HC Deb 20 June 1939 vol 348 cc2134-57

(1)The Minister may give directions to any person who by virtue of any contract, whether made with the Minister or another Government Department, or any other person and whether made before or after the commencement of this Act, is under an obligation—

  1. (a) to deliver any articles required for the public service; or
  2. (b) to carry out any works so required;
to submit to the Minister a report of an independent auditor on the costs incurred in carrying out the terms of the contract.

(2) If any person—

  1. (a) fails to submit any report which he is required to make under this Section; or
  2. (b) knowingly or recklessly makes any untrue statement in any such report;
he shall be guilty of an offence under this Act. — [Mr. Stokes.]

Brought up, and read the First time.

8.43 p.m.

Mr. Stokes

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

This Clause, which stands in my name and that of my hon. Friends, gives the Minister power to require reports from an independent auditor. The object of the Clause is to permit the Minister to ask anyone engaged in the supplying of goods of any nature and of any quantity for the defence or for the armed forces of the Crown to render an independently audited statement of cost and profit made on each contract. Clause 9 of the Bill does not do this, nor in fact do the new regulations published to-day, as far as I understand them. This Clause is meant to be supplementary to Clause 9 and not to take the place of it. What it seeks to do is to make known, to drag out into the glaring light of day, what profits are being made on these contracts, which neither Clause 9 nor the new regulations do. It seeks further—and I say this in the hope that I may secure the support of some hon. Members opposite—not entirely to eliminate profits, but rather, as the result of their securing the light of day, that they shall be properly limited. The Clause can be applied to anyone supplying anything from trouser buttons to big guns, and to sub-contractors, and I can see no reason why the Minister should not, if he so desired, apply it to the suppliers of raw materials. It is clear that the Clause is not obligatory. It is only permissive, and the Minister will choose his own time as to when and how he applies it.

Let me refer briefly to the reasons for the new Clause. Clause 9 permits the Minister to demand the production of books. This has the same disadvantage as the custom prevailing, at the present time; it will not get at the foot of the problem. The new Clause may not be satisfactory from everybody's point of view but at least it will deal with an aspect of the problem which I have studied for a long time. The fact is that it is quite impossible to ascertain what profit has been made on a contract unless you are able to reconcile the costs account with the general financial account of the business. Every competent manufacturer of a business knows this to be true, and takes steps that his cost accountants and auditors present him from time to time with a properly reconciled statement, and it is a matter of some astonishment to me and other hon. Members that the Government, who run the biggest business in the world, think it is quite unnecessary to take a precaution of this kind.

May I be permitted to explain for the benefit of those who may not understand fully what I mean by correlating the costs account with the financial accounts? The real profit of a business obviously depends on the rate of turnover. The costs themselves are usually based on an assumed turnover against estimated overheads, and if the turnover goes up then inevitably something that has been included in the estimated cost of the product for the purpose of covering overhead charges is converted into real profit. In most cases the person who is the best fitted to make such a statement to the Minister is the outside accountant or auditor employed by the firm itself, but, of course, there are occasions where it would be inconvenient and perhaps embarrassing to employ the same auditor and the Minister should have power to appoint an independent auditor by agreement with the firm. May I say in condemnation of the present cost investigation system, which the new Clause seeks to supersede, that it is in my view cumbersome and inadequate, and almost invariably results in the Government having to pay more for what they are getting than they otherwise would.

I am not going to detain the Committee by quoting examples, but there is one example within my own knowledge, where a firm took a contract worth £14,000 on the understanding that there was to be no cost investigation in order to guard against what I call the nuisance value of cost accountants. When it was subsequently ascertained that cost accountants were going to investigate what was being done a howl immediately went up from the firm that they had not allowed for that form of nuisance, and they wanted 10 per cent. more, with the result that the Minister, I am glad, waived the examination which had been threatened. In regard to the sort of statement which it is suggested should be given, may I explain to the Minister that what we have in mind is that an auditor should follow the same general rules which apply to the audits of companies for Income Tax returns, which means, in effect, that they can be summoned for conniving at any fraud in the making of a false return. Secondly, it is important to appreciate that the return to the Minister will have to be in an agreed form so that profits cannot be thinned out or otherwise wangled to subsidiary companies.

I think that the new Clause should please everyone. First of all it should please the Government, because it will enable them to ascertain the real costs and profits, with minimum trouble and expense to themselves. Secondly, it should please the respectable manufacturer or supplier, because it will save him an immense amount of trouble and unnecessary interference by costs accountants. I do not suggest that they should be completely ruled out. They should have power to interfere if they wish, but in my view their services can be dispensed with. In the case of most manufacturers it would remove what has to a certain extent become a stigma owing to the feeling of the public that excess profits are being made and that advantage is being taken of the national emergency. In the third place, I submit that the auditors and accountants involved will be pleased because it will remove the anomalous position in which they find themselves. They are often, and they admit it, protecting their own employers in practices which they know to be against the public interest. If I am asked to produce evidence I should like to read to the Committee an extract from a letter I have received from a prominent accountant in the City of London: I have some ideas as to the limitation of armament profits, but as they include the regimentation of my own Institution for this purpose I think that they might be too shattering to voice. It is certain that as long as accountants shield their clients, a revelation of all material facts and figures is rather difficult. That is yet another body of people who will be pleased. In the fourth place, the Government accountants themselves will be helped because this will simplify their work whilst not removing from them the right to make a fuller investigation if they wish. And, finally, it will greatly relieve and reassure the taxpayer that profits are being properly controlled and limited to the bare necessity. If the new Clause does not go as far as some of my hon. Friends would wish, I urge the Committee and the Minister to accept it as being a practical step in the right direction.

8.53 p.m.

Mr. E. Smith

I beg to second the Motion.

