The exemption from Corporation Profits Tax given by the proviso to Sub-section (2) of Section fifty-two of the Finance Act, 1920, shall be continued from the thirty-first day of December, nineteen hundred and twenty-two, until the thirty-first day of December, nineteen hundred and twenty-five, and in Section fifty-eight of the Finance Act, 1921, for the words "the thirty-first day of December, nineteen hundred and twenty-two" there shall be substituted the words "the thirty-first day of December, nineteen hundred and twenty-five."
§ Sir W. PEARCE
I beg to move, after "1920" ["Section fifty-two of the Finance Act, 1920"], to insert the wordsexcept in the case of any undertaking which is trading beyond its statutory obligations.This Clause is the first Clause that deals with the Corporations Profits Tax. It is true that it does not refer to the imposition of the tax, but it provides for the exception of certain corporations. Although it would not be in order on this occasion to go into the question of the heavy burden of this tax, I think the Committee will agree that the burden is so heavy that it is of great importance that its incidence should be fair and equal. Everyone knows that the tendency at the present time is for public utility companies to enlarge their 1426 activities, and directly they get beyond their statutory limits they are in fair and open competition with other companies who are subject to tax, so that there is a palpable disadvantage. Instances of this are not rare. Railway companies have lately had before Parliament a heavy Bill, which has now disappeared, in which they proposed to act in connection with road traffic. Tramway companies, in some instances, use motor omnibuses. Gas companies enlarge the field of their chemical operations far beyond the working up of their own products, and manufacture and sell in open competition such substances as muriatic acid, nitric acid, and bleaching powder, which are the business of other companies who are liable to tax. The Port of London Authority is not subject to the tax. The wharfingers of London are. The wharfingers and the Port of London Authority are in competition, and I thought it was worth while to call attention to the very unequal and unfair incidence of this tax. The position of these public utility companies is very much more powerful than it was two years ago. In those days they had to face the situation created by the War. Since the first exemption was given the House has passed the Railways Act, and I was Chairman of a Committee in which the statutory obligation as to the amount of fares on tramways was removed. There has been a Gas Bill. I think the House wants to remember that the position of these statutory companies is very much changed for the better, and that makes it all the more important that the incidence of this tax should be altered. I think it is a bad tax. It is so bad that. I do not really want to put public utility companies under it. But the House and the 1427 Government ought to realise how unfair its incidence is. My first object is to try to put the Government out of conceit with the Corporations Tax as being an unfair tax. My second object is to try to curb the ardour to some extent of public utility companies which are going in for general competition. They are in a very good position now. They are pretty well secured in their pre-War dividends, and perhaps a little more, and there are very few industries which would not be glad to change their position with these public utility companies. They are in a position of ease and comfort and they ought to realise that if they intend to go in for general competition they are to a certain extent destroying their own position. If that line of activity is pursued by public utility companies—it may be for the good of the public or it may not; I think not—if they are going to extend their general activity into every walk of life and enter into general competition in all sorts of things, good-bye to the position of privilege which the Government gives them under this exemption Clause. I do not know that I want to push it any further than that, but it is a point of some substance, and I thought it right to call attention to it, and get the views of the Government, in the hope that we might show the Government still more the unequal incidence of the tax and in some way give a warning to the public utility companies that they should live and let live, and unless there are very strong reasons for it they should not be constantly attempting to enlarge their activities beyond their statutory duties.
