NEW CLAUSE.—(Definition of trading stock.) (Hansard, 12 July 1922)

§ Mr. HOLMES

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

1412 Clauses have been moved to-night asking for concessions from the Chancellor of the Exchequer. All I am asking for now is an explanation. Under the Finance Act of last year there was certain relief afforded in respect of trading stock in hand in any trade or business at the end of the last accounting period. Apparently, the Inland Revenue are interpreting trading stocks as actual stocks which have been purchased for re-sale, whether they are manufactured or raw material. The object of this Clause is to ascertain from the learned Solicitor-General whether the words "trading stock" should not also apply to stocks used for the purpose of turning the raw material into manufactured goods. I will give the House an example which will show my meaning at once. Take a steel works. Iron ore is turned into steel for re-sale, therefore iron ore is allowed as trading stock. Everyone knows that you cannot turn iron ore into steel without coal, but the Inland Revenue say that coal has not been bought for re-sale, but for processes of manufacture. Though steel works must have a very large stock of coal, and though coal may have fallen in value in the days succeeding the last accounting period, it is not allowed under the Act. I submit the intention, when the Act was passed last year, was that stocks such as coal and stocks kept for the purpose of repairs were intended to come within the phrase, and that relief should be extended as suggested in the new Clause to all consumable stocks just as in the same way the Inland Revenue admit it applies to stocks for re-sale.

§ Sir L. SCOTT

I venture to doubt a little the very innocuous description which has been given by the hon. Member of his Amendment, It seems to me to want a little more explanation. My impression is that if he got the Clause adopted the result would be very expensive indeed in point of money. When Excess Profits Duty was coming to an end, it will be in the recollection of the House that we were in a position of extreme depression and that a great number of concerns were in grave financial danger, and that the Chancellor of the Exchequer, after prolonged negotiations with representatives of those indus- 1413 tries and others, made a concession in regard to trading stocks which was of very great magnitude, amounting in all to some eighty millions sterling. Concessions were made at that time to firms who during the War had paid very large sums in Excess Profits Duty really to meet the extraordinary financial position of the country, when the coal strike was on and the position was as serious as it could be. That concession was made purely on national grounds to meet what was almost an unpredented national emergency. It was considered very carefully, and its exact scope, so far as this Amendment is concerned, was this, that those firms which had come within Excess Profits Duty should be given not merely the value of their stocks as at the end of their last accounting period, but that the further depreciation between that period and the end of the financial year should be accounted as part of the loss of the last accounting period. That bargain was based upon commercial trading stocks. The phrase, "trading stocks," was put into the Finance Act as the legal equivalent of stock-in-trade, which was the phrase used in the White Paper which represented the arrangement that was made. Stock-in-trade, of course, means the actual finished articles, partly-finished articles, and raw material for making those articles. If all the deductions allowed to an ordinary business concern in calculating income were allowed as this new Clause asks, everything like coal, oil, and ordinary consumable stores used in the process of manufacture would all come in, and have to be valued as at the end of the last accounting period, and carried forward under that scheme, with the result that a very large additional return of Excess Profits Duty would result.

This is a concession which has nothing to do with taxation and which has nothing to do with the present taxes. It was a specific concession which was made on the ground of national need, or commercial need from the national point of view, and it is a concession which I regret each Chancellor of the Exchequer cannot make, and which I venture to think that even the hon. Member who moved it, when he understands it in that way, will regard as a concession which there is no present ground for asking.