§ So much for the first of the three questions. Before considering what additional revenue should be obtained by further taxation, I must ask the Committee to bear with me while I deal with certain matters on which legislation and in some cases Resolutions will be required.
§ In the first place, it will be recalled that in the course of the debates on the Finance Bill last autumn I made it clear that I did not regard the Clauses dealing with Excess Profits Tax as being necessarily in their final form. I undertook to consider various points which were raised by hon. Members at that time, and also to examine with care such representations as might be made on this subject from industrial and commercial interests affected by the tax. In accordance with that undertaking my advisers and I have been considering the matter. I have made a further review of the relevant provisions on the Statute Book, and have considered the nature of such Amendments as might be necessary to make the tax more workable and more equitable between one type of business and another. I am not going to anticipate now the detailed provisions which will appear in the Finance Bill, but it must not be imagined that these 64 changes constitute merely a list of concessions to the taxpayer. They do not, for in a number of cases the changes will make the machinery more efficient and satisfactory for the collection of the tax.
§ There is one class of Amendment which is of such importance that I ought to mention it now. It has to do with Section 13, Sub-section (7) of the Finance (No. 2) Act, 1939. That Sub-section confers powers on the Board of Referees to allow a substituted standard when the figures of past profits would not constitute a reasonable standard. This particular provision was intended to deal with cases of hardship. It was not intended, and it will not be intended, to lay down an alternative standard of general application; all that will remain in principle as it was; but I am satisfied that we must amend the wording of that Sub-section in order that it may properly carry out the purpose for which it was framed. In particular, we must see that any new wording provides adequately for concerns belonging to depressed industries, or concerns which in the standard period were still in the process of development. In addition I must meet the legitimate criticism that the limitation of that Sub-section in ordinary cases to a percentage calculated in relation to share capital, without having any regard to the financial structure of the company, is not one that can be defended as fair between one company and another.
§ These changes will not, I hope, create controversy, because they are recognised as being called for in order to make a reasonable standard. I propose, therefore, that the machinery of the Board of Referees shall be available in the case of all concerns for which the profits of the standard years were so low as not to constitute a reasonable standard. There will be particular provisions in the case of industries suffering from depression in the pre-war years, so as to ensure that adequate standards will be available. Where the share capital does not adequately represent the trading assets, the real value of those assets will be taken into account in computing the substituted standard.
§ That is all I have to say on the subject of Excess Profits Tax, and now I must outline a number of other proposals. In the first place, in view of war 65 conditions, we must postpone the general revaluation of properties for assessment to Income Tax, Schedule A, which otherwise should be made next year.
§ Secondly, there is an anomaly—a very curious one, I think—in the working of children's allowances for the purpose of Income Tax, and I propose to correct it. Apparently, as the interpretation of the law now stands, although the allowance per child is deducted only once, when the parents are living together—of course, the husband is, in that case, assessed both for himself and for his wife—if they are separated, either by decree of divorce or by agreement, cases may arise in which the allowance is deducted twice for the same child, once on the father's assessment and once on the mother's. [Laughter.] I observe that hon. Gentleman opposite are making the same comparison as occurred to me. This appears to be a modern application of the famous judgment of Solomon about dividing the child of which the Board of Inland Revenue cannot approve.
§ I propose to insert in the Finance Bill a Clause which will correct this anomaly. Resolutions will be required also to secure the charge of tax on rents which are not covered by the existing charge under Schedule A, to amend the law as to the measure of liability of tax in respect of dividends, in certain cases, in which under a recent legal decision, no addition can be made to dividends in respect of Income Tax at the standard rate; and to deal with the measure of liability of income from foreign sources, and with the depreciation allowance for leased machinery.
§ Lastly, I have a change to suggest which I hope will give general satisfaction. I propose that we should revive the benefit of Section 29 of the Finance Act, 1917, under which the estates of merchant seamen and fishermen killed during the last war were granted relief from death duties.