§ Sir L. SCOTT
I recognise, as everyone does, that the Corporation Profits Tax is open to criticism of a serious kind in many ways, but the question whether it is a good or a bad tax does not arise on this Amendment. It is important to consider, first of all, what the Clause provides, and, secondly, what the Amendment provides. When the Corporation Profits Tax was introduced, it was considered that it was not fair to apply it to companies which by statute were prevented from making more than a certain dividend, or were otherwise limited in the scope of their profit-making powers. Gas companies cannot declare 1428 more than a certain dividend. They are obliged to devote profits over and above the amount necessary to declare that dividend to a reduction of the price of gas. Railway companies cannot charge more than certain rates and fares. Dock authorities are in a similar position, having their charges limited by statute. All these statutory companies, to which the Corporation Tax was not originally applied, stand in the same general position of being concerns which save their profit-making power tied up and limited by Statute. To apply the Corporation Profits Tax, therefore, to those concerns would be to apply a tax which in its incidence would necessarily have a different effect upon shareholders interested in the concerns from the case of a tax where the company was one upon which there was no limit at all as to its profit-making power except the conditions of the market and business generally. That being so, Parliament took the view that the tax should not be applied during the year when it was first applied to other companies, and, secondly, that as the position was a permanent position and as it was thought possible, and may be still possible, that the Corporation Profits Tax would not be a permanent tax in the financial system of the country, upon which I express no opinion, it would be desirable not to deal with these statutory companies for only one year, but to put them outside the category of the tax altogether for a period of time, and so it was arranged that they should stand outside the tax altogether down to 31st December of this year. This Clause merely proposes to extend that enactment for a further period of three years on the same sort of grounds that Parliament imposed that limitation in the first instance and nothing more.
The Amendment. says that from that general provision of immunity from Corporation Profits Tax of the statutory concerns an exception should be made so that the concerns falling within the exception would ipso facto become liable to tax. I say nothing upon the question of order as to whether that would impose a charge. What are the conditions upon which the Mover of the Amendment suggests that these concerns should be brought under the harrow of the tax? Let us look at it. The hon. Member says 1429 "except in the case of any undertaking—that is, an undertaking of the kind which is at present exempted—"which is trading beyond its statutory obligations." He does not say "trading beyond its statutory powers," but, "beyond its statutory obligations." In order to make quite sure what was meant by the word "obligations" I looked up the question which the hon. Member put last month to the Chancellor of the Exchequer. He asked the Chancellor of the Exchequer then if he proposed to continue exemption from Corporation Profits Tax to statutory companies which were engaged in competitive business outside of their primary duty. The answer given was that it was proposed to extend the existing exemption for a further period of three years. The gist of the hon. Member's position therefore is that if a statutory company does anything beyond what it is its obligation or duty to do, it ought not to have immunity from the tax.
Let us see what that means. What is the statutory duty of a railway company? I think it is to run two Parliamentary trains a day. Is the railway company that does anything more than that to be deprived of immunity? A gas company is under a statutory duty to make and supply gas. In the course of carrying out that duty it produces coal tar, and in the ordinary way of business various byproducts are made by gas companies out of coal tar. It is not the statutory duty of a gas company to make any one of those things—
§ Sir W. PEARCE
I think on that I said "over and above the manufacture of their residual products." I was not attacking the operations which the Solicitor-General has mentioned to the Committee. If, however, the words of my Amendment are wrong, I am quite ready to adopt others.
§ Sir L. SCOTT
Take another illustration. A gas company, I am told, hires out gas stoves. It is not its duty to hire out gas stoves, and if it does hire them out, is the entire concern to pay Corporation Profits Tax on the whole of its profits? I am merely making this sort of unpleasant criticism, if I may say so to the hon. Member, to show that this is an exception that will not work. Let us put aside for a moment the exact wording of the Amendment, which, I submit, will not do at all, and consider 1430 the thing broadly on its merits. The principle of not putting under the harrow of the Corporation Profits Tax a concern whose profit-making power is limited by Statute was adopted by Parliament, and rightly so. Because, incidentally, in a purely ancillary way to its main business, a railway company or a gas company does something that is not its main business; is that any reason for making any difference? I respectfully submit that the Amendment, though it raises interesting questions, ought not to be accepted by the Committee.
§ Amendment negatived.
