§ For the purpose of removing doubts it is hereby declared that any person who is at the end of the final accounting period the owner of a trade or business subject to Excess Profits Duty shall be entitled to claim in respect of that duty relief for losses in respect of forward contracts entered into before the fixed date.—[Mr. Leonard Lyle.]
§ Brought up, and read the First time.
§ Mr. LYLEI beg to move, "That the Clause be read a Second time."
There are many people very interested in this question. It should not really be necessary to move this new Clause which is framed for the purpose of removing doubts as to the position of firms who have made forward contracts, and the position they will be in with regard to taking these forward contracts into account in making up their statement in the final accounting period. It is an ordinary business principle and an accepted principle of book-keeping that if you want to know your true state of affairs at a given time you must look at your liabilities, and your forward contracts are to a certain extent your liabilities. I do not ask that this Clause should be put in as a concession, but as a mere matter of common justice. I am told from various deputations that have seen the Chancellor of the Exchequer on this question that his attitude is not sympathetic, and that that is due to the state of the Exchequer finances. That ought not to enter into this question at all. The state of the Exchequer finances is one thing, but in dealing with Excess Profits Duty what is expected of the Government is common fairness. No auditor would argue that you were repre- 1306 senting a true state of affairs if you do not take your forward contracts into account. Most firms in the past have done this with regard to Income Tax and Excess Profits Duty. In the past that did not matter, because Excess Profits Duty was being carried on, and if a firm wrote down their forward contracts and the market turned it righted itself during the next accounting period, and it is only because Excess Profits Duty is being done away with that the question arises at all. I would like just to make two points.
If the Chancellor of the Exchequer cannot grant this concession I would ask him if he does not think that it is exceedingly unfair that the Government should have taken advantage of forward contracts made by firms when the Excess Profits Duty was introduced, and now, at the end of the accounting period, that they should allow firms to bear their losses on forward contracts. The Government took advantage of the fat thing when it was there, and now at the end of the accounting period they propose to leave the firms in the lurch.
Another point is this. The forward contracts were taken into account when arriving at the basic account for the standard year for Excess Profits Duty, thereby reducing the standard of profit on which Excess Profits Duty was based in succeeding years. If profits were taken into account so also should losses. It is no argument to say that the state of the national finances is such that the Government cannot give away anything. Those who are putting forward this new Clause are not asking for any concession but for what they consider is mere common justice, and what is an accepted principle in ordinary bookkeeping.
§ Sir R. HORNEI do not think that my hon. Friend entirely apprehends what the situation is with regard to the relief he asks. The concession which has been made by the Treasury with regard to the valuation of stocks is because various firms terminated the accounting period for Excess Profits Duty at varying dates, some of them towards the end of last year, some of them in the beginning of this year and down until 4th August. It has been felt to be inequitable that there should be all these varying dates, and accordingly in order to meet the wishes of large bodies of traders who came to me 1307 upon the subject we agreed that no matter when the accounting period of any firm finished they should be entitled to have a revaluation of their stocks down to 31st August of this year with a view to putting any losses or depreciation suffered during that period against the excess profits upon which they had paid duty during their accounting period.
That, as far as it went, was satisfactory to the bodies of business men whom I saw. What is now put forward is the suggestion that any contract entered into prior to the end of the accounting period should also come into this review, to the effect that though goods have not been delivered prior to the end of the accounting period, nevertheless if the market value of the goods in the interval had fallen that depreciation should be put against the duty which had been paid as excess profits during the accounting period. I shall deal with that matter in a moment, but I should like to say at once that the theory which is put forward by the hon. Member that in some way at the beginning of Excess Profits Duty advantage was taken of forward contracts is an entire error. There was no room for taking advantage of them. At the beginning of the Excess Profits Duty profits made on goods delivered of course became liable because they were within the accounting period. What is now proposed is something entirely different. No advantage could be taken at that time of forward contracts because it was not until the Excess Profits Duty began that there was any question of account, and the Excess Profits Duty was in existence so long that all goods purchased before it began were necessarily delivered during the accounting period. No question arose such as the hon. Gentleman suggests. He is now proposing that contracts entered into before the end of the accounting period, although no loss has been sustained, should, if there has been a market depreciation in prices, have that depreciation taken into account in founding a claim for a set-off against the duty which has been paid while the Excess Profits Duty has been in vogue. I wish the Committee to understand exactly what that means. In the first place, it means that, although the period has expired on which the business is subject to a duty in profits, if profits are realised, and that therefore the State can have no 1308 claim on those excess profits, if there is a loss on that accounting period, the State must nevertheless be liable. That, obviously, is a very one-sided transaction, but, in the second place, the loss that is anticipated may never arise. A man enters into a contract for goods delivered over a space of a year or two years. Owing to the state of the market he may say at the end of the accounting period that the goods are worth less than he agreed to pay, notwithstanding that, over the time they were delivered to him, he realised a profit on them, and yet, in the interval, the State has to record a depreciation and make that a set-off against the duty which has been paid for excess profits while these were being earned in the time when the Excess Profits Duty was in vogue.