In the first place, I should like to make it quite clear that I do not believe the trouble is with the manufacturers. A great deal of the trouble is caused before the manufacturer starts on the material, and the people who are the cause of the trouble are the speculators, the financial companies and some of the insurance companies. A great deal of anxiety exists in the country with regard to the costing system and, therefore, I believe that the proposal in the new Clause is on the right lines. The Minister said on Clause 9 that he has power to examine the books. That power, in addition to the powers given by the new Clause, will go a long way towards dealing with the grievance with which hon. Members on this side are most concerned. If the new Clause is introduced in the Bill, together with the powers which the Minister has already got, I suggest that the Government should fix, first, the value of depreciation; secondly, that they should fix overhead charges, providing that all things are equal and having regard to the conditions operating in any particular factory; thirdly, that they should make an average allowance for material; and, fourthly, an allowance for reasonable profit. If the costing system were based on those principles, as well as on the policy included in the proposed Clause, it would go a long way towards dealing with the position with which we want to deal. As to the necessity for the new Clause, any one who has followed events particularly during the last four years will not doubt the need for such a Clause. I will give the Committee an instance by quoting an extract from a broker's letter: In view of the fact that the Government is spending so many millions immediately on an increase in the Air Force, all the aircraft companies will greatly benefit by this outlay, and big profits can therefore be netted by buying shares at once. That was quoted in the "Manchester Guardian." It is an instance of exploitation taking place at the cost of the nation's needs. Here is another example: In recent weeks, capitalists have not been noticeably shy about trying to make capital out of the national armament efforts. In deed, a number of speculators have already succeeded by intelligent anticipation of future political decisions in lining their pockets" —

The Deputy-Chairman

I am afraid the new Clause has nothing to do with speculation on the Stock Exchange, with which the hon. Member is now dealing.

Mr. E. Smith

In that case, I will give examples of how the nation's needs are being exploited, and show the need for this new Clause and for using the powers contained in the Bill. I find that John Brown, Limited, in 1936, made a profit which enabled them to pay 15 percent.; in 1937, 17½ per cent.; and in 1938, 17½per cent. The Stanton Iron Works paid, in 1937, 10 per cent., and in 1938 10 per cent. According to the "Daily Express," the General Electric Company has paid a dividend of 20 per cent. A group of machine tool manufacturers have now de- cided to get together in a combine, and for every £1 share held.—

The Deputy-Chairman

The hon. Member is getting very wide of the new Clause. The new Clause deals with giving the Minister power to require the report of an independent auditor, and the dividends paid by certain companies are not very relevant to that.

Mr. Lawson

Surely my hon. Friend is in order in illustrating the need for this investigation. If there is one class of production to which it is necessary to draw attention, it is machine tools manufacture, and surely, my hon. Friend is entitled to illustrate his argument by referring to the dividends that have been paid during past years.

The Deputy-Chairman

I do not think the question of the need arises so much now. That came up on Clause 9, which has already been passed, and in which there is power to require the production of books, and so on. This new Clause is in addition to Clause 9, where the premise has been proved already.

Mr. Gallacher

Further to that point, Colonel Clifton Brown. There is a feeling in many parts of the country that some of the firms that are doing Government work can get such enormous profits from it that they can afford to take in other work even at a loss, and pay huge dividends. If there were a costing system and an independent audit which would inform the Government of the amount of profits that were being made on the work the Government are handing out, this sort of thing could not go on, and therefore, surely my hon. Friend is entitled to argue to that effect.

The Deputy-Chairman

It is not for me to answer that point, I think. Under the new Clause, the question at issue is whether an independent auditor should submit a report on the costs incurred in delivering any articles required for the public service and in carrying out any work for the Government.

Mr. E. Smith

I will try to keep to your Ruling, Colonel Clifton Brown. I am producing concrete evidence to show the necessity for this new Clause, and to show the Committee the extent to which the people are being exploited. We all know what has taken place with regard to the machine tool manufacturers. Time after time the matter has been raised in the House, but now, the whole Committee sees the reason it was raised, and are prepared to accept the need for the Government taking the action they propose to take. According to the "Daily Express" of 16th June, 1939, a group of machine tool manufacturers are going to get together in order to exploit further the needs of the country, unless the Minister takes action as a result of the power he will have and on the lines proposed in this new Clause. For every £1 share held in the machine tool industry, £22 is to be paid. I suggest that the Government ought now to deal drastically with manufacturers who have exploited the nation's needs to that extent.

Hon. Members on these benches do not accept the present social system, but we realise that we have not yet got the backing of the people to enable us to deal with it. Therefore, it is reasonable to expect that firms should be allowed to make a reasonable profit. We are not speaking critically, within the limits of things as they now are, with regard to reasonable profits. What we say is that the Government ought to introduce a costing system based on the proposals of my hon. Friend the Member for Ipswich (Mr. Stokes), who has put the nation's needs before any industrial connection he has. He has come to the Committee, not like a number of hon. Members who represent narrow vested interests, but to make a proposal of this character. A year ago, he made a similar proposal. The chairman of Ransome and Rapier's, at one of their annual meetings, suggested that his firm should carry out Government work at a certain percentage. At that time, the Government were not prepared to accept the proposal. That is another indication of the necessity for accepting this new Clause, in order that we may force the Government into dealing with the nation's needs in the way we propose.

We believe that even these proposals will not deal adequately with the problem, and that the only adequate method of dealing with it is to construct national factories; but as the Government are not prepared to do that, we make these proposals in order that the nation's needs may be met at as low a cost as possible, and in order that hon. Members opposite and certain newspapers shall not be able to say in the near future, as they are already hinting, that the time has come when there must be economies at the expense of the social services. If a scientific costing system of the kind proposed in the new Clause were introduced, we should be able to meet the nation's needs at as low a cost as possible, and save several millions pounds of the taxpayers' money.

9.5 p.m.

