HC Deb 12 July 1939 vol 349 cc2279-84

4-20 p.m.

Sir Herbert Williams

I beg to move, in page 23, line 32, at the end, to insert: Provided further that if any person proves to the satisfaction of the Commissioners that his turnover for any year does not exceed £200,000 in respect of armament contracts, then notwithstanding that his receipts for that year in respect of such contracts may exceed such sum, he shall not be deemed to be an armaments manufacturer for the purpose of this part of this Act. I think the purpose of this Amendment will be clear to the House. Under this Clause, the preliminary procedure is to decide whether or not a firm is liable to this tax, because the Minister, who is in the best position to know what the receipts of the firm have been, first of all declares to the Commissioners that in a particular accounting period, the total receipts for business under armament contracts is not less than £200,000. As an initial procedure, that has a great deal to be said for it, because that is a first fact that is easily known to the Minister. But let us consider what follows. Suppose that there was a case of a firm which in one year did a good deal of work, and that as a result of some delays, arising possibly out of discussions with regard to the accounts, the payments for that work all came in the following year, and that in the second year a certain ammount of work was done the payments for all of which were made during that year. The result would be that a firm which was by intention outside the scope of the tax—what we are really after is the people whose effective turnover in respect of armament contracts is £200,000 a year—and the turnover of which, in respect of armament contracts, was not much more than half the amount would, in fact, be brought under the tax by the sheer chance of the dates on which the cheques were paid.

It might even be that in the case of firms whose accounting period ended on 31st March, the mere fact that the warrant from the Paymaster-General was despatched on 1st April instead of 31st March might decide the question whether they were to bear the tax or not. It seems to me that that is rather stupid. I cannot believe it is the intention that the tax should depend upon such a fortuitous circumstance as the date on which a certain account is made up. The intention is to bring in people who have contracts beyond a certain magnitude, and this provision might by chance bring in other people. On the other hand, there ought really to be a further Amendment—I know that I cannot move it, because it might increase the charge, and that it could be done by the Government only if the Bill were recommitted—to provide that a firm which had done £200,000 worth of business on armaments in a year should not escape by the mere chance that the payments were not spread over a single accounting period. As the Bill stands, I think it is really unsatisfactory. I hope I have made my point clear.

Captain Strickland

I beg to second the Amendment.

4.24 p.m.

The Chancellor of the Exchequer (Sir John Simon)

My hon. Friend the Member for South Croydon (Sir H. Williams) has explained briefly and at the same time clearly the point of the Amendment, and I think everybody will have followed the argument he has put; but there is this to be said on the other side. Under this provision, we are simply selecting the people who will come within the list of those who will be taxable, and we want to have a simple test which can be applied without doubt or challenge, because it will depend on facts which are within the knowledge of the Crown. That is the reason we select the test of receipts, for the spending Departments know what is the amount which, in a given year, they have paid to a particular firm or company. It is within their own records. It is not a matter, apart from accidents, which could ever be subject to any controversy. Therefore, it is a very good test for the purposes of selection and for the purposes of rapidity of administration.

If I recollect rightly, my hon. Friend did put down an Amendment, on the Committee stage, to substitute turnover instead of receipts as the test, but obviously he could not move such an Amendment because it might have had the effect of increasing the charge and bringing in people who would not satisfy the test of turnover, but would satisfy the test of receipts. My hon. Friend, who is always ingenious and persuasive, now proposes that both tests should have to be satisfied. That proposal no doubt is in order, for if it had any effect at all, it would exclude from the possibility of taxation some people who otherwise would be liable. Nothing can be said on the point of Order, for the effect of the Amendment would be to let out some people who, under the Bill as it stands, would be included. While I agree there is nothing very scientific in saying that the test shall be £200,000 receipts in a year, wherever one draws the line, one is bound to have border cases on the merits of which one can argue a good deal, but I hope the House will take the view that, for the sake of simplicity, certainty and rapidity of administration, the test we have proposed is the right one and should not be complicated by a further provision that, even though this simple test was satisfied and there were receipts of more than £200,000 in a year from the Crown, nevertheless the individual should be outside the risk of taxation because he could show that his turnover in that year was not quite so much. I agree that the two things are not quite the same. I think there would be a tendency for them to correct themselves as between one year and another, but I hope the House will take the view that for practical purposes we have established a very reasonable test, and for those reasons, I am very unwilling to see it changed.

