EXCESS PROFITS TAX. (Hansard, 23 April 1941)

§ Mr. Woodburn
I would like to offer a few observations upon this Resolution. I think that the country will have received with satisfaction the decision of the Chancellor of the Exchequer not to reduce the Excess Profits Tax. A great campaign was started claiming that the 100 per cent, should be reduced, and while there may have been some arguments in favour of that, there can be no moral justification in this war for mere dividend-drawers obtaining extra profits out of the war. The question therefore arises as to whether there is any expediency in reducing it, and the main argument adduced is that the profit incentive stimulates greater activity. We must agree that the existence of the 100 per cent. Excess Profits Tax has a tendency to make some people sit back and not exert themselves as they might otherwise do to increase productivity and improve the efficiency of the war machine. That will occur especially when the people concerned with the ownership of the shares and the property are in control of the management. Where 213 the management is separate from the ownership of the firm, the tendency will not exist to the same extent.
The other argument is that the profit incentive tends to cause waste. It is perhaps in this regard that the greatest danger arises from the 100per cent. Excess Profits Tax. As a member of the Select Committee on National Expenditure, I naturally have received complaints from Members of waste which has been brought to their notice, and the House will be surprised at the number of cases in which workers who are employed in camps and in factories have complained to their Members of Parliament about money being poured out in a wasteful fashion where they are employed. I myself have had complaints from workers that though they have been paid their wages, they have been given nothing to do. I have had complaints from owners of works, and workers in factories, about certain firms which have induced men to go to their works, have asked them to look as busy as possible, and have paid them overtime for doing nothing. That, at first sight, may seem quite unjustifiable, but there are certain explanations. At one firm of this kind the case of which I investigated, I found that production had been held up for want of a part, which meant that the firm was faced with the alternative of disposing of workers or paying them for doing nothing.
In other cases, however, there is no question that there has been unjustifiable waste. Some of these cases have been reported to the House by the Select Committee on National Expenditure. I want to make it clear that the workers in this country do not want to be paid for doing nothing and that they themselves are as indignant about this kind of thing as anybody could be. In this connection one disadvantage arises. It has been shown clearly, that the action of firms, who pour out money in wasteful fashion by offering people anything they like for the work they are to do, brings into contempt, in the mind of the worker, the whole of the Chancellor's appeals for economy and avoidance of waste. It strikes them that there is something wrong with the machinery of Government when firms are obtaining such prices for goods that they can afford to throw away money. The 100per cent. Excess Profits Tax has given some excuse, because anything 214 firms accumulate beyond the standard profits goes to the Government, and obviously the Government are paying for it.
The Government, I understand, are keeping a strict eye on the question of firms using revenue to build up capital appreciation. In the last war some pits, during the period of control, were able to fit themselves out with most up-to-date machinery. When the war was over and control disappeared, this was brought in as depreciation of capital and a great issue of bonus shares took place. I am satisfied that the Government are doing their best to keep a strict eye on this matter but there are cases in which that strict supervision is actually having a disadvantageous effect. My hon. friend the member for Dumbarton Burghs (Mr. Kirkwood) explained that in his constituency certain workers were suffering from the effects of the recent "blitz." It is true that the normal way of life has in many cases disappeared from there and therefore, there is a necessity of creating the communal kind of life that is only possible where canteens are established. I understand that one of the large firms there put forward as a reason for not building a canteen the statement that the Government would not allow them to build or run a canteen out of their excess profits. If that is the case I suggest that while it may be selfish and reprehensible on the part of the firm to do such a thing, in the circumstances there should be some relaxation in that respect if that is the only way in which canteens can be obtained. In many cases we have to submit to expediency. It is wrong to bribe people during a war but it may be the only way in which we can get things done and, therefore, however immoral it may be from one standpoint, from the point of view of getting the job done the Chancellor might take that into consideration.
If you abolished the profits of dividend-drawers it would not necessarily produce one extra screw, because people drawing dividends are not taking any part in the productive work of the country. Workers have been given piece-work and bonuses and while people might think that some other methods should be adopted to increase production I, and others who have had long experience of industry, think 215 that no other method could produce such an intensity of production and such carefulness as this method. If a man is paid for producing goods in the proper fashion and with proper accuracy, and by some inducement he produces more, then there is no question of the efficacy of the method. But in many cases there is no inducement at all to the people who run businesses and to draftsmen, technicians and those responsible for improvements in design and methods. The 100 percent, duty may mean that owners of businesses will discourage managements from taking any steps to improve the efficiency of war production if such is likely to reduce the potentiality of that firm for profits after the war.
If extra profits are not to improve production the Chancellor might consider some method of allowing, as part of the expenses of industry, bonuses to men who are running the management side. and in many cases are working 18 to 20 hours a day. I gave an example in an earlier Debate of one such man who is now in the' service of the Government in a voluntary capacity. By his ingenuity he actually made it possible to produce, during this war, shells at a rate that would not have seemed conceivable during the last war. Less than one-tenth of the time taken during the last war is now spent on machining and fitting. If a person is doing that kind of work, there should be some recognition of it in some form or other, although I am perfectly certain that this man did not do. it for personal gain. Some people, however, sit back because they are getting no inducement. The Ministry of Supply has the responsibility of maintaining the efficiency of industry and it can only do that by recruiting a sufficient number of inspectors to check industry throughout the country. The Minister places thousands of contracts during a month and it is a physical impossibility for a Government Department to deal not only with the inspection of contracts but with the question of the efficiency of all the firms.
Therefore, whether we like it or not, we are thrown back on the fact that we must rely on the industrial organisation which exists at present, and must make it work to the best of its ability and raise itself to the maximum efficiency. In considering the whole question of excess profits, I 216 would like the Chancellor to go very carefully into the relationship of the 100 per cent. Excess Profits Tax to efficiency in industry. There is no question that in some places there is slacking. In one case of which I know, some of the big combines have actually deterred and prevented to some extent the bringing in of highly efficient firms from outside simply because the big firms are more concerned with what is to happen to them after the war than with the prosecution of the war. It is a great disadvantage if all the inducement that is provided to industry is that they must hope for their profits after the war. Undoubtedly this causes the combines to give their attention not to finding the best methods of producing for the war, but to finding the best methods of evading their responsibility during the war and building up for themselves a favoured position in order that after the war they may scoop the market.
This is a conflict of interests for which I cannot see a remedy, but if I were to name any one thing that handicaps our production at this time more than anything else, I should say that it is the question of many firms and great organisations sacrificing what they could do now in order to safeguard their position after the war. This is the one thing, as far as my observations go, that has played the biggest part in retarding our production, and it is a matter in which the 100 per cent. Excess Profits Tax is very much involved. I think the Excess Profits Tax may have to be carried on for a considerable period-after the war, and if firms realised that, they might get down to the job now, and not be so much concerned about the future.