Sir A. Gridley

I am in sympathy with the principle which, I think, the hon. Member for Ipswich (Mr. Stokes) had in mind in framing this new Clause. At the same time, I hope the Minister has no intention of accepting it, because I think it is impracticable, and I will ask the Committee to bear with me while I address a. few remarks to the hon. Member for Ipswich on this subject as "a brither engineer"; to use the language of the hon. Member for Dumbarton (Mr. Kirk-wood). If I thought useful information, which would be effective in checking excessive profits could be secured by this new Clause, I should be wholeheartedly in favour of it. What does it seek to do? The Clause seeks to secure a report from an independent auditor on the cost of carrying out a contract. Suppose a firm has six or a dozen contracts proceeding at the same time, is the independent auditor to make his report on the cost incurred in completing each contract? That is the first difficulty.

Secondly, the independent firm of auditors could only report on the total cost of a contract when completed, and could make no analysis of the details making up the total cost involved. But here is the point at which I must definitely part company with the hon. Member for Ipswich. As an engineer, he must admit, as the hon. Member for Stoke-on-Trent (Mr. E. Smith) asserted a few days ago, that to arrive at the total cost of carrying out a job, it is necessary to employ trained mechanical experts. There are four things which have to be carefully analysed in arriving at the true cost of carrying out any engineering contracts whether in relation to guns, or tanks, or aeroplanes, or any other form of output. The first is whether the times allowed for the various machining operations are fair and reasonable. How in the world can a member of the staff of a firm of chartered accountants carry out such a duty? Obviously no man on such a staff would have the requisite training.

Mr. Stokes

Does the hon. Member, or does he not, in his own business have his contracts costed up and if he does, would there be any difficulty in getting an independent auditor to credit them? I tried to explain in ray remarks that I was referring to the auditor who normally comes in to audit the firm's accounts. Would the hon. Member have any difficulty whatever in getting his firm's auditor to certify the result of any contract and make the necessary reconciliation to allow for the over absorption of overhead charges?

Sir A. Gridley

None whatever, but what the hon. Member seeks to do in this new Clause is to call in an outside firm presumably to certify that these costs are reasonable.

Mr. Stokes

The hon. Member cannot have listened to what I said. I was at great pains to say that in my view the person best suited to render this statement would be the auditor who is normally engaged in auditing the firm's accounts— the outside auditor who normally makes the Income Tax return. An outside auditor such as I described, goes to the Inland Revenue authorities and comes to an agreement with them as to what the profits of the business have been on the year. If that auditor makes a false statement he is subject to severe penalties. What I seek to do is to put auditors in the same position over these contracts and not to fiddle about with these ridiculous costs accounts.

Mr. Gallacher

The "brither engineers" do not seem to be getting on very well.

Sir A. Gridley

The hon. Member had better leave it to the engineers themselves to decide whether they are getting on well or not. [HON. MEMBERS: "He is an engineer too."] The next difficulty which I see in connection with an investigation of this kind is the difficulty of deciding whether or not a fair on-cost percentage has been added, in respect of the direct labour employed on the job. Here, again, it is only a man with expert knowledge of the practice in engineering workshops or other types of manufacturing shops who can possibly check that information. Certainly it was in this respect that so many people at the time of the last War made money to which they were not entitled. Again in connection with allocating the costs to the various orders, men were charged to particular jobs which should never have been charged to those jobs. That, again, can only be checked by an expert who knows whether it takes three men or six men, to carry out a particular piece of work. Finally, as those who have been engaged in business of this kind know, you may decide to add a certain percentage of on-costs for direct labour based on the normal output of the business, but if you are extremely busy, you may quite well and frequently do make a profit on the on-cost charges made. How is an independent auditor to say, between one contract and another, whether the on-cost charge which you have made is or is not fair and reasonable in the circumstances?

There are only two methods by which you can succeed in achieving what the hon. Member for Ipswich and I are both anxious to achieve, namely that work of this kind should be carried out at a reasonable price. The first is the check which is at present going on by those who are, I agree, the only people capable of checking what the true costs are, and the other is the ultimate result disclosed in the balance sheet of the firm at the end of the year. One cannot discuss what is going to happen to firms who succeed in evading the check upon costs which experts are making, without having in mind the White Paper which has been published to-day proposing a new check upon excessive armament profits.

While it would be out of order to refer in any detail to this new proposal, we cannot, in considering this matter, leave out of account the fact that there is another effective way of diverting a proportion of excessive profits into the coffers of the nation, in some such manner as that proposed in the White Paper. I am not sure that in this matter we are not pursuing the wrong public enemy, so to speak. I am not so much concerned about the profits, which some may think reasonable and others regard as excessive, which may be made by industrial undertakings. After all, it does not matter so very much whether you are distributing 15 per cent. or 30 per cent. if it is being distributed to a large num- ber of small shareholders. Hon. Members may laugh, but there is nothing to laugh about. They are always arguing in favour of increasing the spending power of the community. If a man who has been in receipt of £30 in dividends on an investment of £200 in an industrial undertaking, gets £50 in a good year that is really no very serious matter, because it gives him a little extra money to spend. The man I am after is the individual profiteer. He is the man I should like to succeed in tracing down and holding up to scorn, and I shall have something to say about that later, at the appropriate moment. On this particular Clause I speak with 40 years' experience of industry when I say that it will be of no value to the Minister, that it will get him no further forward, and for the reasons given I hope he will not accept it.

9.16 p.m.

Mr. Alexander

Though I listened with great care to the speech of the hon. Member for Stockport (Sir A Gridley), I have failed to discover a single point in it which shows the new Clause to be an impossible one. In fact, the longer he talked the more he proved the necessity for the Clause, and unless the Minister is going to accept it I think he will find some difficulty in answering the case made for the very simple propositions contained in it. We have had many arguments in the past three or four years as to the necessity for taking adequate measures to prevent profiteering at the taxpayers expense in a national emergency but it is only within the last 24 hours that we have had, at last, the first specific proposition made by the Government. Of course, we cannot now discuss the details of the White Paper which has been issued, but I would point out that not everybody engaged upon Government contracts in connection with the national emergency is covered by the proposals in that White Paper. It concerns only those who have contracts to the extent of £200,000 per annum; all the others will be exempt from its proposals; and therefore it becomes all the more urgent to adopt this new Clause, so that it may "rope in," on a basis of properly-ascertained profits, all that great number of people who are engaged on Government work to the extent of less than £200,000 and those are contracts on which very large profits can be made.

