CLAUSE 25.—(Duty to give information.) (Hansard, 12 July 1939)

§ The Minister without Portfolio (Mr. Burgin)
I beg to move, in page 28, line 8, after "business," to insert "in the United Kingdom."

§ Captain Strickland
I beg to move, in page 29, line 8, at the end, to insert: (6) Where any person for the purpose of enabling himself to perform an armament contract has entered into another contract with any other persons for the supply by them to him of unidentifiable materials or things, those other persons may demand proof from the first-named person that the things they have supplied under the contract have in fact been used for the purpose of the armament contract aforesaid, and falling such proof being given by the first-mentioned person, a contract to supply those things shall not be deemed to be an armament contract. The purpose of the Amendment is to make quite sure that a sub-contractor shall be able to get a square deal with regard to armament contracts. It is quite possible that a contractor may be giving out orders to various sub-contractors. In the course of the supply of materials to the contractor, the subcontractor may not be aware whether the goods that he supplies to the main contractor are indeed subject to taxation as part of an armament contract or whether they are materials used for other purposes. It is to enable the sub-contractor to obtain, by legal right, from the contractor some sort of proof that the goods that he has supplied are indeed used for armament purposes that I move the Amendment. It is not an obstructive Amendment at all, but it is to secure that the sub-contratcor may have some legal right to proof of his liability to Armament Profits Duty.

§ Mr. Hely-Hutchinson
I beg to second the Amendment.

§ Mr. Burgin
The object of the Amendment, as the Mover has said, is to ensure that sub-contractors are treated fairly, 2299 He did not explain quite who was to be satisfied with the proof, and I think the House would appreciate at once that if the man who was to be satisfied was to be the sub-contractor, it would be a little anomalous, for the House would give to the sub-contractor, himself and alone, the power to say whether or not he came within the tax. I hope my hon. Friends, when I have been able to explain to them a little of the manner in which the tax is to be operated with regard to sub-contractors, will feel that their fears are without foundation and that the Bill contains the proper elements of proof for which they are asking. Let me explain shortly this chain of contracts and sub-contracts, and let me begin by saying that whether or not a sub-contract comes within Armament Profits Duty does not depend on that sub-contractor being satisfied. It is in the last resort a matter for determination by the Minister and is not a matter dependent upon a certificate or somebody's statement. It is an anlysis of facts determined by the Minister after hearing any person who is rendered responsible.
I think everybody in the House realises the enormous part which sub-contracts play in the Defence programme. The main contractor in contract with one of the Defence Services or with the Ministry of Supply proceeds to order from his various suppliers, who in turn procure their material from those further down the scale. The whole chain is a difficult one. That chain must be definitely and absolutely established to bring these sub-contracts within the tax at all, and if that chain breaks down at any particular point, everything below that breakdown should clearly have the benefit of the doubt. That is the way in which the administration of a tax of this kind must be carried out. I would ask my hon. Friends to realise that one of the reasons why in the Clause defining what is an armament contract there was inserted a proviso enabling certain articles and materials to be excluded was precisely this administrative difficulty of tracing the chain of sub-contracts too far down.
Let me take one example of the sort of difficulty of administration with which my Ministry may find itself confronted. It is not unusual for one or other of the large firms of mass production motor car 2300 makers to be engaged also on armament work. There is a whole variety of bolts, screws, nuts, and small, interchangeable parts which are ordered in bulk at the beginning of a season and from time to time replenished, which bolts, nuts, and screws can be used interchangeably, either for the mass production motor car or for the armament contracts which are being carried out. There will come a point at which it is quite impossible to differentiate in the use to which that common bolt is to be put, and, therefore, this tax has to be administered as a sensible, practical matter. You take your main contractor and put him under an obligation to tell his sub-contractor, and you put each subcontractor under an obligation to tell others further down the scale, and it is the Minister who determines whether or not the person and the sub-contract, the articles and materials, come, in the specific case, within the tax.

§ Mr. Pethick-Lawrence
The Minister says, "We put him under an obligation to tell the sub-contractor." To tell him what? That the bolt is to be used as an armament?

§ Mr. Burgin
You have to tell him that the supply is ordered for armaments. It is in the Bill, in Clause 25, which deals with this subject. It puts upon him the duty of telling the sub-contractor that the contract in respect of which he has been asked to undertake sub-contracting work is to fulfil an armament contract. It is in Sub-sections (2) and (3). If hon. Members look at Sub-section (2) of the Clause they will see that it says: It shall be the duty of any person who, for the purpose of enabling himself to perform an armament contract, had, whether before or after the passing of this Act, entered into another contract with any persons … for the supply of anything by them to him … to send to those persons, as soon as may be after the passing of this Act, or, as the case may be, after entering into the contract, a notice in writing stating that the contract has been entered into for that purpose.

§ Mr. Pethick-Lawrence
I suppose that it covers the case which the right hon. Gentleman gave of the man who had ordered a number of nuts and bolts, part of which he wanted for armaments and part for other work, but I do not see that it is so covered.