§ Mr. Tinker
My hon. Friend the Member for Stirling and Clackmannan, East (Mr. Woodburn) said he was pleased that this Resolution did not mean any reduction in the Excess Profits Tax. If I have read the Budget statement correctly, there is to be a reduction of 20 per cent, at some time or other. The wording is somewhat vague, but behind it there is the purpose that at some later time the people who are now paying 100 per cent. Excess Profits Tax will get back 20 per cent. This concession is made because it has been found that these patriots, the men of business who have controlled the affairs of the country for some time, feel 217 now that they ought no: to pay away 1oo per cent, of their excess profits, and if the Government insist on that, they adopt some other means of getting their own back. My hon. Friend spoke about waste. That is one of the various means these people are adopting. They are blackmailing the Chancellor by saying that they will retard production unless he does something for them, and that they will do what they can to get the money back, irrespective of what may happen to the war effort. I had expected some thing different from that. It was my opinion that the Government did a very good thing for these people when they adopted, after negotiations, the standard years of 1935, 1936 and 1937 as being a fair period —

§ Mr. Deputy-Speaker (Colonel Clifton Brown)
Before the hon. Member goes further, I think that any reduction of the Excess Profits Tax is not within the terms of the Resolution. Surely, it is not a matter which can be debated now. Perhaps the representative of the Treasury could give some guidance on that matter.

§ Captain Crookshank
I do not think that arises here. I quite agree that this Resolution leads up to various Amendments of the law relating to the Excess Profits Tax which we propose to make in the Finance Bill, but I am very much in your hands, Colonel Clifton Brown, as to how far we can discuss the tax itself.

§ Mr. G. Macdonald
Since this Resolution presupposes a continuance of the Excess Profits Tax in some form or another, would we not be entitled, in discussing the Resolution, to make some reference to that point?

§ Mr. Benson
The Resolution begins by saying "that the extent and incidence of Excess Profits Tax½" Surely, whether the Excess Profits Tax is 10 per cent. or 100 per cent, is a matter of its incidence and its extent. It seems to me that, as the extent and incidence are to be varied, it would be in order to raise the question of the rate of the tax.

§ Captain Crookshank
I should have thought that the governing words were the rest of the Resolution—"shall be varied so as to give effect to amendments.½" I think it is within that variation that the Debate would lie.

§ Mr. Deputy-Speaker
It seems to me that the broad principle is that when reductions of taxation are made they do not require Resolutions, and, therefore, are not debatable on the Report stage except in so far as they are set out. These Amendments are not necessarily reductions.

