FINANCE BILL,

HC Deb 17 June 1941 vol 372 cc529-617

Considered in Committee.

[Colonel CLIFTON BROWN in the Chair.]

Clause 1 agreed to.

CLAUSE 2.—(Income Tax for 1941–42.)

Mr. Hammersley (Willesden, East)

I beg to move, in page 2, line 16, to leave out "ten," and to insert "nine."

It does not require much imagination to see that the Chancellor, when he deals with this Amendment, will say that, however much he would like to accept it, our national needs are such that he cannot afford to do so. It behoves me, therefore, if I am to carry the slightest conviction, not only to indicate the disadvantages of this abnormally high Income Tax of 10s. in the £, but to suggest some practical alternative. The first important criticism about this abnormal rate of taxation is that, taken in consideration with the Super-tax and so forth, it cannot, on the higher ranges of income, be paid out of income. Therefore, in effect, we are getting some kind of taxation of capital through income. This taxation on capital through income must fall most hardly upon the producer. It does not stop the piling up of a National Debt at a very rapid rate. I notice that the rate of increase of the National Debt last year was in the neighbourhood of £2,500,000,000.

We are going to he left after the war, in spite of this taxation, with a tremendous National Debt. Hon. Members opposite consider that that might be dealt with by some kind of capital levy, and hon. Members on this side think that there will have to be some kind of major operation—whatever that may be. Quite clearly, this abnormal taxation makes any suggestion of a capital levy ridiculous. With Income Tax at 10s. in the £, it would be absurd to introduce a capital levy on anything like the lines proposed by the Labour party at the end of the last war, for the simple reason that the State would be losing very much more than it gained. The saving on interest would be less than the loss in Income Tax, Super-tax and. Death Duties. That position arises because we have this abnormally high rate of Income Tax. I would suggest that, as an alternative to this Income Tax rate, of 10s. in the £, it should be possible now, while the war is on, to have an annual tax on capital holdings. That tax should be imposed now, and should not wait until after the war. I have roughly calculated that, on a basis of 1 per cent. taxation on capital of between £20,000 and £50,000, and of 1½ per cent, on holdings exceeding £50,000, the yield would be in the neighbourhood of £130,000,000 to £200,000,000. It would be half as much again—

The Deputy-Chairman

This Clause deals with Income Tax only.

Mr. Hammersley

I am going to stick very closely to the Clause. I am just pointing out that there may be an alternative. I am not going to argue the merits of the alternative, but just to indicate how, by a method of this character, the Chancellor would be able to meet the loss of taxation. The yield from the suggested annual capital tax would, therefore, not only reimburse the Chancellor for what he loses by reducing the Income Tax to, say, 8s. 6d. in the £, but it would also give him a considerable amount of revenue in addition. It would slow down the rate of increase of the National Debt. It would, on the assumption that some part had to be collected in kind, provide national assets to set off against the increasing national liabilities, and would enable the stabilisation of Income Tax to take place at a figure which would not be an insuperable barrier against the necessary post-war changeover from Government to private enterprise. I am not advocating an annual capital tax after the war, such as, I understand is suggested by the Labour party. [HON. MEMBERS: "No."] Well, by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence).

Mr. Benson (Chesterfield)

I want to protect the right hon. Gentleman from such a fantastic charge as that.

Mr. Hammersley

I think it is within the recollection of people in this House that the right hon. Member for East Edinburgh proposed an annual tax on capital after the war.

Mr. Benson

No, during the war.

Mr. James Griffiths (Llanelly)

And a capital levy after the war.

Mr. Hammersley

I was under the impression that he disapproved of an annual capital tax now, and was in favour of one after the war. After the war it will be of very little advantage, because then it will be the time when the country ought to be building up more capital to replace the capital which has been lost. The mobilisation of private capital now—

The Deputy-Chairman

The hon. Member is really getting rather outside his Amendment which is merely to substitute the word "nine" for the word "ten." This is a limited Amendment and he is going very wide and dealing with points that are not in Order.

Mr. Hammersley

I am very sorry, and I appreciate the point and will not deal with that aspect of the matter any further. But I hope that the Chancellor of the Exchequer, when he reads these arguments—although one appreciates that he cannot accept the Amendment— will carefully consider their relevancy, that I believe that if he does that, he will appreciate that there is something in it.

The Financial Secretary to the Treasury (Captain Crookshank)

As you have ruled, Colonel Clifton Brown, that the Amendment is a very narrow one, my reply will also be a very short one, and that is, that, to the surprise of no one, my right hon. Friend is unable to accept this proposal. The hon. Member tried to take us into fields which were out of Order, and as Tie has not been allowed to discuss the merits of his plan, I shall not be in order in discussing its demerits. I would only refer him to previous Debates on the subject, reports of which appear in the OFFICIAL REPORT, when Lord Simon, then Chancellor of the Exchequer, dealt with a somewhat similar proposal from other parts of the House. The chief disadvantage that would be involved in accepting this Amendment—and we all recognise how heavy is the burden of taxation at a standard rate of 10s.—is that in a fully taxed year it would involve a reduction in revenue of no less a sum than £59,000,000. Having said that, I think that it is a sufficient answer.

Amendment negatived.

The Deputy-Chairman

The next Amendment, in the name of the hon. Member for West Fife (Mr. Gallacher)— in page 2, line 25, at the end, to add: save that no tax shall be charged on sums earned by reason of overtime or Sunday work. is not selected, and the following Amendment, in the name of the hon. Member for East Wolverhampton (Mr. Mander)— in page 2, line 25—dealing with British subjects resident abroad, is out of Order.

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

Mr. Gallacher (Fife, West)

My Amendment has not been called, and I want to oppose the Clause on the ground that, as it stands at present, it perpetrates most widespread robbery of the masses of the workers. The workers have been encouraged and urged to work harder than they have ever worked before and to spend their evenings in the factories working overtime, and yet the Income Tax is arranged in such a manner that most of the overtime payment is taken completely away from them through taxation. I have before me the case of a lad who wrote to me. He is in the first stages of his profession at office work and has £110 a year, and so he is free from taxation, but during last year, because of the congestion of business, he was asked to work night after night and he thus earned during the year £10 extra in overtime. With the addition of the £10 overtime to the £110 a year he is brought in under the taxation scheme, and £7 10s. is what he has to pay in Income Tax. That means that for 160 hours of overtime he actually receives only £2 10s. instead of £10.

Mr. George Griffiths (Hemsworth)

How much is he paid per hour?

Mr. Gallacher

I have not the letter with me. He had £10 of overtime money. His pay is around about is. per hour, and [Interruption]

The Deputy-Chairman

The hon. Gentleman should not carry on a conversation with other hon. Members, but should address me.

Mr. Gallacher

I wish they would use their intelligence. The lad worked something like 160 hours overtime, and £10 was the overtime payment. Thus his total wage for the year was £120, and he has been taxed to the extent of £7 10s., thus leaving £2 10s. for his overtime. That is sheer robbery, and that is the sort of thing that is applied to workers generally throughout the country. There has been a good deal of talk in this House in connection with the 100 per cent. Excess Profits Tax to the effect that unless it is cut down there will be no incentive to employers to speed-up or to carry on production. It should be understood that this 100 per cent. Excess Profits Tax is put on because profits are earned in respect of which the employer spends no extra energy. It comes as an extra profit as a result of the character of the war production. The employers expend no extra energy of any kind in order to get this profit, and yet it is suggested that, if they are not allowed more profit than they are getting, they will sabotage production.

In the case of the worker it is not a matter of simply getting extra money because of war. The worker has an extra strain put upon his physical and nervous strength. He has to pay for it in physical and nervous energy, without considering the consequences in the later years of life. I have had much experience of it. These workers who have been asked to put forward extra energy and pour out their strength in order to get increased production are being placed into situations in which most of the money so earned is being taken away from them. How is it possible to expect workers to exert this extra energy if such a thing as that is done? It would be far better and cleaner to say to the workers, "We want you to volunteer for overtime without payment." You would then get a far better response, I am certain, than by expecting the workers to work overtime and then to drag all the money away from them by taxation of this kind. Consider this phase of it. In a particular factory the workers have worked overtime six months. They spend this money as they earn it. Yes. Workers have a habit of distributing the money as they get it. I know that that was always the case with me, and it is pretty general with all workers. There are many directions in which the money can go. Then the overtime stops, and there comes the collecting of the Income Tax.

Mr. G. Griffiths

The money is stopped; they do not get a chance of handling it.

