HC Deb 05 October 1939 vol 351 cc2131-93

Considered in Committee [Progress, 4th October].


CLAUSE 12.—(Charge of excess profits tax.)

Question again proposed, "That the Clause stand part of the Bill."

3.50 p.m.

Sir Henry Morris-Jones

I had put down Amendments to this Clause, in conjunction with my hon. Friend the Member for Aylesbury (Sir S. Reed), but as I understand those Amendments were not considered in order, I wish to raise now the issue which I wished to ventilate, and I am sure my right hon. Friend the Chancellor of the Exchequer will make a reply, as the matter concerns a principle to which several of my hon. Friends on these benches attach importance. If a man in the course of his business activities, with all the risk, worry and anxiety involved, has imposed upon him by the State a tax on any excess profit that he may make in the war, the House and the country will agree that it is a proper tax to impose; but there is no reason, in equity, why individuals who get an accretion in their income as a result of the war and during the war— in the majority of cases it may be a result of the war—should escape the additional taxation which the State is imposing on those who are getting their excess profits in industry.

I could give examples of many cases. I should not wish to include those who are in the three fighting Services, the Army, the Navy and the Air Force, because they come in a special category; but in this emergency, throughout the various branches of civilian life, there is a good deal of multiplicity of income resulting from circumstances which have arisen in the war. Individuals are having in many cases a very satisfactory change in their financial position. I do not grudge them that change, a change in their fortunes for the time being, and I have no doubt that they are giving very valuable service to the State, but as those individuals have more security of occupation and a certain amount of freedom from the worry and uncertainty associated with business, there is no reason why they should escape the tax which is imposed on other individuals who increase their profits in business in war time. The Committee would be indebted to my right hon. Friend if he would reply on that aspect of the matter.

There are remarkable instances of such cases as those to which I am referring. I am sure the Committee will not object if I quote the case that was raised by one of my hon. Friends the other day, of a civil servant who has been appointed to a certain post from which he now draws an income of £2,500 a year, in addition to substantial emoluments that he is drawing from other spheres of civilian life. If the proposals adumbrated by my right hon. Friend the Chancellor of the Exchequer are to mature, namely, that at the end of the war no one as a result of the war is to find himself richer than he was at the beginning of the war, I take it that those who have had an accretion to their income will have to hand it over to the State. My right hon. Friend has not put the whole of that proposal to the House, but many of us can see immense difficulties in the practical application of such a proposal. It is clear that one effect of such a proposal would be to discourage saving. Who, during this war, would take steps to save any considerable amount of his income if at the end of the emergency the State is to take it all from him? Therefore, my right hon. Friend might find the greatest difficulty in tapping the accretions of income that individuals had made in the course of the war. Throughout the country, however, in connection with Civil Defence and in other directions, there are a definite number of cases where multiplicity of occupation is bringing multiplicity of income. There are substantial increases in the incomes of certain individuals, and there is no reason why they should escape the proper charge that is being made on excess profits in industry.

3.59 P.m.

The Chancellor of the Exchequer (Sir John Simon)

The question before the Committee is, "That Clause 12 stand part of the Bill." As this is the leading Clause dealing with Excess Profits Tax the Committee would, no doubt, like to have from me a short statement as to the general scheme. I will deal, first, with the point raised by my hon. Friend, who has raised a question which has been debated many times. In connection with proposals for taxation of profits we have had frequent debates on whether or not the scheme, whatever its exact form, should be applied to trades and businesses or whether it should also include what we may, for convenience, call the professions. I have always realised that there is a great deal of attractiveness in the argument that this tax ought to include the professions, and I am not surprised that my hon. Friend should have put a case for that with such persuasiveness; but there are considerations the other way which again and again have been considered by the House.

Sir H. Morris-Jones

I was not referring entirely to the professions.

Sir J. Simon

It has been put to me in the form of the question, "Why do you not include professions?" It is said, "Why not take an individual and examine his income and see whether it grows beyond the pre-war standard through the emergency of the war? Let us take it both in a narrower and a larger sense. If we did apply the proposals to all individuals it would really be in the nature of a third general tax. It might be called by a different name, but that is what it would mean. Individuals, broadly speaking, if they have large incomes are the target for one special tax already, namely, Surtax. It is difficult to see with what justice it could be said that we should pile another tax upon them. Take individuals at the other end of the scale; take the man who is starting out on his individual career. It may be perfectly natural and right that in the course of a period—we hope this war will not last long, but it may extend into years—his remuneration should grow. The remuneration may be that of a civil servant and his income will grow as he extends his period of service, and increments are added. A person who is just starting in the practice of a profession may very well find at the beginning that his income is materially less than it may be in the course of a certain number of years of successful practice. There is really no justification for saying in cases like that, "That is all very well, but I am going to treat you as having made excess profits and I shall put a special tax upon you." The matter is different when you consider trades and businesses because, broadly speaking, any form of trade or business is in fact going to be very much affected by the conditions of war. Some of them may go down, but businesses that become more prosperous will find it very difficult to say in reason and fairness that their prosperity was not closely associated with the circumstances of the war.

There is the further point which is always brought up to me by the authorities whom I have consulted. They are practical people who have no prejudices and merely want to collect a tax. They say that as a matter of fact, if we were to include individuals as well as trades and businesses, it would mean an enormous extension of the examination of individual cases and that the amounts which would be got for the revenue would be unimportant in comparison. No one would dream of including in this scheme anyone with a personal income which is less than £1,000 a year. Even so, those who have examined the matter very carefully say that there would not be obtained, for the labour employed, a result commensurate with the very substantial additional work.

I approach this question with a completely unbiased mind. I should not be at all unwilling to see people who are getting increased emoluments for various reasons, it may be partly because their friends and rivals in peace-time are engaged on war service, subject to tax. I am not opposed in principle to something of that kind being done, but for the reasons I have mentioned I cannot support this proposal. Two years ago in connection with National Defence Contribution I considered this question more than once, and the considerations that were raised at that time, taken together, are considerations which justify the conclusion at which I have arrived. If my hon. Friend will turn up what I said in the Debate on the National Defence Contribution he will find there some considerations which weighed in that Debate.

Let me now deal with the scheme as it is. I hope it may be of some help to the Committee if I make a short general statement. As the Committee know, it is not likely that we shall get any substantial sums of money from this tax within the present financial year. We have to enact a good deal in advance, and next year we shall be able to make a better estimate as to what it will produce. This is a general tax upon excess profits made by trades and businesses. It follows very closely the system that was devised and was passed by the House in the Spring of this year for the Armament Profits Duty. We have taken the general scheme that was passed in the Spring to secure a contribution from excess profits made by armament firms and we have applied that scheme to the whole field of trade and industry. The tax is to be chargeable as from the 1st April last. It is to be paid on the excess of the current profits over a certain defined pre-war standard. One result of that, of course, is that in the present Finance Bill we repeal the Armament Profits Duty, because the greater includes the less; but the armament firms in effect remain none the less under the burden of the old legislation. They are one of the trades and businesses and are dealt with under this general provision as they were dealt with specifically before.

The Excess Profits Tax, therefore, will fall upon trades and businesses generally. I wish to say that I have not recommended exceptions from that general application. When we were dealing with National Defence Contribution it was not a contribution on excess profits but was a contribution from profits as such, and we did make certain exceptions. For instance we made an exception in favour of statutory undertakings and some others. That was because it was a tax simply upon profits. But here there is a tax on additional or excess profits. If there be excess profits made by any firm or business enterprise, even a statutory undertaking, I see no reason why this Excess Profits Tax should not apply to it. I hope that the Committee will support me in the general view that this provision ought to be applied without exception to all trades and businesses.

What is the standard? The profits standard, which forms the datum line from which you take the excess, is precisely the same as the standard that was adopted, after discussion by the House, for the purpose of Armament Profits Duty. You must consider separately the case of the business of long standing which has a record of trading in the past and the case of businesses of more recent establishment. In the ordinary case of a long-established concern the standard will, as in the case of the Armament Profits Duty, be based, at the option of the taxpayer, on the profits for the year 1935 or the profits of the year 1936, or the average profits of two years, 1935 and 1937, or 1936 and 1937. I have examined carefully with my advisers whether that scheme should be applied generally to trades and businesses. There are Amendments on the Paper to change it, but I have come to the conclusion that we ought not to vary the standard previously set for armament firms or any other firms, and I think that with the four-fold choice in the Bill we have proposed what is a fair pre-war standard. All the more is this so because I have included a provision just as I did in the case of the Armament Profits Duty, namely, that those carrying on a particular business, if they think that none of the statutory standards in their case are fair because it is a figure less than they might reasonably expect, may apply to the Board of Referees and ask to be granted a higher standard instead of the ordinary statutory provision. It is necessary to have a provision of that kind, and I think it is only right that you should give that opportunity for exceptional cases which may arise.

Mr. Leslie Boyce

Is it quite clear that the Board of Referees under the Bill will have an unfettered discretion to do what they consider right and just in the circumstances?

Sir J. Simon

I would remind the hon. Member of Sub-section (7) of Section 13. The Board of Referees will be an entirely independent body and will not be under the direction or influence of the Inland Revenue or the Treasury. They will be an authoritative body, and I think we may assume that they will exercise their duties under the Bill fairly and come to a right conclusion.

Next comes the question of the additional capital which may have been introduced into a business, which may easily be the case, upon which it would be right and proper to assume that there would be additional profits earned. If there is such an addition we propose to make an addition to the profit standard on the increased capital of 8 per cent. in the case of companies and 10 per cent. In the case of individuals and firms. That is what we proposed in regard to Armament Profits Duty.

Then comes the question of the trading concern which has not this long previous history, which was first established between 1st January, 1935, and the middle of 1936. There, again, you must make the same provision for a profit standard as is applied in the case of the Armament Profits Duty. In the case of individual businesses formed subsequently to 1st July, 1936, the standard profits will be taken on a percentage of the capital employed in the business just as in the case of an increase of capital. I hope that when this is applied over the whole of industry it will be found to be an equitable basis for measuring excess profits.

It would be unfortunate if we were to depart from the view taken in the spring after much consideration, and certainly I should be very sorry to see the Committee hastily alter those proposals now. There will be plenty of time to consider whether the scheme is going to work fairly because it will not come into active working order before the ordinary Budget of next year. The years 1935, 1936 and 1937, generally speaking, were years of growing profits; 1936 and 1937 were particularly good trading years. In the exceptional cases where very bad trading results could not be regarded as natural or normal, there is an appeal to the Board of Referees.

I claim that in adopting the method which we followed in the Armament Profits Duty, instead of somewhat slavishly imitating the old Excess Profits Duty of 20 years ago, Parliament has made an improvement. It is undoubtedly a better scheme. The old Excess Profits Duty of Mr. McKenna's Finance (No. 2) Act, 1915, made much use of a pre-war standard not built up by an examination of profits but by ascertaining what was the amount of capital employed in the business, and by allowing a certain return on that and treating it as the pre-war standard. It did in practice produce the most frightful complications. In days of less responsibility in the years after the last war I was often engaged in expounding that scheme, and at one time I could almost repeat Sections of the Finance (No. 2) Act, 1915, in my sleep, and expounded them somewhat to the surprise of quite a large number of His Majesty's judges. I am confident that the system which we adopted in the spring of this year of relying on a pre-war standard based on profits is much better and more practical than the old system. I think I have said enough upon that matter to make our general scheme plain.

One or two other points have been raised. In the Debate the other day the hon. Member for Pudsey and Otley (Sir G. Gibson) asked what would be the duration of the Excess Profits Tax. I think the safe answer would be X—an unknown quantity. I cannot say more than this, that I think it may be expected to last for the duration of the war. On the last occasion it extended not only for the duration of the war but for some post-war years. Whether or not that would happen again I do not know, but it is worth bearing carefully in mind some of the lessons to be drawn from extending the Excess Profits Duty over too many years.

There is another change which has been made as compared with the McKenna Excess Profits Duty of 1915. Under the old system 20 years ago different businesses started liability to this tax at different times; their liability began at the beginning of their own accounting period. A lot of businesses became liable to Excess Profits Duty sooner than others; I think it lasted for seven years and everybody had a seven-years' run, no more and no less. But in the case of the present duty we have found it possible to arrange for them all to begin at the same time and to come out at the same time. I think the 1st April would probably be regarded as the most suitable day on which to start and the 31st March would accordingly be the date on which in some other year it would come to an end. Therefore, everybody would be either inside or outside the period all together.

As in the case of Excess Profits Duty, Clause 15 of the Bill provides for relief in respect of what are called deficiencies, and I think this is absolutely necessary. The matter may be put bluntly in this way, that although a business may have paid Excess Profits Tax in the first year, it would be entitled when another year had gone by to ask that the calculation should be made in respect of the whole period, so that if its profits in the first year had been followed by a severe loss or a drop it would not be treated unjustly. Otherwise injustice would be done.