There is another important point. The hon. Gentleman entirely failed to notice that very often forward contracts are covered by forward sales, and if this Motion were adopted you might have a business firm claiming in respect of depreciation in the value of goods in the market and getting it under this Clause, while at the same time the person who bought those goods in forward contract had sold the goods at a price higher than that at which he contracted to buy them. I submit to the Committee that if this Clause were put into the Bill there would be no doubt at all that very many cases might arise in which an entirely inequitable claim could be sustained. Let me add this before I sit down. Everyone who knows anything about the way in which the accountants treat the accounts knows that forward contracts, such as my hon. Friend dealt with in his speech, are never treated as coming into the year in which the contract was made, but the actual entry is made when the delivery takes place.
§ Mr. LYLEVery often—it has been done in the case of my own firm in the case of the Income Tax returns, for instance—the Income Tax return is made up by many firms, taking into account forward contracts for the purpose of Income Tax.
§ Sir R. HORNEI confess that I can scarcely conceive what my hon. Friend says to be so without some explanation. It is quite possible if you have made forward contracts by way of purchase, and also made a sale of the goods in a period 1309 over which the Income Tax operates, that in that case you would take into account what has been done. But where the goods still await delivery, and nothing has been done over that accounting period, to me it is quite out of the usual course of business if that is brought into the year in which delivery takes place. If ray hon. Friend investigates the matter he will find that what I have said is right. I have pointed out many reasons for the rejection of this Clause. I submit that the Clause should not be accepted.
§ Mr. LYLEIs the Chancellor of the Exchequer going to give us any consideration on the following Amendments. There is an Amendment which stands in the name of the hon. Member for Lime-house (Sir William Pearce) which deals with the same subject. I should like to know whether there are certain safeguards to be given—
§ Sir R. HORNEWhile I have given every consideration to this matter, and to the suggestions in this particular Clause, I do not hope to be able to indicate any acceptance of it.
§ Mr. LYLEThen I cannot withdraw this new Clause. The Chancellor of the Exchequer has made a very able statement, but, at the same time, it is perfectly clear that as regards forward contracts you want to know your position at a given date. You cannot absolutely ignore your forward contracts. For the sake of argument, let us say that the accounting period ends at the end of June. A firm may have contracted forward contracts for material which is going to take from May to September—a purely forward contract. If they have got the stuff in their factories they are quite
§ entitled to write off any loss which there may be in that forward contract. A firm may make a contract, and they may find that it is a bad contract for them. They go to the seller and ask that the contract shall be cancelled. The seller says: "For a certain sum I will cancel the contract and re-sell." There is a loss. That loss on goods arriving in the succeeding six months is a charge on the business. When the particular six months are ended, payment is made. The Chancellor of the Exchequer has made out a very clever case, but he has camouflaged the whole position. He must admit that it is a perfectly sound business proposition to look at your liability. The Government had the advantage of forward contracts made by firms during the War. Whether the goods came in or not did not matter. The Government had the big advantage of a rising market. What does it come to? If a firm's accounting period is at the end of August, and if they have got in a lot of their goods for the succeeding six months before August, they can write off the lot. But if there has been a contract, and those same goods have not arrived, they cannot take those circumstances into account. A firm which gets a seller to cancel a contract in return for the payment of a lump sum down can get rid of its liabilities in that way, but the individual who has got goods to come is not allowed any relief at all. It is a matter of common justice that some relief should be given to firms in respect of forward contracts.
§ Question put, "That the Clause be read a Second time."
§ The Committee divides: Ayes, 13; Noes, 100.