Mr. Gallacher

The tax is collected from their wages after the overtime has stopped, and the workers are left in most difficult circumstances. The Minister of Labour, in urging the workers to put forward their greatest effort, made a solemn pledge that their earnings would not be interfered with. He asked them to work as they had never worked before and said that their full wages would be paid them. There is no comparison between the worker who gives his physical and nervous energy in working overtime and some of the Members here who talk so much about workers and absenteeism; incident ally they do not show the workers very much of an example. Look at the show they are making here to-day. They talk about absenteeism and slackening. I would like to see some Members of this House work in a factory for six or seven days a week, and then be asked to work overtime. How would they feel if practically all their overtime payments were taken away? I know that if some Members on the other side were faced with anything like that, they would raise a yell which would burst the heavens wide open. It is shameful that this tax should be imposed on the workers. I would like to go to a Division against this Clause; —

Mr. G. Griffiths

Get your Whips on.

Mr. Gallacher

I would like to go to a Division in order to make a real protest against this shameful robbery of the working class. It is not a question of workers getting something for which they have not given of their best. It is not a question of employers pocketing profits or aristocratic landowners taking rents and land values robbing the community right and left; it is a question of the workers giving of their best on the promise that they would be paid for what they did and then having this extra money taken away from them. I cannot understand Members on this side tolerating such a clause going through until overtime payment has been excluded. The principle has already been agreed upon in connection with the means test to old age pensioners and the unemployed. Money earned as overtime must be excluded from the calculation of the household income. if the principle is conceded there, then it should be conceded here, and I say that there should, be a Division with every member of the Labour movement voting against this Clause until that concession in granted.

Mr. G. Griffiths

I do not intend to join my hon. Friend in a Division, and I do not want him to regard me as one of his Whips, but I think there is a great deal of truth in what he has said to-day. I am pleased that there is little overtime done in coal-mining, but there is a bit, and it is a great discouragement to men who do overtime to know that it will be taxed. If it were possible, I would like to see the attendance bonus disregarded for taxation purposes. I want to mention to the House an instance that occurred last Saturday at a pit at which I used to work. It is one of the most outstanding disgraces of which I have ever heard. A man put in his six shifts and came out at 12 noon on the Saturday to do a bit of bowling in West Yorkshire. Instead of being paid 6s. bonus, 2d. was stopped on the Saturday.

The Deputy-Chairman

That has nothing to do with taxation. It has to do with wages.

Mr. Griffiths

It was taxed at the source. I saw the man's pay ticket on the cricket ground, and he frothed at the mouth. However, I can see you looking at me, Colonel Clifton Brown, and I will just say that if this attendance bonus was disregarded for Income Tax purposes, people would feel that they were helping to increase output. I agree with 95 per cent. of what the hon. Member for West Fife (Mr. Gallacher) has said. Some men work 60 or 72 hours per week, yet on all hours over 47 they must pay Income Tax. What an encouragement it would be if, as is done in connection with the means test, it was said that this overtime should not be taxed. I hope the Financial Secretary will say that we have made out a good, case and that he will make the proper recommendations to the Chancellor.

Mr. Woodburn (Stirling and Clackmannan, Eastern)

There is one point on which I hope the Financial Secretary will give us some enlightenment. It was raised by myself on the Second Reading of the Bill, and it is the problem of the collection of Income Tax from workers after the period of earnings has passed. I can give an example. In an armaments works people have been working 12 hours a day. Now the supply of the particular products on which they were working has satisfied the demand, and the workers are back on eight hours a day, with the result that they are having to pay their Income Tax on 12 hours income out of the money they received for only eight hours' work. That is all right for people who keep books and accounts and have reserve stocks from which they can draw for Income Tax payments, but for workers who have to calculate their spending from week to week it is a very serious handicap when the demand comes long after the income has been earned. Some workers might have a big income during one six months' period and a very low income during the following six months' period. That is bound to raise problems of collection, as. leading Members of Parliament, who have become Members of the Government and then become ordinary Members again, have found when they had no income to come after Income Tax was deducted on their previous year's income. I respectfully suggest that the Chancellor and the Financial Secretary should go into this matter, because workers would much rather have their tax deducted from their income as they received, it. That could be arranged, and it would be far better to pay a bonus on other taxation than expect them to pay it out of a smaller income.

Although morally there may be no justification for arguing that anybody earning an income should not pay his contribution towards the cost of the war, there is a question of expediency involved —how far does the payment of Income Tax on overtime and Sunday earnings discourage production? I think it ought to be stated, to the credit of the workers and everybody else in the country, that there has been very little holding back by any workers on the ground that they have to pay Income Tax. Indeed, some workers have worked an extra day in the coal mines in order to earn enough money from the coalowners to pay their Income Tax, so that to that extent the payment of Income Tax has been an incentive for extra work to be done. However, I should like the Chancellor to look into the incidence of the taxation on overtime and Sunday work, because it may become such 3 hardship as to have a deterrent effect. That is a matter on which we need more accurate and definite figures than those which have been given by my hon. Friend the Member for West Fife (Mr. Gallacher).

One thing which has to be noted in this connection is that too much overtime and Sunday work result in a definite decrease in production, and consequently, to the extent that Income Tax deters workers from doing too much overtime and Sunday work, it is a contribution to increased productivity and efficiency. It has been definitely proved, in the last war and in this war, that if men work 72 hours a week their energy decreases to such an extent that production falls. The work should be arranged in such a way that not more than 60 hours a week is worked, for otherwise, there is a fall in production. I ask the Chancellor to look into the point I have raised about the collection of Income Tax, which I suggest should be collected from the workers' wages when they are earned. Otherwise, problems will arise for both the workers and the Department if, in the following year, when overtime and Sunday work have stopped, the workers have no income left from which to pay the Income Tax.

Mr. Hammersley

I do net Want to be controversial, but the speeches of the hon. Member for West Fife (Mr. Gallacher) and the hon. Member for East Stirling (Mr. Woodburn) were on the thesis that the more a person works and the harder he works, the greater his reward ought to be.' I have never heard that case put with greater vigour on the most Tory platform. It is interesting to note that the slogan which we heard so much about of work for service and not for profit has now been entirely repudiated.

Mr. Gallacher

This is the first time I have heard that Tories believe in Working hard. Let us have aft exhibition of these Tories. Ate any getting lip? If Tories are prepared to work hard in order to get the highest reward, I am prepared to find them work.

Captain Crookshank

My right hon. Friend the Chancellor of the Exchequer is quite unable to accept the suggestion which the hon. Member for West Fife (Mr. Gallacher) made by implication in his speech, which was itself directed against the whole Clause. I think all hon. Members will realise that I must ask the Committee to leave the Clause in the Bill, because it represents an estimated sum of £756,000,000 in Income Tax, and if it disappeared, then by implication the next Clause, which represents £80,000,000 in Sur-tax, would go also. I am sure that very brief reflection will show that we could not accept that situation. As to the point made by the hon. Member for East Stirling (Mr. Woodburn) about the administration and the legal position concerning deductions, I will take note of what the hon. Member said. I cannot say off-hand whether or not anything can be done at present about the matter, but the difficulty arises, and it is inherent in the Income Tax system. A person is taxed on his income of the previous year, there may be a drop in his income, and it may be very difficult for him to pay the tax. The prudent man puts aside what he can, while he is earning the money, for the purpose of paying the taxation which will fall due in the subsequent year. That is advice which it is easy to give, but which it is seldom possible to carry out in one's own case.

It was interesting to hear the vigorous adjectives about robbery by the State which fell from the lips of a Communist Member. I can only say, in reply, that it would not be possible to judge anybody's Income Tax liability from the point of view of whether or not he earned the income at a particular hour of the day or night, or on a Sunday as opposed to a week-day. That is a sort of division in the assessment of income which it would be quite impossible to apply. The hon. Member said that it is a great hardship to workpeople who earn overtime as the result of their efforts during the war to find that some portion of the overtime pay has to go in tax. That does not apply only to overtime. There are other ways and walks of life where effort in the past has brought increased income and it has been taxed. However, it must be a consolation to the hon. Member to realise that, by the proposals in the Finance Bill, the amount which he gave in the case he stated, namely, £7 10s., will go as a post-war credit to the payer. The hon. Member has either forgotten or ignored that arrangement which was outlined by my right hon. Friend. Although the money will be taken from the worker now and used for the purposes of the war, it will be credited to him after the war, and he will not have lost it. He merely defers the enjoyment of the fruits of his increased labour, and during the period of deferment the State enjoys the use of the money. I think that when the hon. Member reflects upon that and the full implications of taking out of the Budget a sum of £836,000,000 needed for carrying on the war effort—although he may not perhaps be so anxious about that part of our policy—he will see that it is out of the question for me to do anything except press the Committee to leave the Clause in the Bill.