Captain Strickland

Has my right hon. Friend given consideration to the case of two firms which do exactly the same amount of Govrenment contract work within a three-year period? The first firm does £150,000 in one year, £100,000 in the second year and £100,000 in the following year, and gets paid for the first two years in the second year, which brings the amount up to £250,000 receipts, so that the firm has to pay tax on the profits on £50,000. The second firm does exactly the same amount for three years, but gets paid each year, and escapes the tax. May I ask my right hon. Friend whether there is not any possibility, in his administrative capacity, of his adjusting what must obviously be an extraordinarily unfair comparison between those two firms?

Sir J. Simon

I appreciate the contrast made by my hon. and gallant Friend the Member for Coventry (Captain Strick- land). I do not say it is not a fair illustration to give, but after all, the test of £200,000 is not the same thing as imposing the tax; it is merely a preliminary test for making a list of those whose cases are to be considered. I think the thing will correct itself in the second year as against the first. At any rate, I should be extremely sorry to see this complication introduced here, for it would inevitably introduce what might be lengthy arguments as to the proper calculation of turnover, which is not necessarily a very simple thing, instead of applying, as we seek to apply, a test which, as far as possible, would be automatic.

4.30 p.m.

Sir Frank Sanderson

Could not this whole thing be clarified if, instead of taking the amount of the payments received during any one year, you were to take the value of the goods delivered and invoiced during the year? The intention of my right hon. Friend is to levy a tax upon the total amount of goods delivered during a given period, say one year. If that is to be taken on the basis of payments received, this point arises. The Government might receive deliveries of goods valued at £50,000 in one year, and a further delivery valued at £50,000 the following year, but payment for the two deliveries might be made at one time, that is to say it is possible for payment of the whole £100,000 to fall within one financial year.

4.31 p.m.

Mr. John Wilmot

May I ask whether it would be in order to ask the right hon. Gentleman a question at this stage about an undertaking which I understood him to give during the Committee stage in respect of this Clause? The matter is slightly outside the terms of the Amendment. The question is whether he has considered including in the sums to be taken into account in arriving at the figure of £200,000, orders placed by local authorities and not by His Majesty's Government.

4.32 p.m.

Sir J. Simon

I can speak again only by leave of the House, and, indeed, I think I have already transgressed once in that respect. The point put by the hon. Member for Kennington (Mr. Wilmot) is, I venture to think, one which does not arise on this present discussion. There was a reference during the Committee stage to the difficulty of introducing local government contracts and my right hon. Friend the Minister-designate of Supply dealt with the point elaborately. In reply to my hon. Friend the Member for Ealing (Sir F. Sanderson) I would say that his point is really the same point as that made by my hon. Friend the Member for South Croydon (Sir H. Williams). He is, in fact, urging that we should substitute turn-over for receipts, or at any rate that we should relate the test to turn-over instead of relating it to receipts. I think it is plain that that would be a very much more complicated test to apply. There is great force in the argument that we should, if we can, make the preliminary list rapidly and simply. I hope it will turn out—indeed I think it will turn out—that the scheme proposed in the Bill will work with substantial justice. I agree that there will probably be a certain number of border-line cases, but I am going to see how it works out and if indeed it is found that cases arise which give occasion for saying that this method is working inequitably and improperly, then, of course, the matter will have to be reconsidered.

4.34 p.m.

Sir Arnold Gridley

May I put to the Chancellor of the Exchequer one aspect of this problem which may not have occurred to him or to his advisers? Those of us who are familiar with engineering contracts which extend over considerable periods, know that it is common for a firm to receive a payment of so much per cent, of the contract price on the delivery of the plant or equipment, and a further proportion when the plant has been erected and has started to work. Thus, a considerable percentage, say 10 per cent, to 15 per cent., may be left over for 12 months, and accordingly the receipts for the goods may not all come into the same year. That is one reason why those of us who are familiar with this business thought it would be fairer to the Exchequer and quite fair to the manufacturer, if turn-over were accepted as the basis of this taxation rather than receipts. When all is said and done, those of us who have to produce our balance sheets at the end of each year, ought to be able to compute accurately what reserves we required to make for Income Tax, for National Defence Contribution and for this new tax. It will not be so simple for us to do that, if we are uncertain whether we are going to be caught by this tax in a particular year or not. If the turn-over exceeds £200,000, which can easily be ascertained, then we shall know that we are liable to the tax. Therefore, I suggest that this Amendment ought to receive more careful consideration than it appears to have received up to now.

Sir H. Williams

Having regard to the undertaking of the Chancellor of the Exchequer that he will consider any problem that arises in the course of the next year, and also having regard to the fact that the matter can be effectively dealt with in next year's Finance Bill, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.