Thanks, however, to this provision the taxpayer will be able to obtain relief for any other year in which the profits have fallen short. You may put it broadly like this: The aggregate amount of Excess Profits Tax payable throughout the whole operation of the tax will be the tax corresponding with the net excess profit over the whole period, after allowing for any falling off of profits in any year. I hope I have made that clear.

Clause 16, which is necessarily rather complicated, deals with succession and amalgamation, and contains substantially the same provisions as were made in the case of the Armament Profits Duty. Clause 17 deals with the difficult subject of parent and subsidiary companies. We had a good deal of technical discussion on that when we were considering the Armament Profits Duty and I have taken advantage of the considerations then put forward. In this Excess Profits Tax it is proposed to treat the group of parent and subsidiaries as one unit for purposes of tax. In substance, the group is one business unit, and the way in which the profits may be distributed among the family is a matter of internal interest and is of no interest to the State as long as it gets the whole unit treated as one. It is reasonable to measure any excess profits by treating the whole group as one unit.

Sir Herbert Williams

Would that apply not only to the profits and losses, but also to the capital structure to the extent that capital does come into consideration? In other words, would you require a consolidated profit and loss account and also a consolidated balance sheet?

Sir J. Simon

I would not like to answer my right hon. Friend at the moment. If I followed him rightly, and I think I did, the answer would be yes, but perhaps he would allow me to say that provisionally because I want to be quite sure.

Clause 19 contains a special provision about the relation between the Excess Profits Tax and the National Defence Contribution. The National Defence Contribution is a child of my own. There was an earlier infant which met with a sudden conclusion, and I have been watching the National Defence Contribution with paternal pride. Although it has not grown up quickly, I was able to say in the spring of this year that I was expecting it to produce this year the full yield that I had prophesied. Logically, there is a lot to be said in favour of leaving the National Defence Contribution as it is, that is to say, as a tax upon the totality of the profits, and also making the Excess Profits Tax which is a tax, not upon the totality of profits, but upon the growth of profits. There is something to be said in the rules of strict logic for all that, but although a Chancellor of the Exchequer is not supposed to have any bowels of compassion, I think the combined effect of a 60 per cent. tax on growth and a 5 per cent. tax on total profits after payment of the Excess Profits Tax, and then a 7s. 6d. Income Tax on what is left after payment of Excess Profits Tax and National Defence Contribution, would be too great a burden. It would, I think, be a matter of good sense, and I propose therefore to provide, as is provided in Clause 19, that the Excess Profits Tax and the National Defence Contribution should be alternative, so that a trading concern would only pay whichever is the higher. That condition would apply throughout the operation of both taxes so that for two years together, and not only for one year, the total taxation payable by a concern would be only the higher of the two taxes.

The only other provision to which I would refer now is in the Seventh Schedule, Part I, on page 44. Paragraph (3) of that Schedule contains an important provision for an allowance in respect of exceptional depreciation of buildings, plant and machinery, that is to say, an allowance over and above the ordinary wear and tear allowances with which all payers of Income Tax are familiar. The provision makes an allowance for exceptional depreciation of buildings, plant and machinery provided since the beginning of the year 1937 for purposes arising out of the war, but which may not prove to be required for other purposes. It may at first sound rather absurd to speak of the year 1937 as the date when provision was made for purposes arising out of the war, but the explanation, of course, is that this was primarily intended for armament firms. We had this provision in the Armament Profits Duty, but it ought to be applied to other enterprises, too, in cases in which they can show that there really has been exceptional depreciation of plant and machinery which they have quite recently introduced for purposes arising out of the war, and which may not prove to be required for other purposes. I thought it right to apply that provision to all industries and not only to the armaments industry. I hope this extra allowance will encourage traders generally to embark on developments and extensions for purposes connected with the war which undoubtedly ought to be entered upon, and which the successful prosecution of the war renders necessary. I have given the Committee a statement, I hope in clear terms, of what is the scheme of the tax, and I hope that statement will have elucidated the matter, and that in the end it may tend to the rapid treatment of these Clauses in our Debate this afternoon.

The Chairman

I hope the Committee will have considered it convenient and will pardon me for having allowed the Chancellor of the Exchequer to go on making a speech of which probably nine-tenths was out of order. I think the Chancellor discussed nine Clauses and one Schedule on the Question before the Committee that one Clause stand part. I think it will be equally convenient— [Hon. Members: "Hear, hear."]—perhaps hon. Members will wait to hear what I am about to say, which may be not what they are expecting—that for the remainder of the discussion we should restrict the discussion, at any rate with very slight exceptions, to the particular Clauses which come before the Committee from time to time as we come to them, and that later Clauses should not be discussed more than in a passing reference. Therefore, I ask the Committee to remember that for the moment the Question before it is that Clause 12 stand part.

4.33 P.m.

Mr. Pethick-Lawrence

Before you made your remarks, Sir Dennis, I had intended to thank you for having allowed the Chancellor of the Exchequer the latitude which you did, and which enabled us to hear from him a very clear exposition of a number of very difficult matters. Although I understand you do not want to have a sort of Second Reading Debate on the whole of this part of the Bill, I think you will agree that perhaps it would save the time of the Committee if we were allowed in a small measure to cover the ground of the whole proposals in the Debate which takes plaec on this Clause.

The Chairman

I think the right hon. Gentleman has clearly expressed what I had in mind, subject to this, however— there may be differences of opinion between hon. Members and the Chair on the exact effect of the adjective "small."

Mr. Pethick-Lawrence

I understand what you wish, Sir Dennis, and I think I shall not go beyond it. Between the time the Bill was placed in our hands and the present moment, there has not been a very great opportunity for anything like a detailed examination of this important and very considerable matter of the Excess Profits Tax, but I have endeavoured to compare these proposals line by line with the Armament Profits Duty which formed a part of the first Finance Act of this year. I have also looked through the provisions of the old Excess Profits Duty of 1915. Those provisions were so different in form that it was not very easy at first glance to see how the present proposals differ from them, but the Chancellor has, I think, very lucidly explained the difference. With regard to the Excess Profits Duty of 1915, there were great difficulties in administration. The Chancellor has reminded us that one of them was the use of the aggregate capital, which led to many complicated questions arising. I may say in passing that those were the reasons which prompted me and others to object to the original form of the National Defence Contribution, and we were very glad when its form was altered. Another thing about the Excess Profits Duty which was very unsatisfactory was that it led to a great deal of waste, and there was a very great deal of bogus spending arising under those provisions. Even in its modified form in the present proposals, we recognise that there is a grave danger of some of that occurring again. Therefore, it is of even greater importance than before that other Government Departments should use the utmost circumspection in seeing that waste is kept within the narrowest possible limits.

Coming now to the more definite terms of the proposals, when this matter was before the House in the earlier Finance Bill, in Committee and the other stages of the Bill, we took considerable excep- tion to some of the provisions of the Clauses as they then were. I am glad to think that the exceptions which we took were partly concerned with the particular label of armament profits, with the proportion which armament profits formed in particular industries, and with the public authority—whether it was the Government or the local authority which gave out the contracts which resulted in the profits. A great deal of that has now gone by the board altogether, and therefore, many of the objections which we held to the original Armament Profits Duty have automatically disappeared. Some of the other objections which do not arise out of this particular Clause, but which arise largely from the standard year with which future profits are to be compared, remain much as they were, of course. We felt before, and I am afraid we still feel, that a larger option is being given to the taxpayer in some cases than is legitimate. However, I do not propose to take up the time of the Committee by going into that in any detail either now or on later Clauses. We have said our say upon that on previous occasions and we realise that this is not the time to go into minutiae with regard to this point. I hope, however, that the Chancellor of the Exchequer will watch the matter, and that the administration, while reasonable and fair to the taxpayer, will not allow excess profits unduly to escape, through any technicalities in the form in which the law gives relief.

Now we come to the question of who is to pay the tax. The hon. Member for Denbigh (Sir H. Morris-Jones) raised the very important point of what the right hon. Gentleman referred to, in rather general terms, as "professional incomes." The right hon. Gentleman stated, of course, that the inclusion of such incomes would mean a great deal of extra work for the Inland Revenue; that it would, if the figure of income were fixed fairly low, bring in a very large number of people and that there were other objections. I admit there is a great deal of force in his statement but even though I admit that, I think there may be cases which ought to be looked into. Undoubtedly there will be some incomes of very considerable dimensions, which will—in my opinion quite improperly— escape the tax if it is carried out in this form. Although at the outbreak of war a large number of professional incomes suffered a very serious decline, it does not follow that that decline will be carried through later years. I think there will be a great number of questions arising out of the war and other consequences of the war, which may lead to swollen profits in various professions and I hope the Chancellor of the Exchequer will not close his mind to the possibility that, in later years, he may find it necessary to extend these provisions to certain professional incomes, as well as other incomes which are not strictly speaking professional.

May I refer in that connection to one of the objections which the right hon. Gentleman put forward to the inclusion of these people? He said that there were cases of people starting out in a profession whose income might naturally be expected to grow. I would remind him that even under his proposal that sort of case will frequently arise. I remember the case of a friend of mine who is a publisher and who suffered great hardship in the last war, because the business began in 1914. He was a director of the company but he kept the directors' fees exceedingly low, because he was also one of the principal shareholders. As the business increased, the Excess Profits Duty went up, and for all the years during which that duty was continued, I think for 10 years altogether, he got practically no profit at all out of the business. That was very unfair in the case of a growing business. I am not asking for any particular relief in that kind of case, though it might be desirable to give it. What I am pointing out is that some of the opinions which have been expressed by the right hon. Gentleman in regard to what we have been calling professional incomes, would apply equally to some of the cases which are included in the actual provisions of the Bill. For my own part, I am not so much concerned with those people and their incomes which, in the aggregate, are not very large, but with the bigger fish. I want to be clear that some of the biggest fish of all do not escape the net of these proposals. I would put a question in the first place about shipowners. I cannot recollect whether shipping was included in the scheme in the late war but it is well known that enormous profits were made at that time.

Sir H. Williams

Were not those primarily profits on the sale of ships, which were deemed to be capital appreciation and not income?

Mr. Pethick-Lawrence

Then those profits were excluded. That is what I thought. From what has been said in this House during the last week or two, there seems no doubt that the same thing goes on at the present time, and I would like the right hon. Gentleman to tell us whether these shipping profits—as they really are though they may not be called so—are to be excluded from this tax. If so, I think that in all sections of the Committee there will be a feeling that there should be some means of bringing them into the net.

Sir J. Simon

Shipping business is undoubtedly within the tax. The words "trade or business" include shipping business. Of course I must go on to say, as was suggested by my hon. Friend the Member for South Croydon (Sir H. Williams), and as no one knows better than the right hon. Gentleman, that this is really a tax on excess profits. It is a tax in respect of increased income. It is not a tax upon the appreciation in value of capital assets. Perhaps there should be such a tax in war time. I am not saying that there should or should not be, but that is not what this proposal does. Therefore, where it is a case of appreciation in the value of land, or the value of buildings, or the value of ships, unless the business in question is that of dealing in land or in buildings or the like, I should have supposed that that would be a capital appreciation. That, I think, is the answer to the right hon. Gentleman.

Mr. Pethick-Lawrence

It is an answer, and, from the point of view of strict law, probably a very good answer. But from the point of view with which we in this House are concerned, namely, that those people who make large sums of money by capital appreciation ought not to get off entirely free, I hope that that is not the last word which the Chancellor of the Exchequer has to say upon the matter. It seems to me that people who trade in ships—for that is what it really comes to—should, if they do not come under this particular impost, be compelled in some other way to make some considerable contribution to the Exchequer.

The Chairman

May I point out for the benefit of Members of the Committee generally, and not by way of finding fault with the right hon. Gentleman, that the right hon. Gentleman has just been dealing with one of the matters to which, as I have said, a passing reference is all that can be allowed in this Debate. It is clear that neither on this Clause nor on the Bill itself can we discuss the taxation of capital values which is entirely different from anything contained in the proposals before the Committee. I mention that fact, not to complain of what the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) has said, but because it is convenient to make that clear now, so that the Debate may be kept in order.

Mr. Pethick-Lawrence

I fully appreciate your point, Sir Dennis, and I had not intended to say more upon that matter. I wish to put a question with regard to land, and here I do not propose to go into the question of appreciation of value. We all remember that during the last war there was a considerable enhancement of the profits made by occupiers of land and, in so far as rates changed at all, either during the war of after the war, there were very large increases. I am speaking mainly of agricultural land. I would like to know from the Chancellor how far those profits will come under the terms of the Bill?