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

Clause 3 ordered to stand part of the Bill.

CLAUSE 4.—(Alteration of certain reliefs.)

Mr. Hammersley

I beg to move, in page 3, line 6, to leave out "one-tenth," and to insert "one-fifth."

I take it that it will be convenient to discuss together this Amendment and the two following Amendments in my name, since they are inter-related. These Amendments have the effect of reversing the Chancellor's proposal to decrease the already meagre differentiation between earned and unearned income, and to put the differentiation back at its original figure. I think it will be of the highest importance to the future of this country that we should rely—as I believe we shall be forced to rely—less on rentier interest and more and more on the producer's interest. The Amendments have the effect of giving a special, though very limited, advantage of one-fifth of the income to the person whose income is earned as against one-tenth, which is the Chancellor's proposal. There is, of course, an over-riding limit to the amount of the allowance under the Bill. It is proposed that that over-riding limit should be reduced from £250 to £150; and in my Amendment it is proposed that the limit should be £200. The arguments of the case are well known. Although one realises the necessity for the Chancellor to obtain the maximum amount of taxation, I believe it is unfortunate that this little appreciation of the situation of the producer as against the rentier should be whittled away. I hope my right hon. Friend will accept the Amendments.

The Chancellor of the Exchequer (Sir Kingsley Wood)

My hon. Friend the Member for East Willesden (Mr. Hammersley) will not, I know, expect me to accept this Amendment. I have made my Budget proposals after very careful examination, not only of how the contributions can be fairly made, but in the light of the amount of money I have to find. I do not think I am exaggerating the position when I say that while people greatly regret the effects of heavy taxation, it has been generally regarded that the allocations have been made in an endeavour to be fair to all classes of the community. As far as the first Amendment is concerned, it would mean the loss of revenue to the extent of £75,000,000. I could not possibly accept such proposals.

Amendment negatived.

Mr. Gallacher

I beg to move, in page 3, line 26, to leave out "one hundred and forty," and to insert "five hundred."

The fate of this Amendment will determine the fate of the other Amendments standing in my name. There was a very well-known Member of this House who once stated that no man was worth more than £500 a year. I do not know whether I agree entirely with that, but I would say that it was an over-payment for present Members of the Government. I do know, however, that one cannot conceive of a man, wife and family living in decent surroundings and being provided with an adequate standard of living on less than £500 a year. The late Member for Shettleston put down £1,000 a year as an absolute minimum for a decent and adequate standard of living. Now, when there is all this talk about what is to happen when the war is over, can anyone imagine less than £500 being an adequate income for a man, his wife and his family? I should like to see some of the hard-working Tories having to work for a year and to find ways and means of living on £500 a year. That would be really hard work for them. Of course, the masses of the workers are receiving far less than £500 a year, which should be conceded as an absolute minimum. They have struggled to live, battling against adversity, year in and year out. We want to see them lifted up and not battered down, and therefore £500 and less should be completely free from any taxation. To tax an income of less is robbery; do not let us make any mistake about that.

I have laid it down as axiomatic on several occasions, and it should be accepted by every Chancellor of the Exchequer who has any sense of human decency or any passable standard of morality—and there is no Tory who would oppose this proposition on a public platform; he would not dare to do so— that while there are people in the country who have a surplus, it is a shame and a scandal to tax those who have not got sufficient. I say that anyone who receives less than £500 a year has not got anything more than a sufficiency. Will any Tory Member on the other side get up and say that a man with £500 a year has more than a sufficiency? While there are people with a surplus, it is a shame and a scandal that those who have only, or less than, a sufficiency should be taxed. The Chancellor of the Exchequer may say that if taxation is limited to incomes above £500 a year he will be faced with difficulties. Of course he will. It means that he will have to hit his own friends, which is a thing the Chancellor of the Exchequer does not like to do, and a thing which hon. Members on the other side do not wish him to do. If the Chancellor of the Exchequer will agree to this Amendment, and the principle that there should be a recognised minimum for an adequate standard of life, I am prepared to advise him on how he can raise all the money he wants, and how he will be able to obtain more money than he would lose by this concession.

Let me tell the Committee what is going on. The miners made a demand for an increase in wages and were offered is. a day. The money to pay that increase in wages is taken from the public, but the mine-owners take £1,500,000 of it for themselves.

The Deputy-Chairman

I think I must ask the hon. Member to confine himself to the Amendment, which has nothing to do with the wickedness of other people.

Mr. Gallacher

I wanted to show the Chancellor of the Exchequer that there is a variety of ways by which I could advise him to get the money. I know that it would not do for me to go too far into illustrations, or to draw attention to the fact that agricultural land valued at £50 an acre before the war is being sold at £5,000 an acre, and that the money is going into the pockets of some of the friends of the Chancellor of the Exchequer. I would not be in order in referring to that. The point I wish to make is that there is no question whatever of the possibilities of raising money. When I spoke during the Second Reading Debate on the Finance Bill, I made certain propositions which would provide the Chancellor of the Exchequer with £10,000,000 a day. Why do we talk about common sacrifice and sharing alike, when all the time the masses of the people are being pushed further down, and there is never any question of interference with the privileges, property and powers of the ruling classes? I ask the Chancellor of the Exchequer whether he does not agree that £500 a year is the minimum for a decent standard of life for a man, his wife and family. If he agrees to that proposition, and also that there shall be no taxation on incomes of £500 or less, then I am prepared to assist him with the advice at my disposal—and it is good advice—on how he can raise all the money he wants.

Sir K. Wood

I am afraid I must devote myself to the Amendment on the Paper, though I would warn the hon. Member that there is great danger in offering to give me advice and assistance in any cir- cumstances. I do not know what his friends will say to him when they read that statement of his. I could not, of course, accept his Amendment as it Would not only reduce the war-time taxation of many people below the peace-time level —and obviously that could not be contemplated—but it would also involve a very serious loss of revenue, which I am afraid would not meet my purpose at the present time.

Amendment negatived.

Clause ordered to stand part of the Bill.

CLAUSE 5.—(Provision for the crediting of certain amounts of Income Tax.)

Mr. Liddall (Lincoln)

I beg to move, in page 4, line 10, after "be," to insert: "forthwith notified to the individual and."

I move this Amendment in the confident hope that the Chancellor of the Exchequer will, at any rate, appreciate and accept the principle. I am sure he will agree that anyone who, under this Clause, is entitled to any relief should be notified forthwith of the amount credited to him on such date as may be fixed by the Treasury. I hope my right hon. Friend will see how reasonable that proposition is.

Sir K. Wood

I am in general agreement with the aim that my hon. Friend desires to achieve. The Amendment deals with post-war repayments, and he is desirous that notification shall be given to the individual so that he shall be aware of the sums which will be credited to him. I do not think the actual form of words proposed will be quite suitable, and I suggest that we should have some such words as "notified as soon as possible." There are certain processes which must be carried out before notification could be made. It is my intention that, as soon as is possible and convenient, the individual concerned shall be notified of the amount standing to his credit. If my hon. Friend will leave the matter in that way for the moment, I will either move or suggest to him a form of words which will better carry out the intention.

Mr. Liddall

In view of the right hon. Gentleman's very satisfactory statement, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn. Clause ordered to stand part of the Bill.

Clause 6 ordered to stand part of the Bill.

CLAUSE 7.—(Farming and market gardening to be charged under Schedule D.)

Sir Ernest Shepperson (Leominster)

I beg to move, in page 6, line 11, to leave out: as a nursery or garden for the sale of produce and to insert: by persons carrying on businesses of nurserymen and market gardeners. This Amendment is intended to clarify the position under this Clause. Subsection (2) states that market garden land' means land occupied as a nursery or garden for the sale of the produce. That seems, on the face of it, easy to understand, but unfortunately it has not been understood either by the courts or by the Commissioners. For a great length of time nurseries and market gardens "have come under Schedule D, whereas agricultural land has always been under Schedule B, and still is up to the limit of £300. These words were first used in 1806. A case recently came before an appeal court and a judgment was given which has since been confirmed by the House of Lords. The difficulty is that the General and Special Commissioners do not agree as to the interpretation of these words. In Lincolnshire on one side of a river the Commissioners hold that the growing of carrots is a farming operation and that on the other side of the river it is a market garden operation. In certain cases it has been held that the growing of potatoes in a market gardening and not a farming operation. My whole purpose in moving the Amendment is that all these past difficulties should be removed. Many cases have gone to the courts in the last 10 years. If my Amendment were accepted, there would be no doubt as to the interpretation of the words, and the whole of the difficulty would be removed.