§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ Sir ARTHUR FELL
I do not think it is right that we should let this Clause pass without pointing out, as far as is possible, the difficulties which arise in connection with the Corporation Profits Tax. I will not anticipate the discussion which may take place at a later stage on new Clauses, but I would point out that if you decrease the number of companies which are concerned with this Tax, and if you have to produce the same amount of money from the tax, you thereby increase the amount of tax which will fall upon those companies that are liable to it. Therefore, if it be said that the Government want to get £20,000,000, or £30,000,000, or whatever it may be, out of the Corporation Profits Tax, and if the tax be put on a smaller number of companies, they will necessarily have a much heavier charge laid upon them than if the tax were spread over a larger number of corporations. The railway companies comprise an enormous amount of the investments in this country, and the ordinary shareholders in those railway companies are free in their dividends from the payment of Corporation Profits Tax. When the tax was originally put on, it was not quite as the Solicitor-General said in his first speech. I believe it was decided that the railway companies should be exempted because at the time they were under Government control, and the Government had to make up the dividends which were to be paid to the shareholders. If the Government had deducted the amount of the Corporation Profits Tax which would have fallen upon the railway companies, it would, while receiving this 1431 tax on the one hand, have had to pay it back with the other, and so there would have been no benefit whatever.
For that reason the Government exempted the railway companies. Then, the question was raised whether the Government would exempt other companies, and the exemption was increased to cover the utility companies—the gas and water companies. Originally the railway companies were exempted, because they were under the control of the Government and the Government never taxes its own property because it has to pay it back, and so it is useless. Now, however, the railway companies are working on their own account they are charging excessively heavy rates, and are perfectly able to stand this tax, as are also their shareholders. I cannot see any difference in the position of shareholders in a railway company in England from that of shareholders in any of the great steamship companies. They are doing equally useful work, and are possibly providing something like the same dividends to the shareholders. The steamship companies, however, have to pay the Corporation Profits Tax and Income Tax, whereas the railway companies escape the Corporation Profits Tax and pay only income Tax. That is a material point in the railway companies' favour, and it is a question which is raised at every annual meeting of the steamship companies, when it is pointed out that the Corporation Profits Tax is pressing very heavily upon their shareholders.
When the Government started this Tax it. was not their intention that any ordinary shareholders, who are receiving their dividends, should be free from it. The railways were only exempted to save the Government from receiving this amount and then having to pay it back again. The original proposal was that this exemption should cease with the end of Government control of the railways. That should be done, though it may not be possible this year. I think I ought to call the attention of the Committee to the fact that this exemption is putting an additional charge on the shareholders of all other companies in the country, because they are paying what the shareholders in the railway companies do not provide in the way of this taxation. It is right that we should point this out 1432 now, and perhaps it may be another nail in the coffin of the Corporation Profits Tax in the future.
§ Colonel WEDGWOOD
I hope that this Debate will be another nail in the coffin of the Corporation Profits Tax. I think, however, the hon. Member was wrong in one particular—
Colonel WED G WOOD
—when he said that exemption was given to the railway companies first and to the statutory companies afterwards. My recollection is that it Ns as the other way about, and that the statutory companies proved to the Chancellor of the Exchequer that if the Corporation Profits Tax were levied on them they would not be able to pass it on to the consumer. The statutory companies, in consequence, were relieved of the tax. Immediately, the right hon. Baronet the Member for the City of London (Sir F. Banbury) explained to the Chancellor of the Exchequer, with equal lucidity, that if the Corporation Profits Tax was levied upon railway companies, the railways could not pass it on to the consumer, and that their shareholders would have to pay the tax. I recollect the rapidity with which the Chancellor of the Exchequer recognised the hard case of the railway company which could not pass the tax on, and he exempted them for three years from payment of the Corporation Profits Tax. It was a perfect illustration of what the Government intended when they introduced the Corporation Profits Tax. They introduced it because they felt that they had discovered a new way of plucking the goose with the least squeaking; but when it left this House, after the vested interests had looked after it, the Corporation Profits Tax was not levied upon any business which could not transfer the tax to the consumer.