Finally, I wish to be clear with regard to another class of enterprise which certainly got away with a great deal in the last war. I refer to the banks. If I am not mistaken, what happened in the last war was this. Owing to the fact that the credit of the State underpinned the credit of the banks throughout the country, the banks were able, I think to double the advances to customers compared against what they were before the war began. As a result, they made enormously increased profits from that source.

I do not know what may be the general policy of the Government on that matter. If we were having a general debate on finance, I would give my views, but it would clearly be outside the scope of this Clause to do so, and, therefore, I will not go into that question now. It is clear that these enormously increased profits did get through the net, and I understand that they got through the net on the last occasion owing to the particular wording of the E.P.D. I am not sure how it was done, but I know that they did escape, owing, I think, to a certain Amendment which was moved in Committee on the Bill. I think it was due to the fact that they got what were really increased annual profits from those loans, and they were able to set against them their capital losses, a bank being in the peculiar position that it could set its losses on the value of securities against what in another business would be its trading profits. I think it came about that the bankers were able to do the kind of reverse thing to what we were talking about in the case of shipping, and were able to make very considerable annual profits but to get rid of them for the purposes of E.P.D. by setting against them the depreciation which occurred in their capital assets.

Sir H. Williams


Mr. Pethick-Lawrence

I admit that I am not quite certain about my facts, but I do know that in some such way as that the bankers were able to escape what other trading institutions would have had to pay in the way of E.P.D. I do want to be clear, first of all, whether increased profits on land come under this provision at all, and, secondly, whether the profits of banks come under it and whether, if they do, the right hon. Gentleman has carefully provided that they will not escape, as they did in the last war, by some means which enabled them to make those profits and to get away with them during that period.

4.54 p.m.

Mr. Spens

I thank my right hon. Friend for his exposition of the new tax and the difference that he has pointed out from its immediate predecessor, the A.P.D., and the older tax, the E.P.D. I should like to support what the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) has said. I believe that the main anxiety about the new tax is that there may be the same temptation to reckless expenditure on the part of companies that resulted from the old E.P.D., and I am bound to say that it is very difficult to see how you will avoid it when you have provisions, which I entirely agree with my right hon. Friend are necessary, by which, if your profits become deficient, you can escape paying the tax or can get back part of the tax that you have paid. It creates the temptation which existed in connection with the old E.P.D., and I am sure that everyone would feel very much happier if my right hon. Friend was able to say a further word on that side of the matter.

I think everyone fully appreciates the point in connection with collection and recovery of tax which makes that, for a tax brought forward in an emergency, a wise measure at the present time, but equally so I believe that a great many people feel, as the right hon. Member for East Edinburgh feels, that there is a number of individuals who, by the war circumstances, are put into a position by which their ordinary, normal pre-war income will, in the course of time, spring up, and they will have nothing whatever do do with the carrying on of the trade or business. The right hon. Member for East Edinburgh was more concerned with what he called the large fish, but I am more concerned—and I venture to invite a word from the Chancellor on the subject—with the far larger number of smaller fish. I am concerned with them because of an action by the Legislature by which they have put out of the power of their neighbours in vast areas in this country their chance of making profits out of the war situation which these people are making.

I have spent a fortnight going through my huge reception area division, and in every small town and in every village you have this contrast resulting from the evacuation scheme, that you have country houses, villas, smaller houses, and cottages which have been taken and which are full of evacuated people, where the owners can make nothing of those properties so long as the evacuated people are in them, where, for instance, retired persons are tied down to looking after their guests for the duration of the war, while, in the same parishes, in the same streets, in the same towns, and in the same villages, you have people who, for one reason or another, have escaped having anybody under the evacuation scheme and who are letting their houses for large sums of money in these months of the Autumn of 1939, a thing which, as far as I know, no owner of any house, villa, or cottage has ever succeeded in doing in any normal winter in my part of the world. They are letting them to people who have voluntarily evacuated themselves, and if they are not doing that, they are able to take up paid war service, they and their wives. In a great number of cases you have neighbours enormously increasing their incomes, as I would say through profiteering out of the war position, while the people next door, owing to the evacuation scheme, are wholly unable to take any advantage of that situation.

I do not believe that high taxation is nearly so much a cause of grumbling and discontent generally as when one person in the same status of life finds that his two neighbours can take advantage of the situation and, by some Government action, he himself is unable to take advantage of it. While obviously 60 per cent. of their additional income would be a ridiculous figure to suggest, I cannot help thinking that it would make an enormous difference to the atmosphere in the reception areas if those people who have undertaken, most willingly on the whole, the responsibility for other people's children, wives and families knew that their neighbours, who had refused to do it or had escaped from doing it and were free to take advantage of the situation by letting their property, and so on, were making some additional contribution towards the cost of the war. As time goes on that would be an important psychological factor in the reception areas where conditions are very difficult. Perhaps the situation in this war is different from that in the last war, and it may be desirable that some tax, though not this particular tax, for the purpose of taking a small proportion of any additional income which accrues to people by reason of war circumstances, should be included at a later stage in the budgetary provisions which, I am afraid, my right hon. Friend may ask us to make at fairly frequent intervals.

5.2 p.m.

Mr. Benson

In the minds of the Committee there is a fear, which has been voiced by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) and the hon. and learned Member for Ashford (Mr. Spens), that this Excess Profits Tax may lead to an extravagance which will recoil directly upon the Government. It is no use drawing large sums in taxation if the effect is to increase considerably the cost of practically everything which the Govern- ment have to purchase. We cannot finance the war that way. It has been suggested that there must be a rise in prices in order to make the taxes yield their full amount, but, as in war time the Government are by far the greatest purchasers, to attempt to finance themselves by taxes raised on increased prices is rather like an animal trying to feed itself on its own tail. There is a difference between the Excess Profits Tax and the Armament Profits Duty which we discussed six months ago. The Armament Profits Duty was little more than a gloss upon the costing system which the Government were supposed to have in operation. It applied only to Government contractors, and they and the subcontractors were working under a system where they had to show their costs and had to justify them. It was only for the purpose of raking in any profit that might have escaped the effect of the costing system that the Armament Profits Tax was likely to be effective.

Here we have an entirely different situation. The new tax applies to the whole of industry, and a vast amount of industry has not that check upon extravagance which the costing system must necessarily impose. I do not know whether any hon. Members have calculated the effect of the combination of the taxation imposed by this Bill, but if one takes a prosperous private firm, of which there are a large number, making a profit of £10,000 a year, the combined effect of Income Tax, Surtax and Excess Profits Duty is that any income over £10,000 which it makes in the year will bear a tax of 18s. in the £. If a similar firm is making £30,000 a year, any excess income will be taxed 94 per cent, and they will be left with only is. 2½d. in the £. I do not think anybody has told the Chancellor that his taxes are too high, but I am not at all certain that they are not. I am not thinking of the taxpayer; my heart has not been wrung for him. The object of taxation is the production of revenue, not soaking the rich; and unless our taxation produces revenue and produces it economically, it has failed in its object. When a tax leaves only is. 2½d. in the £ there are bound to be repercussions. I am not thinking of tax avoidance; perhaps in the war that will not operate very much, although it may in certain circumstances; but what will happen is that there will be no incentive to economy. I do not suggest that there will be wilful waste. In the last war there was unquestionably, and there may be this time, but one knows perfectly well that if in an expanding business there is no return and profit is destroyed, the incentive, I will not say to expansion, but to economy, which is essential, is destroyed also. That is the problem we have to face.

With regard to direct armament firms, we have the check of a costing system. In the vast mass of the industry of the country we have not that check, and I do not think that the Excess Profits Tax will bring in any net sum, by which I mean any sum in revenue over and above what it cost the Government in increased prices through increased prices due to inefficiency, unless there is another check. I admit that a second form of check will be difficult to find. The only thing I can suggest is that there must be a definite policy of price control. I can see no other method. What will be the industrial position? When the war is in full swing the Government will probably be purchasing, as they did in the last war, to an amount equal to half our present national income. Irrespective of the proposals of Mr. Keynes and the hon. Member, for East Aberdeen (Mr. Boothby), there will be no need for an increased price level to stimulate industry. The demands of the Government will stimulate it to such an extent that in 12 or 18 months our problem will not be to stimulate industry, but to supply the materials. That will affect the whole of industry. We shall have two great incentives to economical production removed—first, increased profits which are obtained by economical production, which are removed by this duty; and, second, the need for economical production on account of competitive prices. There will be neither the profit motive nor the competitive prices motive to keep prices down.

Unless the Government take steps to keep prices down the Bill we are considering to-day will cost the Government more money than it raises. I am wholeheartedly in favour of the Excess Profits Tax, provided it is supplemented by some method of preventing the damage it may do if it is left by itself. The regulation of prices is not going to be a simple matter. There is no question about that. It will not be done by an occasional casual order from a Government Department. Some method more elaborate than that will have to be evolved. What that method is I do not know, but if we are going to finance this war we shall be compelled to adopt it, because by the passing of this Clause we shall have removed one of the normal checks to extravagance.

5.11 p.m.

Sir H. Williams

I have listened with great pleasure to the speech of the hon. Member for Chesterfield (Mr. Benson). He has put his finger on some of the evils which many of us saw in operation in the last war. I have one rather happy recollection of the effect of E.P.D. I met a number of gentlemen from Yorkshire to discuss a business matter and we afterwards retired to lunch at a hotel not far from here. The gentleman acting as host asked, "What shall we drink?" and ultimately made the remark, "Let us have some ' fizz '; it all comes out of E.P.D." He was able to charge his travelling expenses to London, which included the bottle of champagne, and it cost him is. in the £,the Chancellor of the Exchequer on behalf of the nation, paying the rest. That is one of the evils. The hon. Member has given the effect of Excess Profits Tax in the case of private businesses where the Surtax has to come into the calculation as well. It does not come in in the case of a limited company, but there it is really an Excess Profits Tax of 75 per cent., because that is the effect of combining E.P.T. with Income Tax on what is left. Of every excess £ the firm will retain 5s. and the Government, the sleeping partner, will get 15s. Lord Baldwin, I think it was, when a private Member of this House during the war, and shortly before he became a Minister, told how he had been sent for by one of the Government Departments to find out whether his firm could make shells. When they discussed the question of the price the remark was made to him, "Well, that does not matter at all, because it is adjusted through E.P.D."

On Second Reading I tried to say some of the things which have been so well said to-day by the hon. Member for Chesterfield. We must do all we can to stop abuses which may arise, through the lack of any incentive to economy, and what terrifies me is not only the fact that war industries are affected but all other industries, because they will be dragged along into the same system, and then our export trade, which is of vital importance, will be prejudiced. We must not wander too far into that aspect of the matter, but I am glad, Sir Dennis, that you allowed the Chancellor to wander beyond the strict Rules of Order, because his speech was most helpful and will shorten the Debates when some of us move Amendments, not with a hope of getting the matters dealt with now but next April. My hon. and learned Friend the Member for Ashford (Mr. Spens) made a speech drawing attention to the "little fishes," and no doubt there will be great social discontent arising from the fact that one man in some small business is obviously doing exceedingly well and another man who is a near neighbour is having rather a rough time because his is a different business. Some of these little men are going to escape entirely although they will be making enormous excess profits.

I do not know to what extent shopkeepers will be drawn in. I have the privilege of sharing a grocer with the Chancellor of the Exchequer. If it were not for the Chancellor and myself and a few otherswho have not evacuated their families I am afraid he would be in a distressful condition. No doubt in the constituency of my hon. and learned Friend the Member for Ashford grocers are doing exceedingly well; [Interruption.] The big stores are doing better, and they will be caught, but some of the smaller people will do exceedingly well and may escape the net on the ground that they are not thought to be important enough. I am reminded of a young man whom I met during the 1918 election and who asked, "Why should I pay Income Tax? I am only a working man." I said, "Because you have had the income." But that did not appeal to him at all.

Mr. Jennings

Is the grocer whom the hon. Member mentioned not carrying on a trade or business within the meaning of this Bill?

Sir H. Williams

Yes, but I am wondering whether he will be caught. Some are not thought to be important enough to be brought into the net.

Mr. Jennings

He must be brought into the net if he is subject to the provisions of the Bill.