Sir K. Wood

I am indebted to my hon. Friend for bringing the matter forward. I will examine it to see whether there is any necessity to deal with the point. The Clause does not affect the existing scope of market-gardening land or the existing basis of charge. If there is any necessity to meet my hon. Friend's case, I think it would have to be done in another part of the Bill. I will examine the matter before Report with a view to examining the cases he has referred to.

Amendment, by leave, withdrawn.

Mr. Benson (Chesterfield)

I beg to move, in page 6, line 12, to leave out "other than," and to insert "including."

This Amendment is so far unique in that it is an attempt to fortify rather than to rob the Treasury. Its effect is to bring profit from hops under Schedule D. This Clause, which I am glad the Chancellor has introduced, begins to remedy a great anomaly, the assessment of farmers under Schedule B instead of Schedule D. To continue to give farmers the opportunity to choose two methods of assessment with regard to a crop like hops is indefensible. Of all the crops on which a farmer should not be allowed to chop and change in this way, hops is the crop, because it is highly speculative. It is an expensive crop to grow, and it gives a high gross return. That means either a high loss or a high profit on the growing of hops. The result is that if a farmer has a bad year, he comes under Schedule D, and if he has a good year, he comes under Schedule B. Before the fixing of the Hop Quota hops were selling at as low as £3 a ton, which was unprofitable. There is a fixed price for 1941 of £15 a ton. It is probable that this will be a profitable crop. If it is, the farmers under this Clause can be assessed under Schedule B, and they will pay a negligible amount of tax. If, on the other hand, it turns out to be an unprofitable year, the farmers will avoid Schedule B and come under Schedule D. In any case,. they will pay practically no tax.

The Attorney-General (Sir Donald Somervell)

I do not know as much about hops, perhaps, as my hon. Friend. If a man grows hops by themselves or with other crops and his holding exceeds an annual value of £300, the Clause provides that he comes under the provisions of Schedule D. The words with which the Amendment deals occur in the existing Income Tax code. It has for many years been laid down as & principle that the growing of hops is treated as ordinary farm cultivation and not as market-garden cultivation. The reason for that is obvious to anyone Who knows what hop cultivation and ordinary market-garden cultivation are like. It would be inappropriate in this Clause, which is really dealing with a different subject matter, namely, the bringing under Schedule D of holdings of a certain kind, to make what would in effect be an alteration in the principle that has been laid down as to what is properly regarded as market gardening and what is ordinary farm cultivation. If at some future time it becomes necessary to review the line that has been drawn in the past between farm cultivation and special forms of cultivation, such as market gardens and woodlands, that would be the time for my hon. Friend to put his case about hops. It would be beyond the general scope and intention of the Clause to alter these words.

Mr. Benson

I must take exception to the Attorney-General's phrase when he refers to principles laid down as to what are and what are not market gardens and other forms of agriculture. The courts have been busily trying to decide what a market garden is and what it is not. The right hon. and learned Gentleman has not argued the point whether hops should come under Schedule D, and the fact that this might not be a suitable place for my Amendment is no reason for rejecting it. If it is a good proposal, the mere question of its position in the Bill ought not to have any weight in considering whether it should be accepted.

Mr. Spens (Ashford)

As representing an area in which are some of the largest hop gardens in the world, I am somewhat confused about this Amendment and the answer which has been given. Hop gardens are ordinarily farm land for the purpose of taxation, and this Clause provides that where the Schedule A assessment exceeds £300, which it will do in the case of nearly every good hop garden, hop gardens have to be assessed under Schedule D. Therefore, the Clause brings in compulsorily every hop garden where the Schedule A assessment, including the farm house and oast houses, exceeds £300. The hon. Member seems to have put down his Amendment on the basis that somehow or other they were getting out of that position. I became optimistic and hoped that that was so in the case of some of them. On the other hand, I agree with him in principle that if ordinary farming is to be included compulsorily under Schedule D, hop gardens ought also to be included. As I understand it, they are clearly included, and I gather that to be the answer of the Attorney-General.

Amendment negatived.

Sir E. Shepperson

I beg to move, in page 6, line 40, to leave out from "operation" to the end of the Subsection.

This Sub-section deals with the assessment of new businesses. I am glad that the Attorney-General is here as well as the Chancellor, because I am confident that they will be able to explain the meaning of the Sub-section. The last words are: the period of computation for any year of assessment may, in the case of farming, be a period falling wholly or partly within a year or years of assessment for which the person, partnership or body of persons carrying on the farming was not chargeable under that Schedule. I am confident that both the Chancellor and the Attorney-General understand that paragraph, but I must say that I do not. The purpose of my moving the Amendment is to get an explanation of the meaning of these words. The usual time for taking over a farm is Michaelmas Day, or early in October, and the usual accounting year in agriculture is from July to July, which is the cereal year. If a farmer goes into occupation on the nth October, 1940, upon what basis will he be assessed for the year 1940–41, his accounts being made up to the end of July? Further, I should like to know what will be the basis of assessment in the year 1941–42.

Sir K. Wood

I should like an opportunity to consider the particular point which my hon. Friend has put to me, but I will give him an explanation of the effect of the Clause itself and what would happen if his Amendment were carried. The words which he proposes to delete— although it may not be clear from the phraseology either to my hon. Friend or myself—I am advised, result in farmers who are brought under Schedule D for 1941–42 by the present legislation being assessed by reference to the preceding year's profits, although those were the profits of a period in which farmers in general were chargeable under Schedule B. If my hon. Friend's Amendment were carried and those words were omitted, the whole Clause would be unintelligible and unworkable. So far as the exact dates which he has mentioned are concerned, I will look into the position in that particular case, and let him know what it is; but I have described the effects of the Clause, and would assure him that his Amendment would operate very adversely indeed and not in the way in which he desires.

Sir E. Shepperson

My only purpose in moving the Amendment was to get an explanation, for which I thank the right hon. Gentleman. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir E. Shepperson

I beg to move, in page 7, line 1, after "farming, "to insert" and market garden lands."

I am moving this Amendment because market gardening is not included in this particular Sub-section, and I think the intention was that it should be included.

Sir K. Wood

I appreciate the reason why my hon. Friend has brought this point forward. It is a difficult matter to follow, and I hope the explanation I propose to give will be of value to him and to others who are interested. Subsection (5) provides for the carrying forward of losses in cases where farmers are compulsorily charged on their profits under Schedule D. The Amendment seeks to extend that provision to market garden land, but my advisers tell me that that is unnecessary, because under existing law market gardens are entitled to carry forward losses. Therefore his case is already met.

Sir E. Shepperson

In view of that explanation, I beg to ask leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

Mr. Benson

I beg to move, in page 7, line 18, to leave out Sub-section (6).

This Sub-section is an example of what, in military parlance, may be described as the part of the defence in depth which is erected between the farmer and the payment of Income Tax. It is rather a, complicated case. A farmer, whatever happens to him, always has the best of every possible world so far as taxation is concerned, and this Sub-section is really an unwarrantable extension of an originally unwarrantable privilege which was given under Rule 6 of Schedule B. If a farmer anticipates a bad year, he goes on to Schedule D. He can get on to Schedule D by giving notice within two months of the beginning of the year of assessment. In addition to that he has another protection. If he finds it necessary or desirable, he can claim to pay tax on the out-turn of the current year. Sub-section (6) continues that provision from Schedule B to Schedule D, so that a fanner can at any time claim to be taxed not on Schedule B or Schedule D but on the actual out-turn of the current year. The current year may be a perfectly legitimate and just basis of taxation, but it is not a legitimate and just basis of taxation when it is given as an alternative to other forms of taxation. If we are to have equitable taxation as between members of the community, they must all be assessed on a similar basis, and if a fanner can chop and change about among three or four bases of assessment it means that he is always able to choose that basis of assessment which is calculated to attract the least tax.

Under Clause 6 a very similar concession is given to the ordinary business man, say, a manufacturer. If, owing to certain circumstances, he has suffered a very large drop in income, he can ask to be assessed on the basis of the current year, but very careful safeguards have been inserted. He has to show that the drop in his income is due to war conditions, and there is the further safeguard that the actual year and the ordinary assessment year are taken into consideration, linked up, so to speak, so that the year of assessment is not altogether out of consideration. Why should not that Clause apply to the farmer? If we delete this Sub-section (6), it will apply to the farmer. If we leave in Subsection (6), we give to the farmer a more favourable basis of assessment than we give to the ordinary business man, and frankly I can see no justification whatever for doing it. The farmer should have the protection of Clause 6, which is what other business men have, and there is no reason why we should give him additional protection.

