HC Deb 01 July 1941 vol 372 cc1257-60
Mr. Hammersley

I beg to move, in page 13, line 6, at the end, to insert: Where, in accordance with Sub-section (2) of this section, a company claims continuity of business although all production has ceased, there shall be allowed in computing the profits or losses of the trade or business such a sum in respect to the valuation of stocks as normally represents the value of the stock in process This Amendment is concerned with basic stocks, sometimes known as stock in process, and has to do with those companies which are affected by the proposals for the concentration of production-companies which are closed down. It is a position which though it affects the bulk of the manufacturing industry in this country. I would like to illustrate by reference to the cotton spinning industry. In the normal production of the industry a certain amount of material is constantly passing through the machinery. Raw material in various stages of manufacture has to be constantly passing through and filling the machine, and it is quite impossible in normal production to treat that material as stock available for sale. Such material as basic stock varies from mill to mill, but in respect of any particular mill it varies within very small limits, and this, in terms of £ s. d., is a figure reasonably well known to the Revenue. During the years in which manufacturing enterprises have been in production they have written down this stock in process to a very low figure. Now the concentration of production is to come along.

Therefore, what was really part of their capital equipment in fact becomes saleable and increases their profits at this particular time when very likely they have to pay Excess Profits Tax. Therefore the whole proceeds of the sale of that material in process of production accrues to the Revenue. One has to look forward to the time when these mills will have to start up again, maybe in circumstances of considerable difficulty, and will have to replenish their stock in process before they have anything available for sale. The proposal made in my Amendment is that with respect to the value of that stock in process it shall not be taken into consideration in assessing the taxable capacity of the manufacturer and will enable him to put a figure in terms of £ s. d. on one side as a reserve to enable him to stock his machinery when he starts up in the future. I believe—I am not sure of the point, and there is a great deal of confusion in the minds of those concerned—that the Income Tax law does allow for this basic or process stock not to be taken into consideration. If that is so, I should welcome an assurance from my right hon. Friend in connection with the matter, because it is a matter which is causing a great deal of concern and obviously might inflict great injustice.

Sir George Broadbridge (City of London)

I beg to second the Amendment.

The proposals contained in the Amendment seem to me to be perfectly reasonable and proper, and they have been quite clearly explained by the hon. Member for East Willesden (Mr. Hammersley). I have no hesitation in supporting them.

Captain Crookshank

I think I am seized of the point my hon. Friend has in mind. Actually the wording of the Amendment is rather obscure. Maybe I have got it wrong, but if my assumption is correct, it is this: What my hon. Friend is trying to guard against is the case where a manufacturer ceases production at very short notice under the concentration of industry scheme, and when, therefore, it may not be possible for him to complete the manufacture of goods on which some process is proceeding, and the value of the goods deteriorates and, in fact, will be lost. I think that is the principal point which he has in mind. He also has in mind the question as to the loss which may arise from the selling-up of the stock in process. The answer I can give him is to refer him to what I said on the Committee stage. Under the concentration of industry scheme a telescoped business is to be considered as a continuing entity. Therefore the existing alleviation which exists under the Income Tax law will, of course, continue to operate in its favour. The manufacturer is, therefore, to be treated under the concentration procedure as if he were a continuing business; and the loss which, I think, my hon. Friend has in mind is the loss which is already allowable for Income Tax, National Defence Contribution, and Excess Profits Tax. That being so, it seems to me unnecessary to add these words in order to bring out the point further. That is the best explanation I can give. The business is treated as a continuing one; the points which, as I understand, my hon. Friend had in mind are already covered by the general allowances which are made, and, therefore, those advantages will still accrue to the business, although it may be concentrated.

Mr. Hammersley

May I, with the permission of the House, speak again? I must apologise to my right hon. and gallant Friend and to the House if the wording of my Amendment did not clearly make the point which I wished to bring out. The point is that, under the concentration of production proposals, when a mill is forced to close down, you get as manufactured goods not only the normal production, but the whole of the production which in the ordinary course of events remains in the machinery.

Mr. Pethick-Lawrence

Windfall profits.

Mr. Hammersley

Yes. My case is that that windfall profit ought not to be dealt with in this way, because it is accruing when the companies are paying Excess Profits Tax and it will have to be replaced when the companies may be facing great difficulties. The State is causing this windfall profit to come into the Revenue at a time which is most unreasonable. Businesses are being concentrated in order to meet national difficulties, and my contention is that this sum should be put. on one side—I understand that in Lancashire it is a common practice for it to be put on one side—and rendered available to the company when it starts up again. If conditions are good when the company restarts, the Revenue will lose nothing; but if, as, indeed, one anticipates, the position is one of difficulties for this industry, the industry will be unduly penalised by being forced to bring in this windfall profit at the wrong time. I hope that my right hon. and gallant Friend did, in fact, cover that point, but I was not certain, from what he said.

Captain Crookshank

I am afraid that I cannot take the matter further. I tried to make the position clear, but one is in some difficulty, as the Amendment was put down at the last moment and it deals with a rather technical point. The concatenation of all those circumstances may have made my reply not so lucid as I should have desired.

Mr. Hammersley

In the circumstances, I cannot withdraw the Amendment with any sense of satisfaction, for I feel that the point has not been adequately covered, but I will ask leave to withdraw it in the hope that between now and the time when the Bill is considered in another place the matter may be carefully examined.

Amendment, by leave, withdrawn.