§ Colonel WEDGWOOD
Oh, yes. Why should not the consumer pay? A tax which cannot be transferred to the public is preferable to a tax which can be transferred to the public. My principal objection to the Corporation Profits Tax is that it is a new form of tax which is inevitably transferred to the consumer, thereby causing the greatest possible 1433 hardship. On every article that is produced in this country the Corporation Profits Tax is paid. On every article that is bought in this country for home manufacture—
§ The CHAIRMAN
There will be an opportunity of discussing the Corporation Profits Tax. The only question now is whether certain exemptions shall or shall not be continued.
§ Colonel WEDGWOOD
I was trying to show that the object of this exemption was obvious. It was to exclude all those capitalist concerns which could not pass the tax on, and I want to eliminate that exemption, not because I want to penalise unfortunate capitalists like railway companies, but because I want to abolish Corporation Profits Tax. It is a tax which falls only upon ordinary shareholders. Preference and debenture shareholders are exempt. The best way to end the tax is to see that everybody contributes to it, instead of exempting those people who, in my opinion, are best able to bear it. Three years ago, when the railways were exempted from the tax, the railways, and especially the ordinary shareholders, were in a very different position from their position to-day. Three years ago the ordinary shares in railways were depreciated 100 per cent., almost, from pre-War values. In those days there may have been some case for exempting the ordinary shareholders of railway companies from this burden, but now, after the passage of the Government Railways Act, which has done the ordinary shareholders of railway companies so much good, I hardly think that a case can be made any longer in favour of the ordinary shareholders. They have done very well during the past year. I suppose that the hon. Member for Oxford (Mr. Marriott) is a fortunate owner of ordinary shares. If so, I congratulate him. He has done very well. Since the passage of the Railways Act, North Easterns have nearly doubled their price, and other railway companies have done very well. I do not see the hon. and gallant Member for Durham (Major Hills) present, but the Midland Railway Company has done very well. The ordinary shareholders in railways and the deferred shareholders have done very well.
§ Sir F. BANBURY
I understand that this Clause continues the exemption of certain statutory companies from the payment of Corporation Profits Tax at the 1434 end of three years. I do not understand that it does anything more or anything less than that. The hon. and gallant Member has made a statement in regard to the position of railway ordinary shareholders. Shall I be in order in following the hon. Member, and speaking at length upon the position of ordinary shareholders in railway companies in 1914 and in the present year, and showing how the Railways Act of last year has influenced their position?
§ The CHAIRMAN
The question being whether a company like a railway company should have further exemption or not, while I wish, in the interest of the dispatch of business, that I could rule both hon. Members out of order; but I fear I must admit the one, and having admitted the one, I shall, of necessity, have to admit the other.
§ Colonel WEDGWOOD
The right hon. Baronet knew perfectly well that I was in order, and he will be in order when he tries to rebut my argument. My argument is, that whereas three years ago there was, perhaps, in the mind of charitable Members of the Government some case for exempting ordinary shareholders of railway companies from this impost, that case has now ceased to operate since the value of the shares of these ordinary shareholders has nearly doubled in price during the last three years. Therefore, we should abolish this exemption of railway companies from the Corporation Profits Tax. They were originally exempted, not on account of the low price of the shares compared with the pre-War price, but because they could not pass the tax on to the consumers. I am against a tax which can be passed on to the consumer and in favour of taxation which cannot be passed on to the consumer.
§ Clauses 33 (Extension to Malay States of Section 20 of 57 & 58 Vict., c. 30) and 34 (Repayments in respect of spoiled and unused stamps) ordered to stand part of the Bill.
§ The CHAIRMAN
The Amendment standing on the Paper in the name of the hon. and learned Member for Central Bristol (Mr. Inskip) should come as a new Clause, and not as an Amendment to Clause 35.
§ Clause 35 (Construction, short title, Application, and repeal) ordered to stand part of the Bill.