The Attorney-General

I do not think my hon. Friend has appreciated that this principle is intended to operate only in the transitional year, 1941–42. Viewed in that way, I think he will agree that it is not an unfair provision. If a man is under Schedule D all the time, he knows that if he has a good year, the Tax which he will have to pay next year will be based on the large profits which he is making. If you bring a man suddenly into Schedule D—I know that was talked about last year and, as far as Parliament is concerned, he is being brought in now— he might say, "It is rather hard to tax me on the profits of last year."I did have a good year, but, as things then were, I thought that Schedule D was always to be optional, and I did not make the provision which people are supposed to make in certain circumstances." When my hon. Friend apreciates that position, I think he will find that most of his objections are met.

Mr. Benson

There is nothing in the Clause to suggest that.

The Attorney-General

Quite true.

Mr. Benson

If that is so I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Benson

I beg to move, in page 7, line 36, at the end, to add: (7) Rule 5 of Schedule B of the Income Tax Act, 1918, shall read as if at the end there were inserted: — But thereafter for so long as he shall occupy the said lands for the purpose of husbandry he shall be charged to tax in respect of the profits or gains thereof under Case 1 of Schedule D. The Rule gives to the farmer the option of being assessed under Schedule D. The defence put up in respect of Schedule B has always been that Income Tax returns for farmers were appallingly complicated and that it was too big a burden for the small farmer to ask him to make complicated returns. That argument might be true for farmers with very small farms but it is not true for farmers paying far less than £300 a year rent. But no matter how small a farmer, if he can make a Schedule D return in a bad year he can make one in a good year. Having elected to be assesed on Schedule D to avoid even Schedule B taxation I see no reason why he should be allowed to revert to Schedule B to avoid his liabilities.

Sir K. Wood

There is a good deal of substance in what my hon. Friend has said. The only reply I would make to him now is that I have deliberately taken this course with regard to farmers this year. I am making certain changes in the position, so far as large fanners are concerned. I have done this after consultation with the Minister of Agriculture. I promise my hon. Friend that during the forthcoming months I will have regard to the consideration which he has mentioned. I will consider it, with a view to seeing whether further action can be taken in the next Budget. For the present year, I feel I must adhere to the proposal which I announced in the Budget.

Mr. Charles Williams (Torquay)

I did not wish to intervene, but as my right hon. Friend is showing himself rather weak-kneed with the Ministry of Agriculture, I would point out that if he were to look a little more closely into the troubles of the small farmer, he would have more sympathy with them than with farmers whose operations are larger. I hope he will realise that there are people in this House who are watching him, and, although we are not usually of a suspicious turn of mind, we hope that he will not continue to give away things and inflict further burdens upon a class of the community which is carrying appalling burdens at the present time in the shape of interference of various kinds from Government Departments. The number of Government Departments interfering with the farmer to-day is almost inconceivable. I warn my right hon. Friend that if he goes very much further in that direction, some of us will have to take a very severe interest in his philanderings with other people.

Mr. Woods (Finsbury)

I hope that the Chancellor of the Exchequer with not give away too much out of sympathy for the small man. There are many small men who are quite worthy of the consideration of the Chancellor of the Exchequer, but there are other small men who are exploiting the present situation. Some of them make fabulous profits by adapting themselves and growing certain crops. Take leeks, for example. I imagine, considering the present price of leeks, that a man with an acre of leeks might have made £5,000, neglecting everything else. Similarly, a man who has been enterprising and has got in a good crop of onions, may have made a fortune and retire for the rest of his life, by selling what are called spring onions at about 1d. each. While it will be well for the Chancellor of the Exchequer to take into consideration the problems of the small man expressly, I would point out that there is a good deal of resentment at the way in which some of these small men have held up to ransom the whole of the public. I hope that these people will not get away With it because they pose as small.

Amendment negatived.

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

Sir E. Shepperson

I would like to reply to my hon. Friend the Member for Torquay (Mr. C. Williams) as to the reason why agriculturists should get preferential treatment. It is not the small man only but the big man that this Clause affects. I would like also to tell the Chancellor of the Exchequer about them. Agriculture is a very uncertain operation. It has not a steady income from one year to another. The receipts of the activities of agriculturists depend almost entirely upon the weather. If we have the present sunshine for another month, agriculture will make good receipts, but if we have the weather that we had last week, raining every day, receipts from agriculture will be very low. I have known the receipts 6f agriculture in a damp or bad year to be only half what they were in a fine year. The position under Schedule D is that when the farmer has a good year he does not treat it exactly as profit but he puts the surplus by as reserve to meet the bad year, and he lives only on the average. Under the present proposal-, the Chancellor of the Exchequer with take half the receipts of the good year away, and will prevent the agriculturist having any reserve with which to meet the bad year. I Suggest to the Chancellor of the Exchequer that the returns for Schedule D should be taken over three years instead of a single year.

Mr. Spens

As I understand it, the first year's tax, that is tax for 1941–2, will be assessed on profits for 1940–41, and the assessment will depend on whether the farmer kept books accurately for 1940–41. In fact, I am told by accountants in the country that a number of farmers did not keep books for 1940–41 and that it is a real practical difficulty to write up accounts accurately now. I do not see in the Clause any machinery to deal with such a difficulty It may be that there is some machinery in the Income Tax; Acts somewhere to deal with this matter. But I was asked to raise the point in order that machinery may be inserted if required.

Mr. Woods

I feel that the speaker below the Gangway ought to be replied to. The small man is by no means as dependent as the big man on the seasons of the weather. The big man has to cultivate the open country, whereas many of the smaller men, by the use of small frames and glass-houses, can raise these so-called salads almost irrespective of weather, and can have their own market gardens so fitted up that they can provide their own water if the rainfall fails. It is these people who are making profits. I would like to point out to the Chancellor that our food specialists and dieticians emphasise the importance of the vitamins we normally get in fruit and of which children are expected to have a compensatory quantity, They can only get them by having this type of food in which the smallholder largely specialises. These smallholders are not so much the victims of the weather, and I hope that the Chancellor, in spite of the plea made for the small man, will take into account not so much the size of the agriculturist as whether he is holding the community up to ransom and making people pay fabulous sums for insignificant commodities. Since I last spoke I have been told that spring onions cost 2½d. each and not 1d. That is sheer barefaced robbery, and if the Ministry of Food take no action, I hope the Chancellor will see that the country gets some return, at any rate by heavy taxation, for such treatment. It would be impossible to exaggerate the dissatisfaction this sort of thing is causing throughout the country.

Mr. Shinwell (Seaham)

I intervene in order to correct any impression that may have been created that we on this side were unsympathetic to the farming com- munity. [Interruption.] I do not know the reason for the hilarity on the Government Bench, but I am always willing to sit down and allow the Financial Secretary to the Treasury to explain.

The Chairman (Sir Dennis Herbert)

I cannot allow the proceedings to be interrupted merely for the purpose of a little irrelevant humour.

Mr. Shinwell

If it is a question of humour, that is a different matter. I was not clear that it was intended as such. Everyone to his taste. We on this side are anxious to promote the wellbeing of the farming community, whether large or small men, nor do we believe for a moment that if profiteering is rampant and high prices are being charged—and undoubtedly high prices are being charged —the farming community are to blame. It is largely the fault of the middleman. If we are to seek a remedy, it is in that direction that it must be found. At the same time, I want to say that the farming community, whether large or small men, must make a contribution to the national revenue.

Mr. Levy (Elland)

I, as representing a Yorkshire constituency in which we have a number of small farmers, consider that a gross slander has been made in this House on the integrity of the small farming community. It is not fair, and it is not right to say that they are all profiteering. The small farmers to-day are to a very great extent the backbone of our food production in this country, and, as the hon. Member for Seaham (Mr. Shinwell;) very properly said, if there is any profiteering, it is the middleman and not the small farmer who is to blame. To say that the small farmer is responsible for all the iniquities that take place within the food control is something which I, as a representative of small farmers in my constituency, resent.

The Chairman

I hope the hon. Member will not pursue that point further, whether with regard to large or small farmers.

Mr. C. Williams

I think the Chancellor is completely and absolutely right in seeing that every section of the community, as in this particular case, bears its full share of taxation. I certainly wish for no particular section of the community to avoid its share of taxation. I would like to add one sentence. I feel deeply and humbly satisfied that at last we have had such a remarkable demonstration of sympathy towards the farming community from the hon. Member for Seaham (Mr. Shinwell). I congratulate him.

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

Clauses 8 to 12 ordered to stand part of the Bill.

CLAUSE 13.—(Disallowance for income tax purposes of certain payments in respect of war injuries to employés.)