One is a little tired of answering, as some of us have been answering for the last 20 years, the case made by the hon. Member for Stockport, that if there are a large number of small shareholders in any company engaged upon Government contracts the payment of a high dividend in a particular year will not make very much difference. I will advise the hon. Member to study afresh the position as to the true spread of investments of that kind among the community as revealed in the annual return of the Board of Inland Revenue. It is true that one may pick up the share list of a particular company and find there are 1,000 shareholders with very small holdings, but if the research were carried a little further it might be found that some of those who owned 100, 200 or 300 shares in that company had similar holdings in some 30 or 40 other companies, many of them also engaged on armament work. Therefore, that argument of the hon. Member's "cuts no ice." The real point is, are those men making an undue profit at the expense of the taxpayer during a time of national emergency?

It is a great pity that we cannot remember what happened in fairly recent history. There is not a single point which has been made from the other side tonight which one. cannot find enshrined in the records of the Official Report during the years 1914, 1915, 1916 and1917, in the debates that led up to the introduction of the Excess Profits Duty,"under the whip"if I may use the scornful words of the late Mr. Bonar law there was not a case which was put up in the Debate recently about arbitrators which one could not find in Debates when these matters were discussed before. What do we find in there records of the last War? Because there was then no efficient check upon profits ,although there was a costings system in the last two years—

Sir A. Gridley

Nothing like the costings system now.

Mr. Alexander

I say that, in spite of the costings system adopted during the last two years of the Great War—and it was a good costings system, and there was also the check of the national shell factories which we were bound to establish before the War could be won—large profits were still made. We find in the Report of the Committee on War Wealth —although all of it, I know, did not come out of engineering—that fortunes totalling over £4,000,000,000 were made during the War, additional to what the people had had before. We have been suffering under that ever since.

The case we have put forward on many occasions has been that it is not the best way of dealing with the matter to allow heavy profits to be made and then to take a little of them back. My hon. Friend the Member for Ipswich (Mr. Stokes) and those who support him in his new Clause have provided an efficient method of checking-up as early as possible how things are going, so that with the knowledge thus gained officials will be able to prevent high rates of profit being made in respect of subsequent contracts which are placed. It is impossible for the Minister of Supply not to be interested in this proposal. He ought to be interested in it. I have had some correspondence with one or two people who were very much concerned about things I have said in the last 12 months regarding profits on arms' contracts, and when it comes down to an examination of the position they say this: "Well, Mr. Alexander, we do our best. We try to get a costings system, but unless we are to run the risk of making a loss at any particular stage of a process or an assembly operation we must actually make a small profit, and the orders are so large that we cannot help making big profits upon our capital turnover." That may be so; I think it is quite likely to be so. If we are to have any check upon that we shall have to adopt some method in line with what is proposed in this new Clause. Having regard to the fact that the Government have put forward fiscal proposals for pulling back by means of extra taxation some of the profits which have been made, and that they leave out of account all contracts of less than £200,000 a year, it seems to be essential to have this Clause in the Bill, and if the Minister is not prepared to accept it I hope my hon. Friend will Divide upon it.

9.25 p.m.

Mr, W. S. Morrison

Perhaps it would be as well if I intervened now to indicate the attitude of the Government towards this new Clause. A great deal of the discussion upon the Clause has been on the lines of contrasting what is called the present costings system with that proposed in the new Clause. But I venture to observe that for the purpose of gauging the value of the proposal of the hon. Member for Ipswich (Mr. Stokes) that is not the test that we ought to apply at all, but rather we should look at his new Clause with the knowledge that we have already passed Clause 9. What does the new Clause propose? It renders it permissive—not obligatory—to the Minister to require the report of an independent auditor on the costs incurred in carrying out any particular work. But I invite attention to Clause 9, which has already been agreed to and which is drawn in very much wider and more drastic terms than the new Clause, because it says that the Minister may direct any person carrying out any work to produce to any person authorised for the purpose by the Minister all the books and documents and information necessary for costing.

Mr. Stokes

That is permissive.

Mr. Morrison

And so is the Amendment of the hon. Member. But what I am concerned to point out is that Clause 9 is very much wider than the new Clause, and includes his Amendment implicitly; that is to say, the Minister may direct that the undertaker shall "produce to any person authorised for the purpose by the Minister" books and documents. Note, the words are "any person "—the widest expression that can be used and, of course, include an independent auditor such as the hon. Member wants. Is it wise for the the Committee to agree to such a restricted choice of persons to whom books can be produced? Surely not. One of the best ways of arriving at a true costing system is to compare like with like. But if you shut off into watertight compartments, each audited by a separate independent auditor, the work of costing munitions production, you will not get the same information as you would get if you have one man appointed by the Minister to cost several works of the same sort, compare the results, and make the investigation valuable from the point of view of seeing what has really been spent. Under Clause 9 the independent auditor required by the hon. Member for Ipswich can be appointed, and there is no need therefore to give the Minister additional power to appoint such a person. Under Clause 9, in addition to the power to appoint an independent auditor, an officer of the Ministry may inspect the books and he may carry away copies of them.

I mention that because it is not merely that this new Clause is unnecessary— which should be a sufficient reason for not passing it—but it may actually be restrictive and harmful. It is a doctrine of the law that if you give general powers of a wide character, and then proceed to direct that one of those powers shall be specifically mentioned, there is always a danger that the fact that other powers are not equally specifically mentioned may be held to exclude them. The wise thing, and the safe thing in these cases, when you have given a general power, is to leave it general, and not to weaken it or limit it by implication, by mentioning one power and not mentioning others. I am not concerned to go into what has been said about profiteering in general. That is an argument of much wider scope and much greater importance. But I do say, first of all, that the hon. Member's new Clause is not necessary, because the power which it affords is already comprised in Clause 9, and in suitable cases could be used under Clause 9; and, secondly, that the powers of Clause 9 enable other forms of investigation to take place, and therefore I invite the Committee not to accept the Amendment.