Sir H. Williams

Everybody who ought to be brought in does not get caught. Sometimes the mesh is a little too large. The question of including those in the professions has been raised. I think there will be substantial difficulties there. I do not know whether a profession is a term known to the law, or whether it is defined in any Act of Parliament. I suppose a profession means selling brains. As Members of Parliament I suppose we are all professional men, and I wonder what is to be the situation of a back bencher who suddenly becomes a Cabinet Minister and draws an increased salary. If they were included hon. and right hon. Members opposite would not want to cross the Floor, because they would all be liable to this new tax. I merely say that as a sideline illustration to show the immense difficulties of bringing in the professions. Then there is the normal case of a man who is promoted. Are we going to say when a manager of a firm retires and the assistant manager is promoted and receives a rise in pay that he has increased gains arising from the war? It is the sort of thing that would have happened anyhow. Is he to be brought within Excess Profits Tax? There is one profession which ought to be caught, that of accountancy, because this Bill will be the endowment of accountants. They ought to pay on all the profits they make out of Excess Profits Tax. But, on balance, I think the Chancellor is right in limiting this tax to trades and businesses, even though we may from time to time see certain grievances arising. Apart from the administrative difficulties greater injustices will arise if we extend E.P.T. to the professions than if we do not, and so on balance I shall support the Chancellor in the course he has taken on account of the anomalies and difficulties which would prevail.

5.20 p.m.

Lieut.-Colonel H. Guest

I want to point out how this Excess Profits Tax will affect two of our very large industries. The first is the coal mining industry, particularly that part of it which is engaged in the export trade. For the last few years the coal mining industry has been working on a very low basis of profit and has had to meet much foreign competition, and, consequently, has had a very lean time. I very much hope that when the Chancellor comes to look at this question again—he may not be able to tell us much about the Budget of next year—he will take into account an industry such as that which has been suffering from an extraordinarily difficult time, during the past year.

Lastly, I should like to take up a point in regard to the shipbuilding industry. I know that there is provision in the Act whereby a shipbuilding company can come to referees and ask for an improved standard on which to base their standard year, but so far as I can see there is no provision which allows them to put anything to reserve in their business. Shipbuilding has periods of slump and boom. Unless these people can put away something in the boom years to make up for the periods of slump which invariably follows, the business cannot be retained in an efficient condition. I think the two industries which I have mentioned, coal mining, particularly the export trade, and shipbuilding, require a little more detailed examination by the Chancellor so that he may be able to give us information about them when he brings in his Budget next year.

5.22 p.m.

Sir Frank Sanderson

The two previous speakers made special reference to the possibility that the tax may work in such a way that salaries and other expenses in the development of industry will receive larger increases, and the smaller men such as the salesmen, the cashiers, and the staff of heavy industry, will received increased payments because of the incidence of the Excess Profits Tax; and that, therefore, some special form of tax should be considered to incorporate these changes. I suggest that one must take into account that this war is unlike the war of 1914–18, which was a new experience to Government Departments. We have profited by the Great War, and to-day we find that the Government have made exceptional arrangements whereby industry will be controlled in a manner new to this country. In many industries the Government are taking complete control. It may be news to hon. Members that the Government are taking control of many great industries to the extent of taking over the whole of the stocks, for which payment will be effected. The manufactory will become nothing more or less than a Department run for the Government. The Department, through the Board of Trade or the Ministry of Supply, will supply the business with its raw material and the business will be paid so much per ton for passing that material through the mill. The Government will be responsible for the distribution of the manufactured commodities. In all those cases it must be obvious that the point which has been raised by the two previous speakers cannot arise, because the Government have taken steps in control which will make it not possible for great industries, which in the last war were able to make excess profits, to make them again on this occasion. The Government are to be congratulated on their foresight in considering how those great industries are to be employed during the war.

Reference was also made to the previous E.P.D. I think it is generally accepted by all those who are engaged in industry that E.P.D. during the Great War was very cumbersome whereas in Clause 12 of this Bill we have a form of E.P.D. which will work more smoothly and accurately than on the last occasion.

There is only one other point. It was referred to by the right hon. Gentleman on the Opposition Front Bench and it relates to shipping. Many of us remember that the shipping industry was, for one reason or another, that which appeared to escape the net of E.P.D., and we are all aware that vast fortunes were made by the shipping companies during the Great War. While I am mindful of the fact that the shipping industry was subject to E.P.D. on the last occasion, the fact remains that large profits were made in what I would term trading in ships, that is, in the buying and the sale of those ships. I would ask the right hon. Gentleman whether he can assure me that the profits which are made in trading in ships will, in fact, come under this Clause.

5.29 p.m.

Mr. Hely-Hutchinson

I would like to associate myself with the remarks of the hon. Member for Chesterfield (Mr. Benson) to the effect that we must have grave misgivings about the efficacy of this tax unless it is associated with measures for the prevention of wasteful expenditure. I am not sure that I would follow him from that point to the conclusion that some fixation of prices is necessary. This is hardly the time to go into the general question of the fixation of prices, but we must remember that the fixation of prices or wages or of the rate of interest one pays on money is apt to have the effect of limiting the supply. It is something that we must reach by roundabout methods. We must try to prevent wasteful expenditure as a means to the end that prices do not rise. I support also my hon. and learned Friend the Member for Ashford (Mr. Spens) in the suggestion that the Chancellor should spread the net wider to catch some of the small fish also.

While in nearly every quarter of the Committee we approve of what is in this Budget, some feel misgivings about what is not in it. The situation has considerably changed since we imposed A.P.D.; and, in changing from A.P.D. to E.P.T., one of our purposes is to go further than that purely negative aspect of A.P.D., which was to deal with the public scandal of profiteers. We are now concerned with the affirmative task of raising a very large revenue. In considering that, we have to consider the increased expenditure which makes it necessary to raise that increased revenue. I should like to refer to some remarks made by my hon. Friend the Member for Mossley (Mr. Hopkinson) when we were talking some months ago about A.P.D. He pointed out that while the large profiteer was a public scandal, he was only a small financial problem, but that, while the small profiteer was no scandal, he produced in the aggregate a great financial problem. It is that problem that we should like to see tackled by the Chancellor.

There is one point to which I should like to refer—I am not sure whether I should do so on this Clause or on Clause 19. Sub-section (4) of Clause 12, which is the charging Clause, refers to the incidence of this tax on the holding of investments. The particular aspect of that which I should like to discuss arises because in Clause 19—

The Chairman

Quite obviously, the hon. Member must wait until we get to that Clause. That is definitely a point for Clause 19.

Mr. Hely-Hutchinson

I wish to refer to something arising out of Sub-section (4) of Clause 12.

The Chairman

I thought the hon. Member was referring to something arising out of Clause 19.

Mr. Hely-Hutchinson

No, this is the charging Clause. If it would meet your view, I would briefly refer to it now, and not deal with it at a later stage. Under National Defence Contribution, Income Tax did not fall on investment income derived from companies which had borne N.D.C. Does the same principle apply to investment income from companies which have borne Excess Profits Tax. It is rather important, because of the later choice between Excess Profits Tax and National Defence Contribution. If my right hon. Friend will consider that I think he will realise that, in the case of a company which is being assessed for Excess Profits Tax, it is a matter of considerable importance whether the income on which it is being taxed has already borne the tax to which it is being subjected. I do not ask my right hon. Friend to reply ať the moment, because it is a point of detail, which could probably be better considered later in regard to the working of the Act.

5.35 p.m.

Sir Stanley Reed

I wish to refer to a point raised by my hon. Friend the Member for Denbigh (Sir H. Morris-Jones). It is a matter which we should have liked to raise in the form of an Amendment if it had been in order. After listening to the reply of the Chancellor I hope my right hon. Friend will not think we are unduly obtuse or obdurate if we do not accept his disquisition on the situation. Under the Excess Profits Tax the Chancellor does not exactly say to a man who has made excess profits, "You are a dirty dog, and I am going to twist your tail," but he says, "Yours is the henroost that I am going to rob." He is going to do this by taking something like 75 per cent. Take the case of what was described as the "professional man." I think it is rather unfortunate that that expression was used, because it has led to some misapprehension. My hon. Friend was referring to those whose incomes are derived from non-trading sources. Take the case of a man who is making a small profit from his brains and industry in trade, although it is not derived directly from the war. Take the case of a man drawing a pension of £1,000 per annum from one or other of the Imperial funds. He is appointed to an office of which the emoluments are £2,500 per annum. His income is immediately raised to £3,500 per annum, and he may also receive allowances. What possible equity or justice can there be in taking this 75 per cent, from the small manufacturer who is doing a little extra well out of his commercial enterprise, and saying to the man who is getting an extra £2,500 a year from an office that is created directly as a result of war conditions, "From you we shall take no more than the normal taxation "?

That is only one case of thousands that could be mentioned. These new offices are swarming with men drawing pensions and now drawing substantial incomes in addition from public funds. This matter requires a little more consideration than was given to it by the Chancellor. My hon. and learned Friend the Member for Ashford (Mr. Spens) gave us a very grim warning that if this state of things is tolerated it will produce a profoundly demoralising effect on the whole community. The Chancellor of the Exchequer said that to bring non-trading incomes within the purview of the tax would involve an enormous amount of study and inquiry. If that is true, is not the whole of the material for the excess charge on these incomes before the Treasury or the Lords Commissioners for Income Tax in the Income Tax returns? Of course it is. Every single item of information which is necessary to carry this reasonable tax to its proper course is before the Treasury. I do not want to press that point on the Chancellor tonight, except to ask very earnestly that in the legislation which is to come from the Government, with the object of taking the profit out of war, this point should have consideration.

5.40 p.m.

Mr. Lewis

There is one point to which I wish particularly to draw the attention of the Chancellor of the Exchequer, and perhaps in his absence the Financial Secretary to the Treasury will be kind enough to consider it. The point really has a somewhat wider application than what I understood to be in the mind of my hon. and gallant Friend the Member for the Drake division of Plymouth (Lieut.-Colonel H. Guest). I think there is very general agreement in this House and outside that this tax is a reasonable tax, and that in the circumstances it is a desirable tax, but there seems to be a risk that if we are not careful in some cases in the collection of this tax we may do something which may weaken our industrial capacity in the future. I ain sure that the Committee would not wish deliberately to do that.

Take the case of a company which is engaged in some work which is of national importance, a company which makes something in this country for sale abroad, the products of which, therefore, form part of our export trade. There are many cases of such companies which for some years past have been doing very badly. The money which they should have spent on the replacement of obsolete machinery has not been available, and the necessary repairs and alterations have not been carried out. In many cases overdrafts have been accumulated at the bank. It may happen—I have no doubt that in some cases it will happen—that, as a result of the outbreak of war., some of these companies will begin to show very much larger profits than they have earned during the past six, seven, eight or 10 years. But even so, those profits may not really be large enough for there to be money available which could properly be applied to the distribution of dividends or put aside for the future distribution of dividends. All these profits might quite possibly be required for making good the deficiencies which they were unable to make good in past years, for buying up-to-date machinery, carrying out repairs and paying off overdrafts.

I am aware that in the next Clause, Sub-section (7) provides that the Court of Referees shall have certain powers. I suggest to the Chancellor of the Exchequer that the Clause as it stands in regard to the matter which I am now raising is very vague. There is a clear distinction between a profit which is wholly available for distribution to shareholders and a profit, no matter how big it may be, which, owing to previous losses, cannot properly be so applied. Would the Chancellor of the Exchequer be good enough to consider that point? It is not easy to suggest any form of words that would cover it, but the Chancellor of the Exchequer has a very ingenious mind, and has the advantage of highly skilled advisers, and it might be, if he thought fit, he could strengthen the Bill in that regard. It is a matter that the Committee would wish to be done if it could be done. We do not want, in our desire to tax a large share of profits earned during the war, to do something which would, in effect, weaken the competitive power of some part of our industry after war has ceased.

5.45 p.m.

Sir Nairne Stewart Sandeman

The Chancellor of the Exchequer has had very little criticism of his new Budget, and I have not raised my voice against it, but I am not certain, in the case I am going to bring before him now, that the long view would not be a little better. I refer to the cotton trade. I have been in this House for about 16 or 17 years and I am at a loss to know what the Government have ever done for the cotton trade. They have allowed unfair competition to go on. We had the Indian fiscal convention, which, in my view, contributed largely towards ruining Lancashire; we had the Coal Act, which put up the price, and we had the cotton trade agreement, which has done nothing for Lancashire and its workers. We were then given the Enabling Act, which was a very doubtful thing. The position in Lancashire to-day is that very few of the firms have a datum line to show at all. A great many of them who were employing thousands of people have no datum line, and, as far as I can see, they will have to go to the Board of Referees to get a datum line. It will possibly be 6 per cent., but I understand that that matter will be in the hands of the Board of Referees.

This is having a very great effect in Lancashire, not only on the employers, but also on the workpeople. They are worrying about it, and I do not blame them. Many of the workers are out of work, and there may be still more thrown out of work. We have to take the view that the cotton trade must be helped now as much as possible so that after this beastly war is over there will be a chance for the cotton trade to continue. If it is not allowed to make some profits now, to bring the machinery up to date, and to recompense the employers a little for all the losses they have made, the cotton trade after the war will be in a worse state than it is now, and no amount of enabling Bills will ever help it to pull itself together.