§ I have to make further proposals for dealing with avoidance of taxation. The Committee will be aware that the Finance Acts of recent years have contained provisions aiming at checking avoidance in the sphere of Income Tax and Surtax. On the whole, those provisions have had a real effect and have been successful, but, in the case of Estate Duty, no important provision designed to deal with avoidance schemes has been introduced since 1930, 66 when Lord Snowden dealt with the avoidance of Estate Duty through the medium of private companies. That legislation has proved not altogether effective, and I propose to amend it, and, at the same time, to deal with other forms of Estate Duty avoidance which have come to light in the meantime. I am sure that Parliament will show no sort of tolerance at this time of day to citizens who seek, by purely artificial arrangements, to escape their proper share of the heavy burden of taxation. I therefore shall count on the support of the Committee for action taken to repair any gap in our legislative defences against tax avoidance.
§ In regard to Customs and Excise, apart from any change of taxation, I shall propose legislation in regard to two points. The object of my first proposal will be to assist the export trade by improving the conditions under which the drawback is payable on exported goods which have been subject, on importation, to the Key Industries Duties. That change will help the export drive. This will be done by assimilating those conditions to the corresponding provisions of the Import Duties Act. For technical reasons, a Budget Resolution will be required.
§ The second proposal will relate to the margin of preference on Empire sugar, the stabilisation of which beyond 19th August next is linked with the operation of the International Sugar Agreement of 1937. In present circumstances, I am advised, it is doubtful whether that Agreement will function in the near future in the manner which Parliament contemplated, when it authorised the existing provisions in regard to Empire sugar. The object of the legislation will be to make it clear that the present preference shall, nevertheless, continue until the end of August, 1942, the period originally contemplated when the International Sugar Agreement was negotiated.
§ One thing more. Last month I announced a concession whereby members of His Majesty's Forces at home on leave from service overseas or service afloat, might be exempt from Motor Licence Duty, on their own cars or motor cycles, for a short period on payment of a fee of 10s. in the case of a motor car and 2s. in the case of a motor cycle. That proposal was generally welcomed, and the concession has already been put into force. It 67 will be the subject of a Clause in the Finance Bill, and will be preceded by a Budget Resolution.
§ This is a convenient point at which to mention another matter which I touched upon in my last Budget speech, namely, increases of wealth which may, in some circumstances, be found to accrue to individuals, as a result of the war. There were such cases after the last war, but I am sure that it is the general sentiment, both of the country and of this House, that if, as an outcome of a period when many people are making sacrifices which no money can measure, while some may come out of the war greatly impoverished there emerge after the war a minority of individuals to whom the war had brought nothing but colossal fortunes, Parliament would never pass such a situation by without effective and appropriate action. [Interruption.]
§ Mr. Dalton (Bishop Auckland)That was said last time.
§ Sir J. SimonOf course, all of us try to behave better as time goes on. Almost exactly a year ago, on 27th April, 1939, the Prime Minister dealt with this matter. He referred to the impropriety—to use no stronger word—of such increases of wealth being made out of the conditions created by war, as happened after the last war, in some instances. He pointed out—and I quote his words—that
changes which are induced by war may alter very materially the relative values of property, and that whereas some may be enriched, others may be impoverished. It is doubtful whether the matter can be dealt with effectively during the progress of the war until the permanent change in values has been established, but I think it is possible that the subject could best be grappled with by a levy on war-time increases of wealth such as was examined by the Select Committee in 1920."—[Official Report, 27th April, 1939, col. 1351, Vol. 346.]The Prime Minister was speaking before the present war broke out. I dealt with the matter further in opening my Budget in September, when I pointed out that this was essentially a post-war project, because it was only after a war that your increases of individual wealth were apparent and ascertainable.We have considered the question whether any steps are necessary now, in order that, when the time comes, namely, after the war is over, Parliament may put 68 into operation some such scheme. We are satisfied, however, that this is not the case, indeed, the Select Committee in 1920, when devising and recommending such a scheme, was able to formulate it, without any special action having been taken during the war. The heavy taxes which we are imposing—the application of an Excess Profits Tax which operates from the beginning of the war, and another measure which I shall describe later on—will all operate to reduce the number of cases of individual accretions of wealth which might otherwise arise. So far as they did arise, of course, and if Parliament so decided, a post-war levy on such increases could be applied. I believe that the intention of the Government, which I here repeat, to deal with this matter when the time comes will receive general support.
§ Sir William Davison (Kensington, South)Does my right hon. Friend realise that this will apply to municipalities as well as to individuals?
§ Sir J. SimonThat may be; we will see when the time comes.