9.31 p.m.

Mr. Stokes

I endeavoured to make clear in my opening remarks that this Clause was not to fake the place of Clause 9, but to be supplementary to it. I cannot see in Clause 9 anywhere a statement that an audited statement shall be required. It says that firms may be required to produce books and papers and the like. With all due respect, I do not believe the Minister understands what is involved. I agree that in my remarks I said it might sometimes be advisable, owing to the complicated system of working of companies, not to ask the auditor who is normally engaged in auditing the company's accounts to present the auditor's statement, but I am quite satisfied myself that in about 99 per cent. of the cases it will be far the easiest, the quickest, the cheapest and the most satisfactory way. What the Minister envisages in regard to Clause 9 is that he has the power to have all these books pro- duced and to appoint an independent auditor, and he can then say, "Get to work." What the accountants will reply is:"There are simply not enough of us. We cannot all of us go off and audit the books of a company in order to arrive for you at the cost of a particular contract." It is the person who understands the accounting system of the firm in question who is best able to give us a certificate on oath, as it practically is, of what the profits on a particular contract are. Clause 9, to my view, is absolutely unsatisfactory as it stands. It may be that my Clause as drafted is not right—that is another matter; but if the Committee is going to go off with the idea that Clause 9 is satisfactory, then the majority of Members of the Committee do not understand what is involved.

Mr. W. S. Morrison

Does the hon. Member say that the words in Clause 9(1) to produce to any person authorised for the purpose by the Minister, are not wide enough to include an independent auditor?

Mr. Stokes

I agree that they make it possible, but what is going to happen, if we let the Minister get away with this, is that he will be told that there are not enough auditors in the world, and not enough time? I have talked to associations of auditors and to auditors in the City, and they all take the same view that this is simply not practicable. What is practicable is that the auditors who normally audit the accounts of the company should give a certified statement of what the profits on a contract are.

9.34 p.m.

Mr. Gallacher

I am not at all satisfied that the Minister is aware of the importance of this new Clause. I am concerned about the necessity of taking every possible precaution to stop the making of excessive profits. I have been called to account for using the expression "a bunch of rogues," but, no matter what you do, you cannot catch or stop the fellows from profiteering. The hon. Member for Stockport (Sir A Gridley) gave a mild blessing to the new Clause, but he went on to argue that it would not stop profiteering. For, he said, how can the accountants know whether the employers are allowing too much time—too much bonus. The accountants do not have to worry about that. Does the hon. Member seriously suggest that firms will allow too much time, too much bonus and too much wages to the workers? That would be a paradise for the working class. The question is, will the employers allow enough time? But the. trade unions may be relied upon to look after that matter.

In regard to employing too many men on a particular job and putting in time for too many people, if we have a genuine desire, in dealing with this question of Government contracts, to ensure that the public are not being fleeced by the employers, you can again rely on the trade unions and the shop stewards to prevent anything of that kind. My hon. Friend the Member for Dumbarton Burghs (Mr. Kirkwood) and myself have in the past had many experiences of such tricks, but they can be stopped. If the Minister were to apply such a proposal as this, then after every measure has been taken to ensure that undue profits will not be made, the objections raised by the hon. Member can easily be dealt with. There is no doubt whatever that there is a great advantage in the Minister having these powers of getting proper costs from the accountants. I have heard the old argument of the lawyers often in the Scottish Standing Committee that if you specify one thing it sets up a tendency to rule out the other things which are not specified, but that is merely a lawyer's quibble. The Minister knows that he has the power, and can use it, and that the Committee and the House of Commons would back him up. This is not a matter which will go to court, where you will have judges and barristers firing off heavy legal howitzers at one another and creating all kinds of noise and confusion. If the Minister had another Clause which gave him the specific power, which would be very valuable, it would not in the slightest degree affect him in using any other power which he might desire.

Hon. Members opposite who oppose the Clause because they and their associates believe that they cannot be prevented, no matter what we may do, spoke about the small shareholders. Before the War it used to be the widow's mite. An hon. Member thought that the small shareholders should get increased spending power but he has never been heard to suggest a little more spending power for the old age pensioners. Let the Government see what steps can be taken to prevent excessive profits being made, because once they are made, even if you take some back, the process of doing so will cost you something, Why let them take it and then have to spend a whole lot of money trying to get it back? That is a most foolish thing to contemplate. Surely when first taking on a new responsibility the Minister should be prepared to face the problem and see whether any new powers can assist him in preventing the making of excessive profits, and the people of the country from being fleeced. If the Clause is carried into effect, you will get the cooperation of the factory workers, the trade unions and the shop stewards in connection with overtime and the putting on of extra men. You will be able to save an enormous amount of money for this nation, and you may be able as a consequence to do justice to the real poor shareholders, the old age pensioners.

9.41 p.m.