The Chancellor of the Exchequer spoke about the datum line under the old Excess Profits Duty—I remember it very well—but he did not say that the years from 1910 to 1914 were very good years for the trade of the country and that practically every firm in the country had a good datum line from which to start, and that although it went up to 80 per cent. of the profits they did not mind paying it. They do not mind paying it now, and certainly Lancashire does not mind paying it, but they want to feel that they have something to go on as a datum line. There is nothing in this Bill except that they can go to the referees, who, fair-minded as they may be, will probably give them a datum line. But it is important that the Chancellor of the Exchequer should give Lancashire the greatest assistance possible now and so cheer them up. I hope that between now and the Report stage he will think of some words to put into the Bill which will give the feeling that the cotton trade will have a decent point from which to kick off.

5.49 p.m.

Mr. A. Young

This tax involves principles which really industry has not yet had time to consider in all their implications or to form amendments which they may consider necessary. The Chancellor of the Exchequer has given us his assurance that amendments may be produced before he introduces the Finance Bill next year. This interval will give a unique opportunity for full consideration of the provisions involved in consultation with all the interests chiefly affected. In this connection I happen to know that the Association of British Chambers of Commerce have communicated with all the trade interests in the country in order to form a joint committee, fully representative of trades and industries, to draw up the amendments which they think will be necessary to achieve the greatest degree of equity, and the smooth working and collection of the tax. In taking this action the Association is imbued with a desire to assist and co-operate with the Inland Revenue, and I hope that the steps taken by the Association will be welcomed by the Chancellor of the Exchequer.

5.51 p.m.

Sir Robert Tasker

I should like to call attention to two lines in Sub-section (3), which states that the Section applies: if the profits of the profession are dependent wholly or mainly on his or their personal qualifications '' That deals with the case of professional profits. As a professional man, I wish to enter my protest against the exclusion of professional men from this tax. It is a professional man's war just as much as a tradesman's war, and he ought to bear his share. As far as my own profession is concerned, the business of the great majority has come to an end, but there are other sections of my profession that will make enormous profits. They have undertaken obligations which no man can possibly fulfil, and they have undertaken enormous volumes of work. The part of Sub-section (3) to which I have called attention refers to a man's personal qualifications. A tax of this kind should be so comprehensive that it includes everybody. I have no sympathy with the hon. Member opposite who thinks that because of this tax men will be discouraged from putting forth their best energies and efforts. No one has a right to make any profit out of the war in any direction, and it is because I feel that the whole nation should be called upon to make sacrifice, that I contend that no exemptions should be made in the case of the professional men.

The Chancellor of the Exchequer cited the civil servant as a case for exemption from the tax. I see no reason why the civil servant in his sheltered occupation should not be called upon to suffer and sacrifice as much as the ordinary individual. In my division of Holborn, the war means great hardship for hundreds of people, who are threatened with ruin. Their boarding-houses and hotels are empty, and they are called upon to make a sacrifice far greater than men in my profession. In my profession we have not to keep a large staff and we have not the outgoings of the hotel keepers. If these people are called upon to bear a severe burden with equanimity, then the professional men should be called upon to do the same. The tax, as I read it, will lead to all kinds of complications. The Chancellor of the Exchequer has all the information and data with regard to business men and professional men alike, at the Treasury.

Sir J. Simon

The Inland Revenue.

Sir R. Tasker

I stand corrected. The information is in possession of the Inland Revenue and is collated and available. I suggest that whatever tax may be imposed it should be imposed on all alike.

5.56 p.m.

Sir J. Simon

I occupied a good deal of time in the observations I made at the beginning of the Debate, but with permission I should like briefly to deal with some of the special points that have been raised since. As regards the question of considering professions in connection with the duty, I set out some of the considerations when I spoke before. I perceive that hon. Members are not all of one mind on the subject.

I will consider all that has been said. I thoroughly understand the importance of the points raised, for example, by my hon. Friend the Member for Middleton (Sir N. Stewart Sandeman) and my hon. Friend the Member for the Partick Division (Mr. Young). It is fortunate that this new tax does not come into effective operation immediately, because that will give time for considering in what way it can, perhaps, be improved and made more certain in its application than the present terms of the Bill have been able to make it. I do not want to raise any false hopes, but I will certainly see that the time is used in considering such difficulties as have been mentioned in the speeches.

With regard to the special points raised by the right hon. Gentleman opposite, I will tell him what I believe the position to be. First, as regards banks. In the former Excess Profits Duty the provision as it turned out operated in a way, perhaps, not entirely expected. There were more reasons than one for that. One reason I will give now. In the old Excess Profits Duty there was no provision about banks which corresponds to what is now to be found in the Seventh Schedule, paragraph 6, sub-paragraph (2). The provision in the old Excess Profits Duty was that in estimating the profits no account should be taken of income received from investments, except in the case of life assurance business and where the principal business consisted in the making of investments. That is to say, that there was no exception made in the case of banks. Under the old Excess Profits Duty you excluded altogether the profit which the banks drew from their investments, one of the main and most important sources of profit to the bank.

On the other hand, in making capital calculations, we excluded the capital represented by the bank's investments, and the results were these, that if you looked at the accounts of the bank and proceeded on the basis that interest on investments is no portion of its profits, you very speedily arrived at the conclusion that the bank must have very little profit, and if you excluded all these investments, setting liabilities against assets, you soon came to the conclusion that the bank had only a minus capital. That gave some curious results last time, but it has been altered. I have put in a provision which includes banking business among the businesses in whose case the interest on investments must be regarded as part of its profits. The other thing is that we have in this scheme not attached the same importance to these capital figures. We are trying to do it on the comparison of profits, and in this respect we have remedied some of the anomalies connected with banks.

The other point is a different and a difficult one. As it stands at present, I should not myself have any doubt that, when a bank realises its investments—not when its investments fall in value, but when it realises them—the actual loss on realisation is a loss which is set against profits— [An Hon. Member: "And vice versa?"] —and vice versa. That, I think, will be so as a matter of good accounting.

Hon. Members will of course appreciate that the structure of the tax takes the form that for the purpose of seeing whether there is an excess, what you are comparing is profits at two dates. You necessarily begin, in this sort of taxation, by saying that the rules applicable to ascertaining the profits for Income Tax purposes are, broadly speaking, the rules thatyou apply for ascertaining excess profits. It follows that, as far as these investments are concerned, the particular subject matter is not really a subject matter of profit but is a capital asset, and variations in the value of a capital asset would not be variations which come within the calculations of this tax. Variations in the value of land as such are also variations of a capital nature. Of course, if an enterprise, say a land company, which makes it its business to deal in houses, or a company which exists for the purpose of letting houses, gains something in the present circumstances of the war, that gain is in the nature of a profit—a revenue and not a capital profit.

Mr, Pethick-Lawrence

The right hon. Gentleman has not quite answered my question. I asked him, suppose a man is able to put up the rent of agricultural land during the war, will the increase in rent be included or excluded, because land itself is not the subject matter of the tax?

Sir J. Simon

I think it will depend whether the letting of land was a business. The case of ships created a good deal of interest, but not the same difficulty. I suppose there again the actual position is that, if you have the case of a business which deals in ships, undoubtedly, if there is a profit made, that is a profit which comes within the purview of this sort of taxation. I should suppose, on the other hand, that if a ship is a capital asset, as undoubtedly it is in some cases, as far as this scheme of taxation is concerned an increase or decrease in the amount of the capital value would not fall within the scope of this tax. If it is going to be taxed it must be taxed in some other way.

My hon. and gallant Friend the Member for the Drake Division (Colonel H. Guest) also called attention to a special difficulty of two important classes of business, coal-mining and shipbuilding, and I recognise the importance of the point that he made. I will look carefully—no doubt others will also—at the nature of the provisions in the Bill at present giving the Board of Referees power to vary the standard in certain circumstances. We must not be too lax about this but we must be sure that the Board of Referees have proper and effective authority for the purpose of meeting difficult cases, and it may be that the sort of cases my hon. and gallant Friend mentioned need special consideration.

It was observed that one of the effects of this kind of taxation in past experience has been that when the rate of duty is put up very high—80 per cent, in the last war, and it turned out to be a dangerously high limit—there is so little left that the effect of it is to encourage and stimulate very lavish and, it may be, wasteful expenditure. It is a very difficult thing to deal with. One thing inferred from that experience is that you must not put up the duty to so high a figure that what they spend really becomes a matter of no importance to people because they get so little themselves. It is not that I want to leave anyone with a surplus profit at all, but the very natural sentiment, "Let us take the lot," in practice will undoubtedly have the effect that you will have enormously lavish and unnecessary expenditure. The language of the Income Tax Act, if I remember rightly, on the subject of allowing expenses is that they must be expenses which are wholly and exclusively laid out or expended for the purposes of the trade. I have often wondered whether if you had a very extreme case in which a company decided to go in for repairing its premises on a lavish scale, having in mind the fact that in a sense the Government is going to pay for most of it, the strict application of that provision should not result in a challenge to a particular piece of expenditure on the ground that it was much more than was really necessary for carrying on the trade.

Mr. Boyce

If the right hon. Gentleman inquires he will find that it often does result in a challenge.

Sir J. Simon

I am glad to hear it. Cases where the items are very big and manifestly swollen ought to be challenged. I shall make it my business to look into that as carefully as I can because, if anything could be done to strengthen the existing provisions it would, I think, be with the general consent of everyone. No one can possibly wish that in the midst of an expensive war there should be lavish expenditure because one of our taxes takes the form of an Excess Profit Tax.

I have answered some questions which have been put to the best of my ability. I hope the Committee may be prepared, after this lengthy though certainly useful discussion, to let us have the Clause.

Sir Geoffrey Ellis

Will the Chancellor of the Exchequer consider, in relation to the point which has been raised, that in the case of certain tradesmen in reception areas the Government are giving them a monopoly, and that any excess profits they may make will be made solely by reason of Government action?

Sir J. Simon

I will consider that point.

Mr. Benson

Is the farmer going to get away with all his excess profits because of the fact that he can now be assessed under Schedule B; no matter how prices may rise or how great his profits are he can still be assessed under Schedule B?

Sir J. Simon

In the Finance Act, 1915, the duty was applied to trades and businesses, but there was an express exemption of husbandry in the United Kingdom. There is no such exemption in the present Bill.

Mr. Benson

But Schedule B makes an exception unless it is abolished.

Sir J. Simon

That is a general question.

Question, "That the Clause stand part of the Bill," put, and agreed to.

CLAUSE 13.—(Computation of standard profits.)

6.12 p.m.

Mr. Spens

I beg to move, in page 17, line 36, after "thirty-six," to insert "or the year nineteen hundred and thirty-seven or."

This Amendment must be considered with the next Amendment which is to insert later "or the years nineteen hundred and thirty-seven and nineteen hundred and thirty-eight." I am moving this Amendment because of a particular case which has been brought to my notice. It is the case of a heavy industry company which started business just before the 1st January, 1935. A very large sum of money was spent in erecting plant and then it had to get itself into an established trade. In the first year of its existence it lost over £25,000. In the second year it réduced that loss to £5,000, and in 1936 it made a profit of just over £400. In 1937 that profit was increased to £9,000 and in 1938 that profit was quadrupled. The ordinary normal profit would be between £35,000 and £40,000 a year. It took the company five years to get into the industry and into its stride. If you apply Sub-section (4) of this Clause to that company to obtain its datum line you have to take either the year 1935, when it made a profit of £400, or the years 1935 and 1937 together, which would mean a profit of £4,000, or 1936 and 1937 when it would be a slightly larger figure, whereas its normal profits in full working would be between £35,000 and £40,000 per annum.

In these circumstances naturally the company is saying that its datum line is going to be unfairly too low, and the Amendment I suggest would allow such a company to take into account the year 1938. Sub-section (4) is a verbatim repetition of the Section put in last spring for armament firms, and to draw the line at the end of 1937 was a perfectly right and proper thing to do for armament firms on the basis of the argument put forward that by 1938 they were already making abnormal profits. But this tax in this Bill extends to all companies, and this company of mine has absolutely nothing whatever to do with armaments in any shape or form. It makes fuel economisers. I have a list of people to whom it sells. They are mostly electricity undertakings and steel works and some brewers. Therefore, one asks whether it is right, once a tax is extended to companies not doing armament work, that the year 1938 should be excluded altogether. My Amendment suggests that it should not, and that such a company should have the right to get its figures for 1938 taken into account. I have no doubt that the Chancellor of the Exchequer will say that it would allow armament firms to get in their 1938 figures. I turn to Sub-section (7) and I find that it is not going to be of the slightest use to me. The Board of Referees will only assist me if, in fact, my company is able to prove that it is making less than it expected to make in the datum year, whereas the view of the directors is that it made an extremely good start in the earlier years, it was only losing £26,000 in the first year, and it would be quite impossible for any board to find that it could have reasonably been expected to make more in any of these years.