§ Mr. Tinker
I am entirely in your hands, Colonel Clifton Brown. I take the Resolution to mean that in some way or other something will be given back to the employing classes after the war. If that were not the case, there would be no reduction and the tax would remain at 100 per cent., and there would be no trouble on that point. I want to argue on the lines of why the change has been made. The position we are in when we are defending the Budget in the country— which I do, on the whole, because I think it is a good one—is that we are asked why, seeing that the limit for Income Tax has been lowered so as to bring in more workers, we are allowing very rich people to get away with excess profits. Before the Budget was introduced, 1 knew that attempts were being made by many interests to get the Chancellor to make a reduction in the Excess Profits Tax. The Government have no right to alter the position with regard to the Excess Profits Tax simply because of such pressure. If people adopt the means which they are adopting to defeat the end which the Chancellor has in view, those people ought to be dealt with accordingly. I take it that the sum of money that will accumulate out of the 100 per cent, tax will be tabulated, and that at the end of the war certain money will be handed back to those people who can prove that they have a right to it.

§ Mr. Deputy-Speaker
There the hon. Member is quite definitely raising a subject which is not in Order on the Resolution. It is quite beyond the scope of the Resolution now being debated.

§ Mr. Tinker
I bow to your Ruling, Colonel Clifton Brown, and will not say any more, except that I oppose the Resolution.

§ Mr. Ellis Smith (Stoke)
On a point of Order. If we allow this Resolution to pass to-day, does it commit the House to the proposal, which was made in the Budget statement, and will be raised in 219 the Finance Bill? We want your guidance, Colonel Clifton Brown, on this, because some of us feel very strongly about it, and wish to record our protest against a proposal of this character. If you rule that the passing of this Resolution will not commit us to that proposal, some of us are prepared, at this stage, to allow it to pass, but if you rule that, by doing so, we commit ourselves to the Chancellor's statement, and the proposal will be introduced in the Finance Bill, some of us will be forced to take the same line as the hon. Member for Leigh (Mr. Tinker).

§ Mr. David Adams (Consett)
Will it be in Order to"discuss the general question of the 1oo per cent. Excess Profits Tax?

§ Mr. Deputy-Speaker
No, I think that that would be out of Order on this Resolution. This Resolution deals with three amendments of the law, labelled A, B and C, and the whole subject of the Excess Profits Tax would not be in Order at this stage. In answer to the hon. Member for Stoke (Mr. E. Smith), I cannot see how this Resolution binds the House to the general subject of the Excess Profits Tax. When the Finance Bill comes in, no doubt there will be Clauses in it which can be rejected or accepted by the House as it chooses, and the House will be absolutely free to discuss the question of the imposition of 80 per cent, or 100 per cent. tax.

§ Mr. J. Griffiths
This is a question which, we know, is very much in the minds of the public. I thought the discussion was "Brought within the Rules of Order by the inclusion of the words "the avoidance of tax." We have recollections of the kind of efforts which were made during the last war to defeat the objects of a similar tax, and to prevent the money being collected by the State and becoming public revenue. I have in mind examples of palatial offices—I pass one of these every time I go home— which were completely unnecessary, and were built almost entirely for the purpose of avoiding the payment of Excess Profits Duty. There are all kinds of dodges of that kind about which we have heard. To-day we are living in a new generation, and are more aware of the sort of things which took place during the last war. Although I belong to that generation, I must point out that very great attention will be paid to these 220 matters. As I said, I thought the discussion was covered by the inclusion of the words "the avoidance of tax." We know these methods of avoidance involve all kinds of fancy schemes. Therefore, I think it will be of interest to the House and the country to know from the Government what steps are being taken to see that in this war, as distinct from the last, the tax is not dodged and avoided in the same shameful way.

§ The Financial Secretary to the Treasury (Captain Crookshank)
Perhaps it would help the House, as you, Mr. Deputy-Speaker, have ruled that we cannot discuss the Excess Profits Tax issue, if I briefly explained what these Resolutions are about. Hon. Members could then see whether they really wished to discuss them. This Resolution deals with two or three very technical points which, in the Finance Bill, are bound to be discussed. There will obviously be opportunities later on for hon. Members to discuss particular points on the relevant Clauses of the Finance Bill. They may, if they wish, even have an opportunity" of discussing them on the Second Reading of the Bill. This Resolution is merely for the purpose of altering the law in regard to certain technical points. I do not think, taking the first Resolution, that the particular abuse, which the hon. Member for Llanelly (Mr. J. Griffiths) has in view, of the erection of palatial offices is likely to occur, because at present we have the most strict control over all building operations.

§ Mr. J. Griffiths
That may be so, but there are other gaps.