Mr. Riley

I am not satisfied with the explanation of the new Clause given by the Chancellor of the Duchy of Lancaster. The argument of the right hon. Gentleman was that every power which is sought in the Clause is contained in Clause 9. I have been looking carefully at Clause 9 and it seems to have as its distinguishing feature these words: The Minister may direct any person producing, dealing in, storing or having control of any articles required for the public service or carrying out any works so required, to produce to any person authorised for the purpose by the Minister any books or documents of any description specified in the directions and to permit the person so authorised to take copies of or extracts from any such books or documents. I would ask the right hon. Gentleman where the power proposed resides in Clause 9, and I ask for an assurance from the Minister on that point. Clause 9 says: and to permit the person so authorised … to take copies or extracts from any such books or documents. It may be argued that such documents would show the costs but it would be the merit of the proposed new Clause that it laid down that documents must be available to show the costs under the contract in order to ascertain what profits are being made. That is a clear distinction and an additional power, which is not contained in Clause 9. If it is argued by the hon. Member for Stockport (Sir A. Gridley) that the proposal is imprac- ticable, I reply that it is puerile to argue that you could get a number of contracts going through a workshop at the same time. In every well-organised establishment there is a costing system applied to every individual job, and every workman is either checked up by some responsible person at every stage of the process or himself has to put down the time occupied by it. At the conclusion there is a total of the time and of every item of cost that that job has to bear. It cannot be suggested that everybody in a workshop will be engaged in a game of duplicity to deceive. People will carry on. their work in the ordinary way. By the proposed new Clause there will be a real safeguard that at the conclusion of the work on any contract there would be data by which the cost could be ascertained. For that reason I suggest that the Minister will be well advised to have the additional power to strengthen Clause 9.

9.45 p.m.

Mr. Price

This is surely very largely a matter of procedure, and my hon. Friend who has moved this new Clause is putting forward a method of procedure which, in my opinion, is likely to be much more efficient than that submitted by the Government. It is surely better to use existing machinery wherever possible. Any Member of this Committee who has had anything to do with companies, whether public or private, will know that every year when the balance-sheet is made up every reputable firm that wants to keep its accounts straight and be correct with the Income Tax authorities will have a chartered accountant coming in to examine its books and draw up the accounts for the year. On the basis of the report of that chartered accountant, Income Tax is assessable and paid. It is in the interests of the firm to do this and of every reputable firm of chartered accountants to examine everything fairly and squarely as between the Revenue authorities on the one hand and the firm on the other. The machinery, therefore, is all there now, and all that we ask is that the Government shall use that machinery. I know the Minister will no doubt say that he intends to do so.

Mr. Burgin


Mr. Price

But the Minister may not always be there. There might be another Minister there some day, and he might not use the power which he thinks is there and which might be there. It is surely in this matter much better to tie the Minister down, because he may not always be there and things may be different. The upshot of this Clause is to put it beyond peradventure that the existing procedure of all reputable companies which are presenting their accounts year by year shall be used and that they shall find independent auditors, who, of course, will be the auditors whom they always employ for the purpose of keeping their accounts.

9.48 p.m.

Sir R. Acland

I listened as the hon. Member for Ipswich (Mr. Stokes) emphasised the difference between the words "an independent auditor"—which I thought should have been, in his own interest, "the independent auditor who audits the firm's accounts"—and the words "any person" in Clause 9. The Minister is obviously right in saying that "any person" quite clearly includes the person who audits the firm's accounts, and the real difference of the words is that in Clause 9 the requirement is to produce "any books or documents," and in the proposed new Clause it is to submit a report on costs. I think the Minister will agree that books are difficult to read and that it is difficult to extract from books covering an enormous number of jobs carried out in the course of a year the particular costs of one job, and it is possible for a firm to make things very difficult for a complete outsider coming in, with no general knowledge of the firm's business. Will it be possible under the words "to produce any books and documents" for the Minister to send down the particular man who is the firm's auditor, and will it be possible for that man to act as the servant of the Minister and to use also the knowledge which he has as to the firm's local position? When the books are shown to him in his capacity as representative of the Minister, and when the firm tries to make out that this, and this, and this has been the cost of a certain job—and on the surface of the books no other conclusion may be possibles—will it be possible for the Minister's servant, this auditor, to say, "By inspecting your books and by listening to what you say now I cannot find anything wrong with the cost that you have put before me, but using the knowledge which I gained of your business when I made out your Income Tax returns last year, I tell you, and I shall tell the Minister, that you are not giving an accurate statement of the case ''? Can the Minister assure the Committee that ho has really had this out with the auditors, and that he is sure that they will not regard it as a breach of their duty to their clients. to use the knowledge which they acquire in getting out Income Tax returns to read the books submitted to them under Clause 9? If the Minister will say that he has discussed that matter with the leading members of this very great profession and is satisfied that they will have these powers, I think the Minister is in the right, but if he is not satisfied on that, I think the new Clause is most necessary.

9.51 p.m.

Mr. Burgin

I think we have all entirely the same objective in view. I think we want to have under this Bill the most complete machinery for ascertaining the cost of every item which is included in costs, properly or improperly. I have taken a great deal of trouble in framing Clause 9, and in having it framed, and a great deal of attention has been given to Clause 9 (1), but the really operative part is Clause 9 (2), which states that the Minister has power to tell firms what records he desires them to keep and in what form he wants them to keep those records. The Minister accordingly has power to tell firms that he desires them to keep costing sheets which will show the cost of each individual contract, and the Minister has power to tell them, when the contract is completed, that those certificates of cost of each contract should be audited by the auditor. That is why, with every sympathy with the hon. Member for Ipswich (Mr. Stokes;), who moved the new Clause, I want to tell him that with the same objective in view, and realising that what may be called the post mortem after a contract has been completed may be an extremely valuable method of checking, from an angle of 45 degrees, what has happened in the costing of the contract just completed, Clause 9 (2) gives me power to specify the type of records to be kept for the purpose of showing what is a fair and reasonable price for the article in question, and indeed power to require that document to be certified, to be certified by an auditor, and to be certified by an independent auditor; and I can choose the auditor of the firm or any other person to be the one who certifies that certificate.

Therefore, the whole of the powers that are asked for by the new Clause are included in Clause 9, and whereas Clause 9 is general and says that I may do this during the contract and not wait until the end of it, the new Clause deals with it only when the contract is over, and it is limited, because it is an independent auditor, whereas my Clause 9 is completely general and may include an independent auditor or the firm's auditor. I ask the hon. Member to accept my assurance that every one of the powers for which he asks in this Clause is included in Clause 9, and for that reason I ask him not to press his Clause.