I heard what the Chancellor of the Exchequer said in reply to the hon. and gallant Member for the Drake Division (Lieut.-Colonel H. Guest) and it rather cheered me, but if the right hon. Gentleman takes the view that it is improper to allow any of these companies, that is armament companies, to take in the 1938 figures, which I respectfully venture to doubt in the case of non-armament-making industries, I suggest that there ought to be power in the Board of Referees in the case of a company starting like that to which I have referred, and which does not get into its stride until 1937, not to fix the datum line unfairly on one of the earlier years, when it was only struggling into existence.

6.18 p.m.

Sir Cyril Entwistle

I should like to support the argument of the hon. and learned Member, but I am sorry that he limited it to a particular case. Striking as was his illustration, I wish he had put his argument on broader grounds, because it can be put on the broadest possible grounds. What is this tax? It is supposed to be a tax on any excess profits made out of the war; that is its purpose. It is not to work inequities between a company which happens to be lucky because it had a big standard profit in the particular years specified in the Bill. Surely it is equitable that a company should have the benefit of any year of its previous trading in which the profits of that year were not in any way enhanced by the circumstances of the war. Clearly, you ought to take the last year in which it cannot be said that the war had any effect in increasing profits. Can anyone say that apart from armament firms the profits of any company for 1938 owe anything to war conditions or that any of its profits are in any way in the nature of profiteering? That being so, obviously it is inequitable to leave out the year 1938 unless there is an overwhelming reason for doing so.

We can understand the reason for not including armament firms, because we know that rearming started two years ago and there is a reason why the year 1937 might be eliminated, but we know that in 1938 armament firms benefited by armaments, which after all is a war purpose. But what possible reason in equity can there be for excluding as one of the standard years 1938, which in the case of the ordinary business has nothing to do with the war at all? We know why it was done for armament firms, and there would be no difficulty in adopting the hon. Member's Amendment by excluding from that Amendment armament firms; it is an easy piece of draftsmanship. The years should be left as they were in the last Finance Bill as regards armament firms, but the year 1938 should be included for ordinary firms.

The other reason which might be advanced why the year 1938 should not have been in, say, on the 5th April, is that, theoretically, if one month of 1938 is in an accounting period it would be included in the hon. Member's Amendment and, therefore, it may be that you could not find out what was the standard profit for 1938 until, say, 30th November, 1939, in the case of a company whose accounting period ended in November. We are very near that time, and there is no reason why, in a case like that, the assessment should not be postponed until the end of the accounting period, even though that accounting period ends late in 1939. On grounds of equity there is no possible reason why the year 1938 should not be permissible to firms, because in no way can it be said that those profits were due to war conditions.

6.22 p.m.

Mr. Jennings

I do not know whether it is in order, but I would crave the indulgence of the Committee in making what is my first venture in these Debates since my return. I realise that we are dealing here with some very intricate legislation, and I would like to ask the Chancellor if, on this particular Amendment, he is not courting an endless number of appeals to the Board of Referees on objections to the pre-war standard. Here we have the suggestion of a pre-war standard in order to arrive at excess profits due entirely to the war. Surely a standard system should go as near as possible to the inception of the war, provided that the firm is not employed previously on armament production or in the production of materials concerned with the war.

I have heard the right hon. Gentleman say that he had a great deal to do with propounding and explaining various sections in the last Excess Profits Duty for the previous war. He was, perhaps, engaged in a much more remunerative side than I, because I came into it to some extent in one of the lower-paid professions—that of a chartered accountant. As one who has appeared before the Referees, before the Special Commissioners, and also before the King's Bench Division on these matters, I feel that from the professional point of view we had a slowness of hearing the appeals and a diversity of opinion among the Judges as to the exact interpretation of the law, and many Judges hearing these cases scratched their heads and wondered exactly what was meant by the legislation and how they were to interpret it. Indeed, that involved many hardships so far as Excess Profits Duty was concerned. I appeal to the Committee to give the taxpayer the benefit of his own view with regard to the selection of standard profit, which carries him right up to the period of the war. Otherwise you are taxing, from an Excess Profits Duty point of view, profit which has no relation to the war whatever.

6.24 p.m.

Sir H. Williams

I presume that the Committee will not mind if I mention the substance of my Amendment while we are discussing this matter, because it will save time and it raises the same issue.

Sir C. Entwistle

I hope not, because I purposely avoided any reference to that. I think it would be much more convenient to discuss the Amendments separately.

The Chairman

I will uphold any objection taken to the hon. Member's suggestion.

6.25 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

My hon. and learned Friend the Member for Ashford (Mr. Spens) raised a very interesting case and I think it is worth our while to consider it. His Amendment, however, needs the insertion of the year 1937 or the average of 1937–38 as a standard period. It is true if you did that it would be extending the year 1937 or the 1937–38 average to all firms. He anticipated that I should make this point and it is right that I should make it so as not to disappoint him. Those years would be quite unreasonable years when dealing with the armament firms. One hon. Member asked whether we could not exclude the armament firms by defining them, but he did not define them in his speech.

Sir C. Entwistle

They were defined in the last Finance Bill.

Captain Crookshank

That is true. They were defined for the purpose of armament profits duty and the House found it was a very difficult task to make that definition.

Mr. Jennings

Surely in the case of an appeal to the Board of Referees the board could be given power to decide whether a firm was on armament work or not.

Captain Crookshank

I would like to say how glad we are to see the hon. Gentleman back again and to hear him speak. I do not know if he was re-elected while we were still discussing the old Finance Bill, but if he came in subsequently to that Debate it is not surprising that he should not be familiar with this question. It was done by using the machinery of the Ministry of Supply, and it would be very complicated to put forward in time of war; it would not be sufficient to leave it to the Board of Referees to decide what are and what are not armaments. The difficulty we were in before was that we could recognise armaments, but what were armament contracts, sub-contracts and sub-sub-con-tracts, all down the line? Unless we go the whole length of reinserting those provisions into this Bill we cannot achieve the distinction between armament and non-armament firms. Therefore, if it be admitted that that is a much too complicated way of doing things in time of war, then, by our first premise that 1938 or 1937–38 would be unduly favourable years to take for armament firms, we reach the conclusion that we cannot get anywhere along that line.

There is then, of course, the proviso in Clause 13, Sub-section (7). My hon. and learned Friend said that he looked at that in vain, because he did not think it would meet the case. It is possible to argue that in the case of profits which, owing to the fact that a firm is a new firm, are rising, it would not be possible for anyone to say that the profits of the firm in those particular years were otherwise than what might be reasonably expected. My hon. and learned Friend did not find much comfort in that provision. He said that he did not much care for this idea because it might mean an enormous number of references to the Board of Referees. My answer to him is that if there were such a clear case, it is likely that the Inland Revenue authorities would not challenge it, and it would not necessarily have to go to the Board of Referees.

However, in so far as my hon. and learned Friend and other hon. Members may think that these words do not perhaps entirely cover all the cases that ought to be covered, and certainly do not cover the type of case, exceptional as it may be, which the hon. and learned Member put forward, this is one more instance of the advantage which there is in the fact that we are not finally legislating on this matter at the moment. There will be opportunities in future Debates to look into these points. I do not hold out any particular promise with regard to any form of words, or anything of that kind, but the inquiries that are being made, to which reference has beenmade, will no doubt cover this matter among the many other matters that will be put forward, and it will be in the light of all the circumstances that my right hon. Friend will finally put forward any Amendments which he thinks it right to include in the next Finance Bill. I do not know whether this will satisfy my hon. and learned Friend, but I end as I began by insisting once more that it would not be right to accept his Amendment because of the consequences which inevitably would result with regard to armaments contracts.

Mr. Spens

I am grateful to my right hon. and gallant Friend for his reply and for his answer to the particular case which I put. Perhaps my right hon. Friend the Chancellor will allow me to give him precise details so that he and his Department may consider them when going into the matter. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.34 p.m.

Sir H. Williams

I beg to move, in page 17, line 39, at the end, to insert: Provided that, if a person carrying on a trade or business can satisfy the Commissioners of Inland Revenue or, on appeal, the Board of Referees that, owing tó some specific cause peculiar to the trade or business, or to the industry concerned, it is just, the year nineteen hundred and thirty-eight may be substituted for the year nineteen hundred and thirty-seven. I shall not detain the Committee very long on this Amendment, as in one sense it raises the same issue as the last Amendment. It really contains a suggestion as to how the problem might be solved. I am satisfied that in a great number of cases, when the facts are presented to the deciding authority, they will have no hesitation in saying that some of the other options represent a degree of unfairness. This Amendment was not drafted in the interests particularly of an industry with which I happen to have some connection, the electricity supply industry; but the position of that industry illustrates the matter clearly. It is an industry which has been rapidly expanding, and everybody has been pressing it to expand as rapidly as possible. The sale of electrical energy has been going up by between 10 per cent, and 15 per cent, per annum; the revenue has not gone up in anything like the same proportion, because prices have been falling, but year by year there has been a very large expansion of the industry, whether carried on by municipalities or by companies. To select for that industry the pre-war standard of 1937 or 1936, or anything like it, is to wipe out all the expansion that has taken place, and to say that it is war profit. Manifestly that is absurd. This Amendment was not inspired in any way by the electricity supply industry, but there are large numbers who will be taxed most unfairly if all consideration of 1938 is excluded.

I realise the difficulties which the Chancellor has. The selection of years for the purpose of the Armament Profits Duty was made on the grounds that one ought to go to the pre-armament profits date. Now my right hon. Friend is in the difficulty that he cannot conveniently run an Excess Profits Tax and an Armament Profits Duty at the same time. Frankly, I see that there would be great difficulties. I could draft a Clause that would do it, but whether subsequently it could be administered is an entirely different matter. I think the real solution is for an appropriate body—and the body I suggest is the Commissioners of Inland Revenue, in whom industries, accountants and so on have very great faith—to be endowed with appropriate powers. If that were done, I think there might be a happy solution of what might otherwise involve great injustices.

6.37 p.m.

Mr. Boyce

In supporting the Amendment I would like to say at once that I agree that this tax is necessary, and in present circumstances a desirable one. Neither my hon. Friend the Member for South Croydon (Sir H. Williams), who moved the Amendment, nor I desire that the intention of the Chancellor to take 60 per cent. of what can reasonably be termed excess profits should in any way be opposed and still less frustrated. My hon. and learned Friend the Member for Ashford (Mr. Spens) and my hon. Friend the Member for South Croydon have given the Committee instances of hardships which would result under this part of the Bill, and I would like to place on record another type of case, particulars of one of which I have sent to the Chancellor. There are many non-armament businesses whose normal profits during the past 18 months have been very substantial without having been influenced in theslightest degree by the preparations for war, or by the prospects of war, and whose recent profits would have been maintained if there had been no war, but which made little or no profits during the datum years 1935, 1936 and 1937 owing to their having suffered from an abnormally prolonged depression.

In many of these cases the trading results for last year, and the prospective results for the current year, bear no relation whatever to any standard profit that could be calculated in accordance with the terms of this Bill, unless it were for the wide interpretation which the Chancellor placed this afternoon on the words at the end of Sub-section (7) of Clause 13. I am referring solely to businesses whose profits are in no way derived from, related to or influenced by the national emergency, and which in equity should not, I submit, be called upon to bear a disproportionate share of the national burden. If I am right in assuming that the Board of Referees is to have an unfettered discretion to review the peculiar circumstances of these cases and to fix a profit standard according to what they consider just in the light of those circumstances it will satisfy our request. Our sole object in this Amendment is to ensure that those businesses which have had nothing whatever to do with armaments or the national emergency but have had the misfortune to suffer longest from the depression and consequently can least afford to be discriminated against, should not be unfairly penalised on that account.

6.40 p.m.

Sir J. Simon

I hope we may be able to dispose of this Amendment as we disposed of the last Amendment. I want to repeat what was said by my right hon. Friend the Financial Secretary on the last Amendment. What he said then, applies also to this Amendment. I would be glad to consider the speeches made by my two hon. Friends on this Amendment and the illustrations which they gave, as part of the material which they would wish should be considered fairly before we finally decide, but I will not use any more encouraging expressions than those which have been used already by my right hon. Friend the Financial Secretary. I will confine myself to the very prudent language in which he dealt with the last Amendment, and I hope that in those circumstances my hon. Friends will not wish to press the Amendment.

Sir H. Williams

In view of the Chancellor's statement I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.42 p.m.