§ Mr. Burgin
We are trying to consider a wide variety of information. The duty 2301 of giving information is absolute. I was dealing with the case of a man who bought the bolts before he had this information. I say that there will inevitably come a point in the contract below which you cannot go further. That was one of the reasons why I thought that coal would probably have to be excluded as well as public utility services, because of the difficulty of dealing with the user to which the fuel was put, as a matter of practical administration. I am endeavouring to tell those who moved the Amendment that it is a canon of taxation that you must have liability determined clearly and not open to doubt, and that if there is doubt the taxpayer ought to be given the benefit of the doubt.
In this tracing of the sub-contracts right down the scale the Minister has the last word in determining whether or not a contract comes within the definition. The words proposed in the Amendment are, therefore, unnecessary. They would be difficult to work. You cannot make liability to taxation depend upon whether somebody does or does not supply proof, and there is no sanction in the Amendment upon someone who has proof, but omits to send it. There are all kinds of difficulties like that. I ask my hon. Friends to accept my assurance that the only way in which you can apply this proposal to a whole chain of sub-contracts is by making sure that the links in that chain are firmly established. That being so, it is not necessary for the subcontractor to have proof submitted to him.

§ Sir H. Williams
I was not in my place when this Amendment was moved and I thank my hon. Friend very much for moving it. I agree with some of the strictures of the Minister that the drafting is not too good, but I am not clear about the whole position, and I do not think that the Minister has answered the question put to him by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) about the mixed bag of nuts and bolts. I, say, as a principal contractor, place an order, which may be for a large sum, of nuts and bolts, or, may be, supplies of steel or copper. Part of that supply is subsequently incorporated in an armament contract and a large part in other 2302 contracts. What is then my duty? I have ordered £10,000 worth of raw material, and so far as I can see about £2,000 worth of it is to be used in connection with the armament contract and the remainder on ordinary civil work. What information do I pass on to the gentleman from whom I bought those things? Do I tell him that they are wanted for an armament contract? If I do, that is an incomplete statement. Somehow or other this matter has to be traced through.
I am dealing with materials which are ordered at the general stores of the factory. Every factory, you will find, has a store with hundreds and sometimes thousands of bins containing a great variety of articles of a standard character which are drawn on in the process of manufacture. Somehow, a system of costing will have to differentiate between the stores which are used for armament contracts and those which are not, and the news will have to be passed down the line. The Minister explained how the machinery relating to armaments contracts would work. I hope that he will answer the question put to him by the right hon. Gentleman opposite.

§ Mr. Burgin
I can speak again only with the permission of the House. The case put by my hon. Friend the Member for South Croydon (Sir H. Williams)—if I followed it correctly—was that of a purchaser of raw materials who bought without the knowledge of the use to which those raw materials were to be put. That purchase of raw materials is not an armament contract.

§ Captain Strickland
I do not think that my right hon. Friend understands the point. This is an armaments contractor purchasing from a sub-contractor. The point that we put was that he purchases a quantity of raw material or some product which, as the Minister has said, might be used for one purpose or for another. In fact, a certain proportion of it is ultimately used in armament work and a certain proportion for other purposes. The question which we put is: What is the precise duty of the armament contractor in relation to the subcontractor in reference to this mixed bag of materials?

§ Mr. Peat
May I be allowed to elaborate this point, in respect to a main con- 2303 tractor who employs a number of subcontractors? He may not get all his bolts or nuts or steel from one subcontractor, but from a number of subcontractors. He may put them all into store. I gather that he is not going to segregate them into different compartments some of which will go to armaments and some to civil work. How can he divide it up between his sub-contractors? It is an almost impossible physical task.

§ Mr. Burgin
I thought I was coming to that point by my own method. When the armament contractor buys in bulk with the knowledge in his own mind of the part to be applied to armament work, that purchase in bulk is an armament contract. I think that is quite fair. A contractor is under an obligation to give notice of the purchase of the raw material only if he buys it for the purpose of fulfilling an armament contract. Purchase in bulk without reference to an armament contract does not render the vendor of the raw material liable as an armament contractor at all. The man who bought in bulk without reference to the ultimate destination of the goods is not made party to an armament contract at all. That is quite clear from the interpretation of Clause 25 of the Finance Bill. Of course, where one is dealing with such a subject as steel the probability is that the steel will be ordered specifically for the purpose of supplying an armament contract, and to the extent to which the classification of the shapes or types of steel is determined, so the purchaser will have the duty of an armament contractor, that of saying that his purchase is for the purpose of an armament contract.

§ Mr. Pethick-Lawrence
This seems to me, as Alice said, curiouser and curiouser. It now seems that if a man wants £10,000 worth of articles for an armament contract he has only to add £1,000 worth more, which he is going to use for something else, in order to free the whole £11,000 from being an armament contract.

§ Sir H. Williams
In view of the discussion which has taken place, I beg to ask leave to withdraw the Amendment. It is quite manifest that we shall require a better solution than the one that has been arrived at.