Mr. Stokes

Cannot the Minister more specifically include in Clause 9 words to cover what I mentioned, between now and the Report stage?

Mr. Burgin

I am willing to make the same careful review of the discussion on this Clause as I promised other hon. Members I would make on other Clauses in the Bill. As at present advised, I think the general is infinitely better than the particular. I am not at all sure that the cost of working out the contract is the only thing we want to aim at. You want something much wider. You want every single ingredient. It may be that auditing may not be the only thing required. It may be necessary to have a certificate by a technical man. Therefore, there is an advantage in having the Clause general. Although I will look into the matter between now and the Report stage to see whether it is wise to alter the Clause, my impression is that Clause 9 is better drawn and covers all the points raised by the hon. Member.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 128; Noes, 193.2157

Division No. 185.] AYES. [9.58 p.m.
Acland, Sir R. T.D. Hall, J. H, (Whitechapel) Parkinson, J. A.
Adams, D. (Consett) Harris, Sir P. A. Pethick-Lawrence, Rt. Hon. F. W.
Adams, D. M. (Poplar, S.) Harvey, T. E. (Eng. Univ's.) Poole, C. C.
Adamson, Jennie L. (Dartford) Hayday, A. Price, M. P.
Alexander, Rt. Hon. A. V. (H'lsbr.) Henderson, J. (Ardwick) Rathbone, Eleanor (English Univ's.)
Ammon, C. G. Henderson, T. (Tradeston) Richards, R. (Wrexham)
Banfield, J. W. Hills, A. (Pontefract) Ridley, G.
Barnes, A. J. Hopkin, D. Riley, B.
Barr, J. Isaacs, G. A. Ritson, J.
Batey, J. Jagger, J. Robinson, W. A. (St. Helens)
Beaumont, H, (Batey) Jenkins, A. (Pontypool) Salter, Sir J. Arthur (Oxford U.)
Benn, Rt. Hon. W. W. Jenkins, Sir W. (Neath) Seely, Sir H. M.
Benson, G. Johnston, Rt. Hon. T. Sexton, T. M.
Broad, F. A. Jones, A. C. (Shipley) Shinwell, E.
Bromfield, W. Kennedy, Rt. Hon. T. Silkin, L.
Brown, C. (Mansfield) Kirby, B. V. Silverman, S. S.
Buchanan, G. Kirkwood, D. Simpson, F. B.
Burke, W. A. Lansbury, Rt. Hon. G. Smith, E. (Stoke)
Cape, T. Lathan, G. Smith, T. (Normanton)
Cluse, W. S. Lawson, J. J. Sorensen, R. W.
Cocks, F. S. Leach, W. Stephen, C.
Collindridge, F. Lee, F. Stewart, W. J. (H'ght'n-le-Sp'ng)
Cove, W. G. Leslie, J. R. Stokes, R. R.
Daggar, G. Logan, D. G. Strauss, G. R. (Lambeth, N.)
Dalton, H. Lunn, W. Summerskill, Dr. Edith
Davidson, J. J. (Maryhill) Macdonald, G. (Ince) Taylor, R. J. (Morpeth)
Davies, S. O. (Merthyr) McEntee, V. La T. Thurtle, E.
Dobbie, W. McGhee, H. G. Tinker, J. J.
Dunn, E. (Rother Valley) McGovern, J. Viant, S. P.
Edwards, A. (Middlesbrough E.) MacLaren, A. Watkins, F. C.
Edwards, Sir C. (Bedwellty) Maclean, N. Watson, W. McL.
Fletcher, Lt.-Comdr. R. T. H. Marshall, F. Welsh, J. C.
Frankel, D. Mathers, G. Westwood, J.
Gallacher, W. Maxton, J. White, H. Graham
Gardner, B. W. Messer, F. Williams, E. J. (Ogmore)
Graham, D. M. (Hamilton) Milner, Major J. Williams, T. (Don Valley)
Green, W. H. (Deptford) Morrison, Rt. Hon. H. (Haokney, S.) Wilson, C. H. (Attercliffe
Greenwood, Rt, Hon, A. Morrison, R. C. (Tottenham, N.) Windsor, W. (Hall, C.)
Grenfell, D. R. Naylor, T. E. Woods, G. S. (Finsbury)
Griffith, F. Kingsley (M'ddl'abro, W.) Neal-Baker, P. J. Young, Sir R. (Newton)
Griffiths, G. A. (Hemsworth) Oliver, G. H.
Griffiths, J. (Llanelly) Owen, Major G. TELLERS FOR THE AYES. —
Groves, T. E. Paling, W. Mr Adamson and Mr. charleton.
Hall, G. H. (Aberdare) Parker, J.
Acland-Troyte, Lt.-Col. G. J. Goldie, N. B. Perkins, W. R. D.
Adams, S. V. T. (Leeds, W.) Gower, Sir R. V. Petherick, M.
Albery, Sir Irving Gridley, Sir A. B. Pickthorn, K. W. M.
Allen, Col. J. Sandeman (B'knhead) Grimston, R. V. Radford, E. A.
Anderson, Rt. Hn. Sir J. (Se'h Univ's) Guest, Lieut.-Colonel H. (Drake) Raikes,' H. V. A. M.
Apsley, Lord Gunston, Capt. Sir D. W. Ramsbotham, Rt. Hon. H.
Aske, Sir R. W. Hambro, A. V. Ramsden, Sir E.
Baillie, Sir A. W. M. Hammersley, S. S. Rankin, Sir R.
Baldwin-Webb, Col. J. Hannah, I. C. Rathbone, J. R. (Bodmin)