Sir H. Williams

I beg to move, in page 18, line 11, after "business," to insert: the Commissioners of Inland Revenue or on appeal. Those who are experienced in these matters tell me that they would rather have the right of access to the Commissioners of Inland Revenue than to be restricted to the Board of Referees. They think that if the Commissioners are the first deciding authority, you are more likely to get uniformity of practice and equitable treatment than by going direct to the Board of Referees. I think that in the Bill as it stands, there is one other case to which the words proposed in my Amendment do apply. The principle of the Amendment does exist but in regard to one case only. I suggest that the Commissioners should be made, so to speak, the first line of defence, not only in this case but in one other case regarding which I have an Amendment on the Paper. The Chancellor of the Exchequer is more familiar with the facts than I am and I trust that he will find himself able to agree with my friends who are experienced in this matter and who take the view indicated by this Amendment.

6.44 p.m.

Sir C. Entwistle

The Financial Secretary to the Treasury on a previous Amendment said it would not be necessary in all cases to go to the Board of Referees if the Board of Inland Revenue was satisfied. The question which I ask is whether the Board of Inland Revenue will have the power, until the matter has gone before the Board of Referees, to bring Sub-section (7) into operation at all? Apparently it is the intention not to have references to the Board of Referees where the Inland Revenue is satisfied that there should be another standard. In that event, are not the words proposed in the Amendment necessary in order to carry out, what appears from the speech of the Financial Secretary, to be the intention of the Treasury?

Mr. Jennings

If this Amendment is adopted, greater facilities will be afforded to the taxpayer and he will have a better opportunity of appealing before the Commissioners, than he would have if the matter is left to the Board of Referees. I would like the Chancellor of the Exchequer to give the Committee his views on that aspect of the matter.

6.45 p.m.

Sir J. Simon

I will consider, of course, the suggestion made by my hon. Friend the Member for South Croydon (Sir H. Williams), but I am not at present satisfied that the change which he suggests would be an advantage. As regards the very searching question put by my hon. Friend opposite, as to whether it would be possible for the Board of Inland Revenue to short-circuit the proceedings, I think we must pay some attention to the practical facts of life. What really happens in cases like this, I imagine, is that if a case is so manifestly right that one cannot suppose that the Board of Referees would differ, then as soon as, under Sub-section (7), the application of the person carrying on the trade or business has been made in sufficient detail, the Inland Revenue has to decide whether they will resist the application or let it go. It is like settling out of court. If the case is one which the Board of Referees could not resist if it did come before them, then the matter is finished with. That is the way in which it works and I think it is the better way. I should be sorry to see an appellate function in the hands of the executive. It is important to preserve the principle that the Commissioners of Inland Revenue are people engaged in collecting revenue and in applying the law, and not engaged in the free discharge of judicial functions. I am not convinced that the proposal is right, but I will certainly consider it.

Sir H. Williams

I would only point out that in Clause 16, Sub-section (5), the Chancellor of the Exchequer is using the exact procedure which I propose in this Amendment, although I agree that the circumstances in that case are somewhat different. However, in view of what the Chancellor has said I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.48 p.m.

Sir H. Williams

I beg to move, in page 18, line 12, to leave out "or the volume of business."

This Amendment is to be considered in conjunction with a later Amendment in my name to line 13 and the effect of the two together would be to make the Sub-section read: If on the application of the person carrying on the trade or business the Board of Referees are satisfied that in the standard period, the rate of profit was less than the percentage standard as hereinafter defined, the pre-war standard of profits shall be taken to be the percentage standard. The Sub-section would then go on to refer to the provisions of Sub-section (8). In other words, I am asking that the capital of an existing business should be treated the same as that of a new business. I think the issue is plain that where there is a case of hardship, you should refer to these statutory percentages and thus the existing business would be treated as if it were a new business. I think the case for the Amendment is clear. Whether it will be accepted is of course another matter.

6.49 p.m.

Sir C. Entwistle

I am sorry that my hon. Friend has been so brief in moving this Amendment which I think is the most important Amendment on the Paper in relation to this Clause. What is proposed in the Amendment was part of the law under the old Excess Profits Duty. In addition to the standard years, a business could elect to choose a percentage standard of capital. The Chancellor of the Exchequer in his general speech on Clause 12 said that that provision would be dropped because of difficulties with regard to arriving at the value of capital, and so on. He told us in a picturesque way of some of the questions which arose under that legislation. I do not think that is sufficient reason for not having this percentage standard, if, by not having it, you are going to work great injustice to certain industries. It is clear that it cannot be an insuperable objection because the capital standard is used compulsorily in the case of any business started after 1st July, 1936.

Why do I regard this Amendment as so important? I do so when I look at the industry which affects my constituency more than any other, which also affects a large number of other constituencies, and which is the largest exporting industry in this country, namely, the cotton trade. Look at the position of the cotton trade under this legislation as it now stands. It is well known that there is hardly a firm in the cotton industry which will have any profit standard at all during the years which are given as the standard period for the purposes of E.P.T. I was speaking a few hours ago to a director of one of the largest firms in the cotton trade, a fine spinner, and it is clear that in the case of his firm not only is there no profit, but there are large arrears on their cumulative preference dividends, so that you will have a position in the cotton trade in which, if any firm makes any profit at all, 60 per cent. will be taken under this legislation. Is that fair? If it is fair and equitable, one must put up with it, but can it possibly be so regarded, when we know that the cotton trade has gone through such a terrible time? The causes are well known and have nothing to do with the efficiency or management of the industry.

We know the tremendous time that this House took in passing the Cotton Enabling Bill, under which it was hoped that the cotton trade would improve. I do not know how far an improvement in the cotton trade during the succeeding years will or will not be helped by the war, but it is plain, in view of the terrible record, that they should have some sort of percentage which is a fair and equitable one, however low, and I do not think they would ask for more than 6 per cent. on the capital employed in the business. I think they would be satisfied with that, but not to have nil, which is the position in which the cotton trade is situated. The hon. Member for Middleton and Prestwich (Sir N. Stewart Sandeman), who raised this point on Clause 12 and got that very sympathetic reply of the Chancellor, for which we are very grateful, said that they may be able to apply under Sub-section (7), but can Sub-section (7) help the cotton industry at all? As I read it now, and, I think, as any reasonable interpretation can be put upon it, it applies only to cases of hardship on the part of individual firms. You could not raise a question of a whole industry which is going through an exceptionally bad depression, such as the cotton industry. The first hurdle you have to get over is to show that the profits are less than might reasonably be expected, but how can an individual firm in the cotton industry show that if it does not apply to the whole industry? It seems to me that this Sub-section (7) deals with exceptional circumstances of hardship of individual firms and not of an industry as a whole. It might be that a further Amendment, adding the words "industry concerned, trade or business," would help. I presume that it would, although I am not sure whether the initial hurdle of satisfying the Board of Referees that the profits were less than might reasonably be expected could possibly be complied with by a firm in the cotton trade merely on the ground of the general depression in the industry.

I think it is most urgent and important that equity should be administered in the case of such a wide and important industry, whose export trade is so essential, and it would be dreadful if a real injustice were done to that industry which cannot be justified at all. I say that the only basis of dealing with the industry is either by accepting the Amendment, or by so altering Sub-section (7) that the Board of Referees should be entitled to take the whole of such a case as that of the cotton industry into consideration and give a standard profit based on a percentage of the capital employed. Nobody would ask, I think, in the case of the cotton industry, for more than six per cent. Nobody can possibly argue, on the ground of justice, that that should not be done in this case. I think the best way of doing it is by taking this Amendment as it stands and, following the practice of the old E.P.D., to allow as your standard profit the percentage on capital which in this case is allowed to new factories. If a new firm that starts after 1st July, 1936, is entitled to eight per cent, on the capital employed in the business, why should not a cotton firm which has been slogging away through allthese difficult years be allowed to make at any rate as much as that new firm? Even in Germany, under the tremendous restrictions which are supposed to have been put on capital there, they allow firms six per cent. on their capital. I strongly urge on the Chancellor of the Exchequer that in cases like that of the cotton industry—and it applies also to a new firm which has just started building up its profits and which may have no standard profit yet—there should be the alternative of a reasonable percentage on capital, and I strongly support the Amendment.

6.57 p.m.

Sir N. Stewart Sandeman

The Chancellor of the Exchequer has promised to look into this question and see what can be done for the cotton trade. When I go up to my constituency and see all those working people, poor people who are entirely dependent on the cotton trade, a trade that is having such a bad time, I feel that it is up to the Chancellor to take their case very much to heart, and to make some regulation by which a datum line, which is security for the worker as well as for the employer, will be allowed.

6.58 p.m.

Sir George Schuster

I do not want to make a speech, but I should like to express my support of the general sense of what has been said in this connection. We have had the chance of relying on the year 1938 refused, and one does accept the validity of the reasons given, but we are thrown back on reliance on these particularly vague words in Subsection (7) which determine the discretion to be exercised by the Board of Referees. I want to urge strongly that there is a great number of cases which may be very hardly and unjustly treated by the fact that the year 1938, for example, cannot be taken in, and I would put it to the Chancellor that it would be extremely desirable that those words should be made somewhat more definite than they are at present.

7.0 p.m.

Captain Crookshank

We are all at one in the sympathy which we feel for the cotton trade, but we shall be getting into rather deep waters if we try and deal with this tax on the basis of industries. A particular industry is not an easy thing to define, but an individual firm is. The hon. Gentleman who made the principal speech on this subject said, "Why cannot you have a percentage standard because there is already one in the Bill compulsory for firms which came into being after 1st July, 1936? "Therefore, because of the peculiar circumstances of the cotton industry, he suggests that some such idea should be inserted in Subsection (7).

Sir C. Entwistle

A choice.

Captain Crookshank

My hon. Friend suggests that as there is to be a percentage standard for businesses brought into being after 1st July, 1936, why cannot there be one for the class for which he is speaking? The answer is an easy one to give, and I hope hon. Members will appreciate what an important point it is. In the case of new firms which have come into being in the last two years, there is no great difficulty in getting a capital valuation, nor in the case where there has been an increase of capital recently, is there any great difficulty in getting a valuation of the increase of capital assets. One of the great difficulties under the old Excess Profits Duty was that there was this possibility of getting a percentage standard, and that meant the valuation of assets going back a great number of years.

Sir C. Entwistle

Will my right hon. and gallant Friend's argument cover the point of the provision in Sub-section (7), and will he consider that as an alternative? It would be far better than nothing?

Captain Crookshank

On the whole question of Sub-section (7), we are going to take into account the various points that have been raised in the Debate. I want to make it clear that any proposal inherent in which is a suggestion to refer to long lost values and having to tot up all those values for 20, 30, 40 or 50 years ago, was a defect of the old duty, and it is one of the things which my right hon. Friend has been particularly careful in framing his new tax to avoid, with the exception of the very recent firm, where it can easily be done.

When we turn to the other point of a particular firm, which may be one of those firms which wants to take advantage of Sub-section (7) and go to the Board of Referees and say that their rate of profit or volume of buisness was less than might reasonably have been expected, I think that my hon. Friend's point was that any particular firm in a depressed industry would not be able to do it for itself. I take note of what he says in order to see about that. It is no particular comfort to large firms although it might be to small firms, there is now a minimum amount of £1,000. That is something, at any rate; it does not start at nought. I again press the point that my right hon. Friend deliberately decided not to bring in the arrangement which existed in the case of the Excess Profits Duty which, if we accepted the Amendment, we should go some considerable way to resurrect.

7.6 p.m.

Sir H. Williams

I am not very much impressed with the answer of the Financial Secretary. The idea that you can only find out the value of the capital of a firm by going through the books for several years past is not sound. Whenever there is a public issue in connection with any company, one of the items one always sees is "Valuation of the physical assets," and that valuation, plus the other assets which the company possesses, would in most cases give the capitalisation, which could be agreed upon between the two parties, namely, the Inland Revenue and the firm. I am not unduly impressed by the argument that you must have researches into past history. With these remarks, the Debate having taken place, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.7 p.m.

Sir C. Entwistle

I beg to move, in page 18, line 13, to leave out from "was," to "they," in line 14, and to insert "reduced by special circumstances."

I hope that the Chancellor can see his way to accept this Amendment. As Subsection (7) now reads, the Board of Referees cannot give the special standard profit not exceeding 6 per cent, on the ordinary share capital unless they are satisfied that the rate of profit or the volume of business was less than might reasonably have been expected. These words are vague and indefinite. I do not object to them on that ground. The vaguer they are, the more I like them, but I am afraid that, however they are construed, they might be construed very narrowly. What sort of things could one give as reasons why profits are less than might reasonably have been expected? It is extremely difficult to say. The words are vague on the face of them, but when one examines what types of cases would come within them, one might be driven to a very narrow compass. I hope that these words will be given a wide interpretation so that genuine cases of hardship will be within the power of the Board of Referees to deal with, even though they apply to all the individual firms in a given industry.