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

Sir Herbert Williams (Croydon, South)

I wish to say a brief word on this Clause. It has created a certain amount of anxiety among many people, both employers and workpeople, in that it is a discouragement to employers to take out policies of insurance to give to their employés greater benefits, in the event of injury from enemy action, than they would get under the Government's Personal Injuries Scheme. I do not understand why the Chancellor has taken this view except on the grounds that His Majesty's Government, and those who advise them, seem to think that they are not merely sleeping partners in industry, but that they own the whole show, and that all the expenses of businesses are the spending of Government money. They have now got this mental outlook, which is the outlook of hon. and right hon. Gentlemen behind me, that everything a business owns belongs to the Government, and that the Government allow you to keep 10s. in the £out of it. I understand that the main objection to this being treated as trading expenses was that it was claimed that it would be subsidising insurance to the extent of 10s. in the £That would not have occurred to the Chancellor in the days when Income Tax was is. in the £.

Here you have this outlook, that expenses that one incurs are being subsidised to the extent of 10s. in the £ by the State. That, I think, is a dangerous outlook. Here are people desirous of doing the right thing by their workpeople, and, after all, if they indulge in certain other amenities they are not challenged as trading expenses, but this particular amenity, for reasons I do not understand, is being challenged as a trading expense. I find no warrant in principle for this Clause and its effect, particularly in these days when many firms have not as much money to play with as they might like. The effect of the Excess Profits Tax and the high rate of Income Tax means that people have to be much more careful than otherwise they would have been, and a large number of people will find it difficult to incur the expense involved in insuring their workpeople if every penny of that expense is to be regarded as coming out of profits. The Chancellor of the Exchequer said that this is a convenient way of getting in a little more money for the Exchequer. He said that without any conscience; he is a charming man outside, but neither he nor his advisers have any conscience at all, and here he is doing something gravely detrimental to great masses of employed people in this country. I have spoken quite briefly because, for one reason, I have to attend a meeting of the Select Committee in a few minutes time, and also because there are others who want to speak. After the Chancellor has heard the very substantial number of others who wish to speak, he will perhaps realise that this is something which has given rise to a good deal of indignation and that he must make some concessions.

Sir K. Wood

It will perhaps shorten the discussion if I say a word now. My hon. Friend who has just spoken has given a wrong description of the matter, and I think that when the Clauses are examined by the Committee there will be none of the apprehensions to which my hon. Friend has just referred. All this Clause in fact does, which I think is perfectly reasonable, is that in cases such as are mentioned in the Clause where employers desire to effect insurances on behalf of their employés in respect of war injuries, is that, at any rate so far as Excess Profits Tax is concerned, the State shall not pay the whole of the sum which it would otherwise have to pay if this Clause was not in operation. In other words, if this Clause was deleted, no firm would effect these insurances at its own expense and on its own account; it would be at the expense of the Exchequer and the Treasury. All we say is that if a firm desires to do that it must be at their own expense out of their own profits.

Sir H. Williams

But suppose a firm has not earned its standard for the purposes of Excess Profits Tax. Then my argument will apply.

Sir K. Wood

I was going to deal with that case. In the case of the trader not liable to Excess Profits Tax, if it was not provided as in the Clause, the Exchequer would have to pay half, and the view of the Government—there are no politics in this—is that if these firms desire to insure, they must pay for it in the ordinary way out of their own profits and not out of the Exchequer. Another reason for that is this: The Committee will, of course, remember that in order to deal fairly with employés in the matter of war injury I announced in the House, at considerable cost to the Exchequer, a further increased scale of compensation which the Government itself was going to pay for, and anybody who looks at this matter from the point of industry and of the workpeople will agree with me when I say that it is in the interests of the workpeople and of the prosecution of the war that there should not be some firms giving extra compensation, payable at the expense of the State, but that the fairest thing in this war, in which we are all involved, is that there should be a uniform rate of compensation which the Government have undertaken to bear.

Apart altogether from this Clause, which simply prohibits the cost coming from the State alone and not really being paid by the employer, there is the very much larger question of principle, which we need not as a matter of fact discuss here to-day, but which I mention in case anybody has any misapprehensions. That is that there is a great deal to be said, apart from the implications of this Clause, for all receiving compensation if injuries are sustained on the scale which the Government are providing. Considerable difficulties will arise in trade and industry directly one particular section or firm has increased compensation in comparison with another.

Mr. Rhys Davies (Westhoughton)

I wish I could believe that the Chancellor of the Exchequer had explained the full implications of Clause 13 of the Finance Bill. I speak from this back Bench in order to make it clear that I am not speaking for the Labour party. I am, however, speaking for a very considerable number of trade unions, my own union included; and perhaps the right hon. Gentleman will correct me if I put the wrong interpretation on the provisions of this Clause. If hon. Members will turn to the top of page 11 covering part of Clause 13, they will see that there is no relief for Income Tax in respect of: any payments by way of benefit made by any person to, or to the personal representatives or dependants of, any employés of his on account of their incapacity, retirement or death owing to war injuries. Let me explain how all this may work out in actual practice. The Co-operative movement employ approximately 300,000 people, and the majority of these people are covered by trade unions, my own included. Now, before this legal provision emerged the Co-operative movement, as employers, entered into an agreement with their employés' trade unions that, where an employé met with an accident after he agreed to work during alerts, his employers promised to make up his wages to the full for eight weeks. When the Co-operative movement as employers saw this new provision a few days ago, they found that they had entered into that agreement under a misapprehension. It may be, therefore, when they calculate their gains and expenses under this Clause that they may be compelled to review the agreement as a consequence of the passing of this legislation.

May I draw the attention of the right hon. Gentleman to this further important matter? A few moments ago I heard several Members say "Hear, hear" of approval when compensation for war injuries by the State was mentioned. I want the right hon. Gentleman and the Attorney-General to remember one thing, that shop assistants, warehousemen and clerks are domestic servants under Common Law, and they are ordinarily entitled to full wages during sickness. The manual worker is not entitled under Common Law to that privilege and what the employer of shop assistants, warehousemen or clerks ordinarily does, therefore, is to make up the wages to the full as a matter of custom when their employés are injured by enemy action, just as if they were paying wages during sickness.

The right hon. Gentleman has suggested that State compensation is adequate for war injuries. How much is that State compensation? If a man getting £4 a week, employed by a co-operative society, is injured by enemy action while working during an alert, he will probably get 30s. a week compensation from the State. The employer, the co-operative society, is willing to pay him an additional £2 10s. a week for eight weeks, by agreement with his trade union. I am very much disturbed, and the co-operative movement and the trade unions are very much concerned, because this provision is in effect breaking through what we have always understood to be the Common Law of this country. If this becomes law, what is to prevent the Chancellor of the Exchequer from saying that wages paid during sickness under the Common Law must be regarded as benefit paid by the employer, and that, therefore, he shall not be relieved from liability to taxation in respect of that benefit. There would be no objection from the. trade unions if State compensation were adequate; but it is not. The right hon. Gentleman knows that compensation under the war injuries scheme for civilians is not by any means equal to the wage of the average workman. If the employer is good enough to pay, by arrangement with a trade union, anything in addition to that inadequate war injuries compensation, why should he be discouraged. He should rather be encouraged to add something to it. I am not supporting the hon. Member for South Croydon (Sir H Williams) in his desire to delete Clause 13 altogether; all I ask is that, in view of the fact that the right hon. Gentleman is always willing to consider the claims of agriculture, the railways, and the banking interests, he should say here and now that he will consider this problem also, before we reach the Report stage of the Finance Bill.

Sir K. Wood

Yes, Sir; I will certainly see whether there is anything in the point that the hon. Member has made. I always endeavour to do that in connection with any proposals which are brought forward here. But I think the hon. Member is under a misapprehension. The Clause operates merely as I have stated.

Sir. Leslie (Sedgefield)

The workers in every industry have been urged to remain at work after the alert has sounded. Under an agreement entered into with the cooperative movement as a whole and with the Co-operative Wholesale Society by no fewer than six trade unions, including my own union the Shop Assistants' Union, the National Union of Clerks, the union represented by my hon. Friend the Member for Westhoughton (Mr. Rhys Davies), the Transport and General Workers' Union, the National Union of General and Municipal Workers, all those unions advised their members to remain at work after, the alert and the co-operative movement decided to make up the difference between the amount that the State would pay the workers in the event of injury and the amount they would normally have earned. I have a letter here informing me that the C.W.S. have been refused any allowance to meet the cost involved under this arrangement. That means that the agreement may be broken. Need you wonder if the workers will say, "When an alert sounds we are going to shelter"?

Sir K. Wood

I think the best course would be for my hon. Friend to get into touch with the co-operative movement, and I will see him before the Report stage. This is the first I have heard about the matter.