1311| Division No. 189.] | AYES. | [3.33 a.m. |
| Atkey, A. R. | Hannon, Patrick Joseph Henry | Pickering, Colonel Emil W. |
| Balfour, George (Hampstead) | Holmes, J. Stanley | |
| Doyle, N. Grattan | Manville, Edward | TELLERS FOR THE AYES.— |
| Foxcroft, Captain Charles Talbot | Newbould, Alfred Ernest | Mr. Leonard Lyle and Captain |
| Ganzoni, Sir John | Ormsby-Gore, Hon. William | Bowyer. |
| Gould, James C. | Parry, Lieut.-Colonel Thomas Henry | |
| NOES. | ||
| Agg-Gardner, Sir James Tynte | Benn, Capt. Sir I. H., Bart. (Gr'nw'h) | Chamberlain, Rt. Hn. J. A. (Birm. W.) |
| Amery, Leopold C. M. S. | Betterton, Henry B. | Chamberlain, N. (Birm., Ladywood) |
| Armitage, Robert | Birchall, Major J. Dearman | Colvin, Brig.-General Richard Beale |
| Bagley, Captain E. Ashton | Boscawen, Rt. Hon. Sir A. Griffith- | Conway, Sir W. Martin |
| Baird, Sir John Lawrence | Boyd-Carpenter, Major A. | Coote, Colin Reith (Isle of Ely) |
| Baldwin, Rt. Hon. Stanley | Briggs. Harold | Cope, Major William |
| Barlow, Sir Montague | Brown, Major D. C. | Curzon, Captain Viscount |
| Barnett, Major Richard W. | Bruton, Sir James | Davidson, J. C. C. (Hemel Hempstead) |
| Barnston, Major Harry | Buckley, Lieut.-Colonel A. | Davies, Thomas (Cirencester) |
| Bell, Lieut.-Col. W. C. H. (Devizes) | Butcher, Sir John George | Elliot, Capt. Walter E. (Lanark) |
| Bellairs, Commander Carlyon W. | Carr, W. Theodore | Evans, Ernest |
| Eyres-Monsell, Com. Bolton M. | Joynson-Hicks, Sir William | Shaw, Capt. William T. (Forfar) |
| Falcon, Captain Michael | Kellaway, Rt. Hon. Fredk. George | Sprot, Colonel Sir Alexander |
| Falle, Major Sir Bertram Godfray | King, Captain Henry Douglas | Stanler, Captain Sir Beville |
| Ford, Patrick Johnston | Lane-Fox, G. R | Stanley, Lieut.-Col. Hon. George F. |
| Forestier-Walker, L. | Law, Alfred J. (Rochdale) | Stephenson, Lieut.-Colonel H. K. |
| Fremantle, Lieut.-Colonel Francis E. | Lindsay, William Arthur | Sugden, W. H. |
| Gibbs, Colonel George Abraham | Lloyd-Greame, Sir P. | Sutherland, Sir William |
| Gilmour, Lieut.-Colonel Sir John | Locker-Lampson, Com. O. (H'tingd'n) | Thomson, F. C. (Aberdeen, South) |
| Glanville, Harold James | McNeill, Ronald (Kent, Canterbury) | Thomson, T. (Middlesbrough, West) |
| Goff, Sir R. Park | Mallalieu, Frederick William | Thomson, Sir W. Mitchell- (Maryhill) |
| Green, Joseph F. (Leicester, W.) | Moore-Brabazon, Lieut.-Col. J. T. C. | Tryon, Major George Clement |
| Greene, Lt.-Col. Sir W. (Hackn'y, N.) | Neal, Arthur | Walters, Rt. Hon. Sir John Tudor |
| Hacking, Captain Douglas H. | Newman, Sir R. H. S. D. L. (Exeter) | Ward, William Dudley (Southampton) |
| Hailwood, Augustine | Parker, James | Weston, Colonel John Wakefield |
| Harmsworth, C. B. (Bedford, Luton) | Pollock, Sir Ernest Murray | Wheler, Col. Granville C. H. |
| Henderson, Major V. L. (Tradeston) | Pownall, Lieut.-Colonel Assheton | White, Col. G. D. (Southport) |
| Hennessy, Major J. R. G. | Pretyman, Rt. Hon. Ernest G. | Wills, Lt.-Col. Sir Gilbert Alan H. |
| Holbrook, Sir Arthur Richard | Purchase, H. G. | Young, E. H. (Norwich) |
| Hope, Lt.-Col. Sir J. A. (Midlothian) | Roberts, Samuel (Hereford, Hereford) | Young, Sir Frederick W. (Swindon) |
| Hopkins, John W. W | Robinson, s. (Brecon and Radnor) | |
| Home, Sir R. S. (Glasgow, Hillhead) | Samuel, Samuel (W'dsworth, Putney) | TELLERS FOR THE NOES.— |
| Hotchkin, Captain Stafford Vere | Sanders, Colonel Sir Robert Arthur | Colonel Leslie Wilson and Mr. |
| Hunter, General Sir A. (Lancaster) | Seddon, J. A. | McCurdy. |
| Jameson, John Gordon | Shaw, Hon. Alex. (Kilmarnock) |
Question, "That the Clause be read a Second time," put, and agreed to.