I suggest therefore that we should use words which are not so vague as those in the Bill. The words I am suggesting have been used in legislation. They are used in another part of this Bill dealing with the Excess Profits Tax, and they have often had to be interpreted in courts of law. Their insertion will mean that the individual industry will have to show to the Board of Referees that there is some special reason, if not a special case, why their standard profit should be other than the actual profits earned in the standard periods laid down in the Bill. I suggest that, in view of what the Chancellor and the Financial Secretary have said, there should be no objection to these words being accepted. They are a little clearer and more definite than the words in the Bill, and they give a rather wider discretion than the words in the Bill might be construed as meaning.

7.10 p.m.

Captain Crookshank

I do not expect that the hon. Member thinks for one moment that I can accept this Amendment. I will repeat what I said in the first speech I made on this Clause, that I will note this as one of the alternative suggestions, but I must also remember that he said in his speech that his words are much wider than ours.

Sir C. Entwistle

I hope they are, but I am not sure.

Captain Crookshank

That is not a point upon which I will express an opinion at the moment.

Sir C. Entwistle

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.11 p.m.

Sir H. Williams

I beg to move, in page 18, line 28, after "business," to insert, "or to the industry concerned." As I read the paragraph with which we are dealing it looks as though the proviso applies only where the trouble is specific to the particular individual business. It says: unless the Board are satisfied that owing to some specific cause peculiar to the trade or business it is just that a greater amount should be allowed. I think that is very pertinent to the industry of which we have heard to-night, the cotton industry, because in some cases it might obviously be desirable that the whole industry should state that it is in a peculiar condition owing to past experiences. In other words, I am asking that these special circumstances should not be limited to the case of individual firms, but should be extended to the case of a whole industry which in the past has been going through a definite period of depression. I will not say more now, but I hope this Amendment is one to which the Chancellor will give careful consideration during the months which will intervene between now and the next Finance Bill.

Sir C. Entwistle

I think the words of the Amendment would help the case of the cotton industry, and as the Chancellor and the Financial Secretary have expressed their sympathy with the case of the cotton industry, I hope the matter will be given sympathetic consideration.

Captain Crookshank

It will be considered sympathetically, but our sympathy cannot go so far as to insert it in the Bill at this stage.

Sir H. Williams

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The following Amendment stood upon the Order Paper in the name of Sir C. ENTWISTLE:

In page 18, line 32, after "thirty-six," insert: or where a trade or business has incurred a loss in the standard period.

Sir C. Entwistle

In view of the position taken up by the Financial Secretary that all these matters are being considered, but that nothing can be done on this occasion, I do not propose to move this Amendment.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

7.14 p.m.

Mr. Harold Mitchell

Before we part with the Clause there is one point to which I should like to draw the attention of the Chancellor of the Exchequer. He mentioned earlier in our discussions the provision made in the Bill for new businesses which have started since July, 1936, the provision that they are to have a standard of 8 per cent. on their capital. An exception was made, however, in the case of companies which are termed director-controlled companies, and I am not clear why this exception has been made. It seems to me that where the directors are in fact all working partners the case is provided for by Subsection (2) of this Clause, but in many companies the directors are not working partners, and merely because they happen to control the company it is not entitled to the same standard profit as it would otherwise be as a new company. Let me take an example to illustrate my point. Take a company with a paid-up capital of £50,000 which started subsequent to July, 1936, and in which the directors have a controlling interest but are not working proprietors. In a case like that the company would be entitled to a standard of only £1,000 before becoming liable to Excess Profits Tax. An exactly similar company, with a capital of £50,000, but in which the directors had not a controlling interest, would be entitled to a standard, as I read it, of £4,000, which is 8 per cent. of £50,000. It seems to me that this discrimination is quite unfair. I see that where directors are, in fact, working partners and are drawing salaries that fact should be taken into account, but there are many private companies the directors of which are not working partners and such companies will be very adversely affected. Further, such a company, as I see it, has not even a right of appeal to the referees under Sub-section (7). I would ask the Chancellor to look into this point again to see whether there is any reason why a company in which the directors may happen to be large shareholders, but are not working partners, should be discriminated against.

7.16 p.m.

Sir J. Simon

I find it a little difficult to follow the illustration of the hon. Member for Brentford and Chiswick (Mr. Mitchell) and perhaps he will be content if I say that I will examine the case which he has been good enough to lay before us and see whether there is any reason to reconsider the matter. In any event, I will communicate with him about it, because it may be that he has particularly in mind some special case which has been brought to his attention. I would rather do that than improvise, perhaps incorrectly, an explanation upon what is a very technical matter.

Question, "That the Clause stand part of the Bill," put, and agreed to.

Clauses 14 and 15 ordered to stand part of the Bill.

CLAUSE 16.—(Succession and amalgamation.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

7.18 p.m.

Sir C. Entwistle

I desire to raise one point on this Clause upon which one of my constituents has written to me. He is very much exercised in his mind because his business was made into a public company after the 1st July, 1936. He says that for Income Tax purposes that means that he is a new business. He comes within the provisions applying to a business starting after 1st July, 1936, to which the percentage standard on capital applies, but he wants to be able to choose for a profits standard one of the years laid down in the Bill. He is exercised in his mind as to whether the public company will be treated as a continuing business to the business before it was made into a public company. I have read Sub-section (6) of this Clause and it seems to me that he need not be exercised in his mind, because it says there that the Commissioners, if they are satisfied that the trade or business carried on after the transference was not substantially different from the trade or business transferred, may on application treat that person as if he had carried on the transferred business as from the date of the commencement of the business. The only point is, Does "may" in that case mean "shall"? In other words, if the Commissioners are satisfied that the business transferred was substantially the same as the business being carried on by the new owners, does it follow as a matter of course that they will be treated as the same business for the purposes of the years for standard profits laid down in the Bill. I think that is the intention of the Sub-section, and I should be very grateful if I could get an indication that that is the correct interpretation.

7.21 p.m.

Sir J. Simon

I think that my hon. and learned Friend is correct in his interpretation of the Sub-section. At this late hour we do not want a discussion such as is familiar to this House upon the difference between the words "may" and "shall" butI think that the constituent of my hon. and learned Friend may be satisfied that if, within Subsection (6), the Commissioners are satisfied that the trade or business carried on after the transference was not substantially different from the trade or business that was transferred, the concession will be made.

Question, "That the Clause stand part of the Bill," put, and agreed to.

CLAUSE 17.—(Provisions as to interconnected companies.)

7.22 p.m.

Sir J. Simon

I beg to move in page 23, line 22, at the beginning, to insert: during the whole or any part of any charge-able accounting period of the principal company. This is the first of several Amendments, which really go together. The object of them is to set out the way in which we shall deal with the profits or losses of subsidiary, in relation to parent, companies. The main principle of the Sub-section remains, that is to say, that the profits and losses of a parent company and its subsidiaries should be aggregated for the purposes of Excess Profits Tax, and I am not seeking to alter that principle; but, as the Bill was originally drawn, it was thought that we might be able to combine the profits and losses of the parent companies with the profits and losses of subsidiaries, even although the period of accounting for the subsidiaries was different from the period of accounting for the parent companies. Even that would be all right, and would work quite equitably, where the chargeable accounting period for the parent company is the same length as that of the subsidiary company, but if you have the chargeable accounting period of a parent company which differs in length from that of a subsidiary company, that is to say, if the parent company's accounts are made up for the year to 31st March, and it has a subsidiary which makes them up to 31st December previous, then the chargeable accounting period of the parent company will be for a period of 12 months—from 1st April, 1939 to 31st March, 1940— while the chargeable accounting period of the subsidiary will be for nine months, from 1st April 1939, to 1st December, 1939.

Therefore, to combine the profits of those two companies would be to include 12 months' profits of one concern and nine months' profits of the other concern. Once you get into that position, you find that the rest of the scheme does not work, because you get an untrue result. You are adopting something which is not all for 12 months against a combined standard, which then goes askew. I have been compelled to suggest this series of Amendments in order to secure the principle that the profits of the chargeable accounting period of the subsidiary company shall be apportioned and then taken into account for the chargeable accounting period of the parent company. This is a purely mechanical change. It does not alter in the least the principle of the Bill, but has arisen simply because we had not sufficiently observed that irregularities of this kind might be produced.

Amendment agreed to.

The following Amendment stood upon the Order Paper in the name of Sir G. SCHUSTER:

In page 23, line 22, to leave out "whether or not."

7.25 p.m.

Sir G. Schuster

This Amendment should be read together with an Amendment which appears later on the Paper against the Seventh Schedule. The effect of the two Amendments would be that, where a British company had subsidiaries registered and trading abroad, the amounts to be brought into the accounts in respect of the profits of the parent company would be limited to the dividends actually received by the parent company. In fact, that would be to adopt a principle already followed in the case of the National Defence Contribution and, I believe, for Income Tax purposes. I am putting forward the Amendment simply for the purpose of getting the point on record. I do not ask the Chancellor to accept the Amendment now, but to give the point consideration. I am informed that to adopt the principle would greatly simplify procedure for the proper assessment of capital employed and profits earned by a foreign company, which otherwise might give rise to great practical difficulties. I believe it would be for the convenience of all concerned if the suggested procedure could be adopted. One recognises, of course, that there would be a loophole for abuse if the dividends declared were substantially less than the profits earned, and that some safeguard would be required to prevent any practice of that kind. That is all I need say now. I spoke to the Chancellor about it, and with your permission, Colonel Clifton Brown, having made my explanation, I would like to withdraw my Amendment.

The Deputy-Chairman (Colonel Clifton Brown)

The hon. Member must move the Amendment; otherwise it cannot be answered.

Sir G. Schuster

I beg to move, in page 23, line 22, to leave out "whether or not."

7.28 p.m.

Sir J. Simon

I am very much obliged to my hon. Friend and I recognise that he was trying to save the time of the Committee. The proposals are very technical, and the matter is difficult to deal with. In point of principle, there is no doubt that the Bill is drawn correctly, that is to say, it takes in the whole of the profits of the foreign subsidiary and adds those profits to those of the parent company. That is the right principle, but there is, on the other hand, very considerable difficulty in knowing how that is to be done, because foreign subsidiaries are not within our jurisdiction. I quite see the point of my hon. Friend's complaint, but I do not want to say more than that I will give the matter very careful consideration from both points of view. I suggest that we do not discuss the matter now. I have quite fairly stated that the Bill is right in principle, and if a change were to be made it would be only on practical grounds.

7.29 p.m.

Mr. Ellis Smith

I hope that the Chancellor of the Exchequer will take into consideration other aspects of this matter. The ordinary people know only too well to their cost that, within recent years, monopolies have been growing throughout the world. It is true that we have not suffered from them in this country to the extent that people have suffered in Germany and in other countries. We have been able to control them to a certain extent up to now. I hope we shall not encourage them to the extent proposed in the Amendment. Then there are finance companies of all kinds being formed, and the formation of these and of subsidiary companies is giving students of industrial affairs in this country some concern. Many monopolies have formed subsidiary companies or become allied to subsidiary companies in different parts of the world, and we are of opinion that the profits being made by these subsidiary companies ought to be made in Britain. We ought not to encourage monopolists in particular, and firms in general, to the extent proposed in this Amendment. I was pleased to hear the Chancellor's observations, and I hope that he will consider the points I have put.

Amendment, by leave, withdrawn.

Amendments made:

In page 23, line 25, leave out: throughout any of its chargeable accounting periods.

In line 28, leave out from the beginning to "such," in line 30, and insert: the following provisions of this Section shall have effect in relation to that chargeable accounting period. (3) If the subsidiary company is a subsidiary of the principal company throughout the chargeable accounting period.

In line 33, leave out "said."

Leave out "of the subsidiary company."

In line 40, leave out from "company," to the end of line 5, on page 24, and insert: (4) If the subsidiary company is a subsidiary of the principal company during part only of the chargeable accounting period the excess or deficiency of profits of the subsidiary company for that part of that period shall be treated as increasing or, as the case may be, decreasing the excess or deficiency of profits of the principal company for the whole period and shall not be deemed to be an excess or deficiency of profits of the subsidiary company. In this Sub-section, the expressions ' excess ' and ' deficiency ' mean, in relation to profits, an excess or deficiency in relation to the standard profits of the subsidiary company or, as the case may be, the principal company. (5) In any case in which Sub-section (3) or Sub-section (4) of this Section applies, such alteration, if any, of the periods which would otherwise be the chargeable accounting periods of the subsidiary company shall be made as the Commissioners may direct."—[Sir J. Simon.]

Clause, as amended, ordered to stand part of the Bill.

Clauses 18 to 24 ordered to stand part of the Bill.

Schedules agreed to.

Bill reported, with Amendments; as amended, to be considered upon Monday next, and to be printed. [Bill 277.]