Sir Frank Sanderson (Ealing)

Where compensation is paid by a firm to its employé that compensation is deductible in calculating the net amount upon which Income Tax is chargeable.

Sir K. Wood

This Clause merely says that, so far as firms coming in for payment of excess profits are concerned, the whole amount must be paid not by the State but by the individual.

Mr. Levy (Elland)

Is it not a fact that where this payment is to be dealt with, and where these disallowable payments are made, it often reduces the standard to such an extent that it penalises the employer? It is not fair to say that where an employer is prepared to provide insurance that will be of benefit to his employés, he shall be penalised. We hear a great deal about good employers and bad employers. We try to do what we can for the good employer and to punish the bad employer; but now the Chancellor is proposing to penalise the good employer.

Sir K. Wood

I would hardly describe people as good employers, doing a great deal for their employés, when, in fact, the Exchequer has, in the case of Excess Profits Tax, to pay the whole lot. If my hon. Friend will give me a case, I will go into it, so far as the standard or anything like that is concerned; but I do not think that some of my hon. Friends have appreciated the difficulty of the position. Apart from this Clause, there is a great deal to be said for prohibiting arrangements of this kind altogether, because we get very gross anomalies, and some people in a very much better position than others. It was that which led the Government to increase the compensation under the scheme.

Mr. Silverman (Nelson and Colne)

I think the Committee will sympathise very greatly with the Chancellor in the point he made where this matter affects E.P.T. It is idle for an employer to claim credit for generosity in respect of a payment which is not made at the employer's expense. But where it is not E.P.T., but the standard rate, that is involved, the case is rather different. The Chancellor says, "If the employer wants to do that, he ought to pay the whole amount himself." But why should you distinguish that kind of legitimate expense, voluntarily undertaken by an employer, from a great many other forms of expense which are voluntary and which, but for this Clause, would be deductible? If the thing is put on the broad ground of principle, that there ought not to be any differentiation at all, that it is a bad thing for the employers to raise the compensation to the level of wages, even for so short a period of eight weeks, that is another matter. But it should be decided in principle by the Committee; and it has not been so decided.

I have great sympathy for the argument that a distinction between one class of worker and another is wrong; but if you are to have equality, and if you say to employers, "It is a bad thing for you to give anything away, and we are not going to encourage you to do it," you must be sure that the general level down to which you are going to keep everybody is adequate. I do not think anybody would suggest that a man with a family, earning £4 or £5 a week, is getting adequate compensation under the State scheme. The defence for that is that the State cannot afford to pay more. But if you say that you are keeping the figure down to 30s. a week because you cannot afford more, your argument for preventing employers who can afford to pay more, or who are persuaded by organised labour to pay more, has gone by the board. It is only a short period which is involved, and in the case which has been mentioned it is only eight weeks. I hardly think that the Committee will be greatly affected by the argument that there is something anti-social to be discouraged on grounds of principle when the employer says, "We will soften the blow to you and ease the difficulties and give a little more than the State feels that it is in a position to give." I hope that the Chancellor of the Exchequer will take the opportunity of reconsidering the matter from that point of view.

Mr. Rhys Davies

Can the Chancellor of the Exchequer explain how the Treasury differentiates for taxation purposes as between wages ordinarily paid for work done, wages paid during sickness, and part wages paid consequent upon incapacity arising through injury owing to enemy action?

Sir K. Wood

I do not think that that arises out of this matter. There is no need, in fact, to make such differentiation. I would draw the attention of the Committee to the statement that I made which may possibly meet the point to which my hon. Friend referred. I did not adopt the argument which the hon. Gentleman has put forward. The Government, shortly after coming into operation, put forward a new compensation scheme and increased the scale, and when announcing the improved civilian scheme, I made it clear that the Government as" a whole were opposed to systems of group insurance against war risks in which employers undertook to provide benefits in respect of war injuries. With the extension and improvement of the Personal Injuries (Civilians) Scheme, it was felt that the requirements had been adequately covered by the liabilities thereby assumed by the State.

I pause to say that you might very well argue that that compensation was not sufficient, but that is another matter. That might very well be argued, but I am taking up quite a different argument this afternoon, which, I think, is shared by most trade unions in the country. It is to seek, if we possibly can, to avoid differentiation in this matter. You may say that the sum is not sufficient, but that is a different matter from the point of differentiation. I also made this statement: It is not intended however to prejudice the rights of persons where the existing contract of service and conditions of employment provide for supplementation. That is why I suggest that people should come and see me, because I would like to examine their case to see whether they come within that proviso which excepts cases whose existing contracts provide for payments in respect of death, pensions in respect of disablement, or sickness benefit in respect of injuries and all payments made by a trader towards such benefits. These will continue to be allowed for taxation purposes, even though the death, disablement, or sickness may be due to war injuries.

The Clause is directed only against special war-time arrangements providing special benefits in respect of war injuries over and above the ordinary benefits in respect of any injury, however caused. The Clause does not invalidate any such arrangement. Therefore any right which the employee may have to receive any benefit is not impaired; the Clause is directed solely to securing that the Exchequer does not bear the cost.

Mr. Silverman

I understood that where the payment made by the employer is not voluntary but contractual it will be deductible from the standard rate.

Sir K. Wood

I do not know whether it goes as far as that.

Mr. Broad (Edmonton)

The Chancellor of the Exchequer desired to see no discrimination in the amount of maintenance a person may get as a result of war action, but this is rather the reverse. He is accentuating and continuing the class discrimination which exists to-day. There are some people in the larger concerns who are paid salaries at the annual rate or monthly. They are paid in any circumstances. The salaries are deduct-able.

Mr. Hammersley

Not necessarily.

Mr. Broad

The hon. Gentleman will no doubt be able to make his argument presently, but I want to continue my own argument in my own way. In the public authorities, the Civil Service, the big corporations and large firms people are appointed as salaried persons and not as wage-earners. In their case they can be paid. The hon. Gentleman for West-houghton (Mr. Rhys Davies) mentioned those who are in domestic service, or those who by their ordinary contract of employment are paid wages. I want to speak particularly for the workers, of whom a great many are also working in the co-operative movement as well as in other employment, who are classed as hourly workers and do not get any consideration. The services of a salaried person in a secure job are dispensed with only in exceptional circumstances. Usually in times of slackness he is kept on, and if he is temporarily absent, the firm will usually employ a substitute whose salary will be admitted as an expense of the business for these purposes. The hourly wage-earner, when there is slackness, is put off and told to come back to-morrow to see whether the stuff has come in. I resent the allegation that the lack of output during the war' is the fault of employés.

The Chairman

I think that the hon. Member is getting rather wide of the Clause.

Mr. Broad

I will try to bring myself to the point. I am pointing out that there is this discrimination to-day and that if this Clause goes through, instead of there being equality, there will be a continuance of a great injustice, which has continued right the way through, especially in the case of war injuries. If a manager takes his share—which he rarely does—in fire watching, or an under-manager or a salaried member of the staff, he can be paid his full wages.

The Chairman

All these are things to which I am objecting as having nothing to do with the Clause. The hon. Gentleman is entitled to his own views and to express them at the right time, but I am afraid that these questions do not arise on this Clause.

Mr. Woods

I hope the Chancellor will review this matter before the Report stage, because I can assure him that this Clause is causing a good deal of misgiving. The phraseology is rather vague, because, as is seen on page 11, it might be argued that the position is safeguarded where it is a practice. But it is difficult to say what is a practice in war-time. Experience of the last war is very little guide to experience in this war. The position of the co-operative movement and many employers of labour is that they are supremely anxious to secure such degree of harmony between management and service as is conducive to the maximum output and highest efficiency. In so far as previous speakers have said that a definite agreement has been come to between employers and the unions, I can. assure the Chancellor that it was not done in a spirit of charity. It was done because it was felt to be the legitimate responsibility of the employer, not only to the employed person but, through him, to his dependants. There is no argument whatever for saying that expenditure is not deductable as against Income Tax returns. I would like to point out also that if this is not made clear, trouble will not only arise, but there will be a considerable extension of present difficulties, which will be disruptive of the best harmony as between employers and employed. I hope the Chancellor will make the matter clear before the Report stage.

Sir K. Wood

I think the lion. Gentleman had better come to me with the many people concerned, so that we can discuss this matter between now and the Report stage.

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

CLAUSE 14.—(Trades affected by certain arrangements for concentration of industry or business.)