Balfour, G. (Hampstead) Heilgers, Captain F. F. A. Reed, A. C. (Exeter)
Barrie, Sir C. C. Hely-Hutchinson, M. R. Reed, Sir H. S. (Aylesbury)
Beamish, Rear-Admiral T. P. H. Hepburn, P. G. T. Buchan- Reid, J. S. C. (Hillhead)
Beauchamp, Sir B. C. Higgs, W. F. Reid, W. Allan (Derby)
Beaumont, Hon. R. E. B. (Portsm'h) Holdsworth, H. Renter, J. R.
Bossom, A. C. Holmes, J. S. Robinson, J. R.(Blackpool)
Boulton, W. W. Hopkinson, A. Ropner, Colonel L.
Boyce, H. Leslie Horsbrugh, Florence Rosbotham, Sir T.
Broadbridge, Sir G. T. Hudson, Capt. A. U. M. (Hack., N.) Ross, Major Sir R. D. (Londonderry)
Brown, Brig.-Gen. H. C. (Newbury) Hulbert, Squadron-Leader N, J. Ross Taylor, W. (Woodbridge)
Browne, A. C. (Belfast, W.) Hume, Sir G. H. Rowlands, G.
Bull, B. B. Hunter, T. Royds, Admiral Sir P. M. R.
Burgin, Rt. Hon. E. L. Jarvis. Sir J. J. Ruggles-Brise, Colonel Sir E. A.
Butcher, H. W. Jennings, R. Russell, Sir Alexander
Campbell, Sir E. T. Joel, D. J. B. Salmon, Sir I.
Cary, R. A. Jones, Sir G. W. H. (S'k Nw'gt'n) Samuel, M. R. A.
Chapman, A. (Rutherglen) Jones, Sir H. Haydn (Merioneth) Sandeman, Sir N. S.
Clarke, Colonel R. S. (E. Grinstead) Jonas, L. (Swansea W.) Schuster, Sir G. E.
Clydesdale, Marquess of Kerr, Colonel C. I. (Montrose) Selley, H. R.
Cobb, Captain E. C. (Preston) Kimball, L. Shaw, Captain W. T. (Forfar)
Cook, Sir T. R. A. M. (Norfolk, N.) Lamb, Sir J. Q. Shepperson, Sir E. W.
Cooke, J. D. (Hammersmith, S.) Law, R. K. (Hull, S.W.) Smith, Sir R. W. (Aberdeen)
Cooper, Rt. Hon. T. M. (E'burgh, W.) Leech, Sir J. W. Somervell, Rt. Hon. Sir Donald
Courtauld, Major J. S. Lees-Jones, J. Somerville, Sir A. A. (Windsor)
Courthope, Col. Rt. Hon. Sir G. L. Lewis, O. Southby, Commander Sir A. R. J.
Cox, H. B. Trevor Liddall, W. S. Spens. W. P.
Craven-Ellis, W. Lindsay, K. M. Stourton, Major Hon. J. J,
Crooke, Sir J. Smedley Little, J. Strauss, H. G. (Norwich)
Crookshank, Capt. Rt. Hon. H. F. C. Llewellin, Colonel J. J. Strickland, Captain W. F.
Cross, R H. Lloyd, G. W. Stuart, Rl. Hon. J. (Moray and Nairn
Crowder, J. F. E. Loftus, P. C. Taylor, C. S. (Eastbourne)
Cruddas, Col. B. Mabane, W. (Huddersfield) Thorneycroft, G. E. P.
Culverwell, C. T. McCorquodale, M. S. Thornton-Kemsley, C. N.
De Chair. S. S. Macdonald, Capt. P. (Isle of Wight) Titchfield, Marquess of
Denman, Hon. R. D. McEwen, Capt. J. H. F. Tufnell, Lieut.-Commander R. L.
Danville, Alfred MeKie, J. H. Turton, R. H.
Despencer-Robertson, Major J. A. F. Maclay, Hon. J. P. Wakefield, W. W.
Dodd, J. S. Macmillan, H. (Stockton-on-Tees) Walker-Smith, Sir J.
Drewe, C. Manningham-Buller, Sir M. Ward, Lieut.-Col. Sir A. L. (Hull)
Dugdale, Captain T. L. Margesson, Capt. Rt. Hon. H. D. R. Ward, Irene M. B. (Wallsend)
Duncan, J. A. L. Markham, S. F. Waterhouse, Captain C.
Dunglass, Lord Maxwell, Hon. S. A. Watt, Lt.-Col. G. S. Harvie
Elliot, Rt. Hon. W. E. Mellor, Sir J. S. P. (Tamworth) Whiteley, Major J. P. (Buckingham)
Ellis, Sir G. Mills, Major J. D. (New Forest) Wickham, Lt.-Col. E. T, R.
Emrys-Evans, P. V. Moore, Lieut-Col. Sir T. C. R. Williams, Sir H. G. (Croydon, S.)
Entwistle, Sir C. F. Moreing, A. C. Windsor-Clive, Lieut.-Colonel G.
Errington, E. Morgan, R. H. (Worcester, Stourbridge) Winterton, Rt. Hon. Earl
Evans, Capt. A. (Cardiff, S.) Morrison, G. A. (Scottish Univ's.) Wise, A. R.
Evans, D. O. (Cardigan) Morrison, Rt. Hon. W. S. (Cirenoester) Womersley, Sir W. J.
Evans, E. (Univ. of Wales) Muirhead, Lt.-Col. A. J Wragg, H.
Everard, Sir William Lindsay Munro, P. Wright, Wing-Commander J. A. C.
Fleming, E. L. Nall, Sir J. York, C.
Furness, S. N. Neven-Spence, Major B. H. H. Young, A. S. L. (Partick)
Fyfe, D. P. M. O'Connor, Sir Terence J.
Gilmour, Lt.-Col. Rt. Hon. Sir J. Orr-Ewing, I. L. TELLERS FOR THK NOES.—
Gledhill, G. Palmer, G. E. H. Major Sir James Edmondson and Lleut.-Colonel Herbert.
Gluckstein, L. H. Peake. O

Question put, and agreed to.

Schedule agreed to.

Bill reported, with Amendments; as amended, to be considered upon Thursday, and to be printed. [Bill 164.]