§ Captain Crookshank
That is the gap the hon. Member instanced. The present order is that nothing over £100 can be spent by way of repairs or building without a licence, and I can assure the House that my Noble Friend in charge of that Department will keep watch on that particular aspect. The first part of the Resolution is in connection with the proposal for the alteration of the principle of the treatment of borrowed money in the computation of capital and profits. Of course, if there are any possibilities of avoiding the tax, we shall stop them up. A few devices have come to our notice and we propose to deal with them. Apparently it is possible that some artificial arrangements may be made, such 221 as the amalgamation of businesses which have no natural affinity, the purpose of which is to reduce the excess profits made by the prosperous business by setting them off against the deficiencies suffered by the less prosperous business. I think the way to describe that is "buying a standard." It is proposed to introduce a specific provision to deal with any such arrangements.
Another conceivable instance is that of a director of a director-controlled company owning more than 5 per cent, of the shares. His remuneration, as a consequence, is disallowed in computing the company's Excess Profits Tax. It is conceivable that he might transfer some of his shares to his wife to reduce his holding to less than5 per cent. Hon. Members may find two or three other devices have emerged, but they will be dealt with. Then a small technical alteration is required in regard to interconnected companies in regard to the chargeable accounting periods. It will be necessary to provide there for some apportionment of the profits and standards in cases where the chargeable accountable periods of these are partly before and partly after March, 1940.The reference to the relief with regard to deficiencies and profits to be given in parts of His Majesty's Dominions outside the United Kingdom is only to correct some drafting powers; but we have to take the powers in the Resolution. With regard to paragraph (b) that is an arrangement for concentrating industry and deals with the same point as was dealt with in the Sixth Resolution. Paragraph (c) deals with the point which I explained just now with regard to the Seventh Resolution. They are all important points but they are not of the same calibre as the general issue of the maintenance of the Excess Profits Tax at 100 per cent, or otherwise.

§ Mr. Kirkwood
While thanking the Financial Secretary for his explanation, I wish to raise a matter which was mentioned by the hon. Member for East Stirling (Mr. Woodburn). It is most interesting that the point should be raised at a moment when the Minister of Labour is in his place The point I wish to raise relates to canteens for the shipyards on the Clyde —

§ Mr. Deputy-Speaker
I ought to have stopped the hon. Member for East Stirling 222 (Mr. Woodburn) when he mentioned that point. I do not think we ought to pursue it because it does not fall under any of the headings, A, B or C.

§ Mr. Woodburn
Is it not the case, that while this Resolution does not specify all the things which could have been adjusted in connection with the Excess Profits Tax, it is in Order to discuss what is missing from the Resolution as well as what is in it?

§ Mr. Deputy-Speaker
One cannot discuss what is not in the Resolution. The Resolution aims at raising more money, and what the hon. Member proposes would raise less.

§ Mr. Gallacher (Fife, West)
I am somewhat uneasy about one point in the Resolution. It starts off by saying: The incidence shall be varied so as to give effect (a) to amendments as to standard profits. I am very much in favour of amending the standard profits. As a matter of fact I would reduce them until they disappeared altogether, but I am told if you do not give the incentive of profit, the ruling class, the employers, will sabotage industry. If they will sabotage because of 100 per cent, excess profits, what will they do if we reduce standard profits?

§ Mr. Deputy-Speaker
I am afraid the hon. Member is discussing the subject as a whole. This is a very limited Resolution. The hon. Member must confine himself to the explanation that has been given by the Financial Secretary.

§ Mr. Gallacher
I am dealing with these two proposals as to standard profits. I am suspicious that the intention is to enable them to increase standard profits. I want to see them reduced. If I argue against the standard profits being increased, they will say to me, "If we are not in a position to increase standard profits in certain cases, the employers will sabotage industry." The hon. Member for East Stirling (Mr. Woodburn) has a remedy. He says, "Get inspectors." What is the use of inspectors? The firms get to know when the inspector is coming round and polish up the place and everybody is told to look busy. If the intention is to increase standard profits I shall vote against it. The Minister of Labour will tell you that one guarantee against 223 the sabotaging of industry is to get a powerful, well-organised body of independent shop stewards. The hon. Member for Dumbarton Burghs (Mr. Kirkwood) was a foreman in a factory and he had the finest body of "Red" shop stewards that it was possible to get.

§ Mr. Deputy-Speaker
A discussion on shop stewards would be out of Order on this Resolution.

§ Mr. Gallacher
I thought I should be in Order in showing an alternative to increasing standard profits. The hon. Member for Dumbarton Burghs has a record of production. His shop stewards organisation did the job. I should like to be informed whether this proposal is being put forward in order to provide the Government with an opportunity of increasing standard profits and encouraging the robbers and saboteurs.

§ Sir K. Wood
I think the answer to the hon. Member is that, if this was not proceeded with, he would not be able later on to move an Amendment to the Finance Bill in the sense that he desires.