend were fully discussed. After full discussion the House decided that the basis of the tax was to be on the accounting period, that the first tax should be levied on the profits of the first accounting period after the War began, and that the pre-war standard was to be arrived at by reference to the previous year's trading of the firm. The hon. and gallant Gentleman asks that after the Act had been in operation all these years, and that, as we hope, it is drawing towards its end, I should recast its basis. I really cannot do it. To this I would only add that if it were to be done at all—my hon. and gallant Friend himself sees this as the Amendment chooses another purely arbitrary date—were I to accept it, the concession might at once be made the basis for another speech by another hon. Member, not of such eloquence as that of my hon. and gallant Friend, and based upon the circumstances of another firm with another accounting period. An hon. Member opposite called out, "Three months." If three months is suggested, why not five months or six months. Under these circumstances, I hope my hon. and gallant Friend will not think me disrespectful if I confine my reply to his arguments to what I have said.

Captain BOWYER

Will my right hon. Friend reply to my argument about Section 51 of the Act of 1916, and my allegation that it has become a dead letter?

Colonel GREIG

May I ask if this firm, which has sent three telegrams to every Member of Parliament, will be allowed to deduct that as a trade expense?


I think I may safely trust the Commissioners of Inland Revenue not to permit the cost of political agitation to be put down as a trade expense. I do not think Section 51 was intended for cases of this kind, and it was not intended for the purpose to which the hon. and gallant Member wishes to apply it.

Question, "That the Clause be read a Second time," put, and negatived.