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

Mr. Ellis Smith (Stoke)

On behalf of the pottery and cotton industries in particular, and also on behalf of other industries, I want to ask a few questions on this Clause in order to obtain, if possible, a statement from the Chancellor which will allay the feeling which exists in these particular industries. The effect of this policy will be to bring economic devastation to these industries, and the first question I want to ask is: What will be the position of firms who cease manufacturing but whose premises are used for storage purposes? The Government are taking more and more factories for storage purposes, and no definite agreement has been arrived at between firms and the Government. In addition, these premises are being used for other storage purposes. The next question is: What will be the position of firms who cease manufacturing but whose plant is kept intact in order that they can launch into productivity immediately the war ceases? The third question is: Will nucleus firms be affected in any way by this change; and the fourth question is: What has been decided about compensation? When the Chancellor does make a statement about compensation, how will firms be affected with regard to their relation to taxation?

Captain Crookshank

The hon. Gentle man read out his questions so rapidly that I did not have time to write them down, let alone think of answers. But I will certainly see that he gets a full answer on these specific points if there can be answers. Actually, this does not deal with the general question of the policy of concentration or its effects —

Mr. Smith

I am not raising that.

Captain Crookshank

It deals only with the purely Income Tax position and nothing else. There I can say that the general arrangements which arise from the closing of factories and the transfer of their production to what we will call nucleus firms is to be carried out, generally speaking, in such a way as to preserve the goodwill of both. The displaced concern whose factory is shut down will be kept ready to start again as soon as possible after the war. That is the general theory of the policy, and, therefore, the Income Tax arrangements will have to be fitted as well as may be into that policy. With regard to that position, we are concerned with the wear and tear arrangements and allowances, a matter which, as hon. Members connected with industry know, is most complicated. The effect of this provision is broadly this: The previous year's basis of assessment will continue to apply, and the concern which has had losses or an accumulation of wear and tear allowances which could be carried forward to be set against future profits will not be deprived of the benefit of the carry-forward as it would be if it were left to be dealt with under ordinary Income Tax arrangements for discontinued businesses.

That is to say, although factories in the concentration scheme will not be pro- ducing during the time that the concentration exists, they are not to be treated for Income Tax purposes as if business had ceased and begun again. That is the important part of this Clause. The nucleus concern, I repeat, and the displaced concern will be both treated as carrying on the same trade as previously. If they cease doing it, that is another matter, but I am talking for the moment as if they were beginning again when the concentration arrangements had come to an end. When the hon. Gentleman talks about compensation, I would like to know, before I could give him an answer, whether he was talking about capital compensation or some form of annual payment. Obviously, they are different. However, if he will let me know, I will go into the matter. As regards payments of a non-capital nature, if no payments from which Income Tax is deducted are made as a result of arrangements about the concentration, then payments which are made by the nucleus concern to the displaced firm will be treated as if they were trade expenses. That is, broadly, the adaptation of the Income Tax arrangements for the general policy of concentration. It is important to remember that the general plan is to treat the matter as if displaced concerns were still continuing entities.

Mr. Hammersley

I want to draw the Chancellor's attention to a small but important point in connection with this Clause. It concerns the compensatory annual payment which may be made by one concentrated firm to another. These are sums which, in respect of one concern, will be allowed as a trading expense, and, in respect of the other, will be taken as a receipt. In Sub-section (3) of this Clause, there are the words: any sum becoming payable. … I think there may be some danger in that wording, which is very broad. As to whether the wording ought to be changed to "any reasonable sum," I do not venture to express an opinion, but as the words stand at present they may create a situation in which one company pays quite excessive annual compensation to another company, and in that way the purposes of the legislation may be frustrated.

Sir K. Wood

I will examine the matter which my hon. Friend the Member for East Willesden (Mr. Hammersley) has raised. With regard to points that were put to my right hon. and gallant Friend the Financial Secretary by the hon. Member for Stoke (Mr. E. Smith), may I suggest to hon. Members that if they have points of that sort which they wish to put to my right hon. and gallant Friend or to me, they should do so beforehand, so that we may be in a position to answer them in the Debate.

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

CLAUSE 15.—(Allowance for exceptional depreciation.)

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

Mr. Benson

I am not entirely happy about the proposal in this Clause concerning depreciation allowances, as I feel that some curious anomalies will arise under it. I am referring now to the depreciation on buildings. The effect of the Clause is that buildings which have been acquired for a trade after 1937 are placed on an entirely different basis for depreciation from buildings acquired before 1937. Any building acquired before 1937, unless a mill or a factory is excluded from having depreciation on it charged against tax; and it is only mills, factories and similar buildings which have the benefit of any form of depreciation. That depreciation is limited to one per cent., or an allowance equal to the Schedule A allowance for repairs. Therefore, the depreciation allowance for buildings acquired prior to 1937 is by no means generous, although I do not say that it is mean or meagre.

In 1939 the Armaments Profit Duty was introduced, and the form of words used in this Clause seems to derive from the Armaments Profits Duty, because in that case buildings provided after 1937, if they were provided for the purpose of fulfilling an armaments contract, were given a special depreciation allowance as against the Armaments Profits Duty, but not against Income Tax. When the Excess Profits Duty was substituted for the Armaments Profits Duty, and applied not merely to armaments factories but to the whole of trade, the basis of the new depreciation was carried over to all industries—and not merely armaments industries—in so far as the premises were acquired after 1937. There again, it was a calculation of depreciation which applied only to the Excess Profits Duty and not to Income Tax. It is in this Clause that, for the first time, the post-1937 concession is applied to Income Tax, and it seems to me that, as it is now applied it is an entirely indefensible anomaly to provide that buildings acquired after 1937 shall be treated in any way differently from buildings acquired before 1937. I am not arguing which form of depreciation is right, and I am not suggesting that the new depreciation allowance is too extravagant or that the old one was too mean; but I can find no valid and logical reason for the differentiation between pre-1937 and post-1937 buildings. I can see how the differentiation arose historically, but I cannot see how it arose logically.

Probably there was valid reason why the higher form of depreciation should have been given as against the Armaments Profits Duty and the Excess Profits Duty. Those were new and very stringent taxes, and in their case the incidence was unquestionably a good deal heavier on new businesses than on old ones, since new businesses have no reserve and probably no adequate established standards. Consequently, there were considerable grounds for arguing that, as against those taxes, unless very wide provisions were made for depreciation, the entrepreneur was rather in the position of gambling with the odds against him. But Income Tax is not a new tax; it is an old-established tax; and what is more, the incidence of Income Tax is identical in the case of all firms. Therefore, there is no justification for giving a very much higher rate of depreciation, and a very considerable possibility of future depreciation, for a building acquired after 1937. Hon. Members will note that the Clause does not necessarily mean a building that was built after 1937, for it says quite clearly: have been provided for the purposes of a trace. There are under this Clause a large number of anomalies, quite apart from the question of buildings acquired before and after 1937. The old depreciation was given only to a mill or a factory, and it was given on the ground that premises in which there are machinery and industrial operations are liable to very serious depreciation and get worn out more rapidly than, for instance, an office block. In this Clause, however, the wording has been changed, and instead of there being a reference to mills or factories, the word "buildings" is introduced. If a mill was put up in 1936, it comes under the old and lower rate of depreciation, but if a large emporium for ladies' hats was started in 1937, it comes under the new rate of depreciation. There is no justification for that. Again, if a firm changes its premises after 1937, it immediately comes in the higher rate of depreciation, whereas if it stayed where it was, it would be on the old rate of depreciation. Or again, if two firms swapped their factories, they could come under the new rate of depreciation, whereas if they had stayed where they were, they would have been on the old rate. I can see no possible justification for this variation in depreciation rates. Either all firms ought to receive this benefit or none—I am speaking now entirely as it affects Income Tax and not E.P.T There is no justification for saying that a firm, having acquired premises after 1937, should receive considerable benefits.

Moreover, I am rather afraid that this may open loopholes for soaking the Chancellor of the Exchequer. Under the Clause, if a building is sold for less than was given for it, and the cost of the depreciation arises out of war conditions, then the drop in price between the purchase price and the selling price can be offset against profits. With that possibility I can visualise some buildings being purchased at very good prices. I can visualise deals being carried out where very high prices are paid in transactions in which the vendor is the friend of the purchaser. It seems to me that with Income Tax at its present level, the chances of putting it across the Chancellor of the Exchequer are, under this Clause, very big. Apart from that, my main argument is that the Government are creating an anomaly and an injustice which cannot be justified; and I hope we shall either have, as far as Income Tax is concerned, all trades put down on a pre-1937 or post-1937 basis.

Captain Crookshank

Of course, what this Clause is doing is to bring under Income Tax the same sort of considerations as have already been agreed in the case of the Excess Profits Tax. The hon. Member for Chesterfield (Mr. Benson) asks why the date of 1937 was chosen. He gave us an historical review of why he thought that had been done, and he may not have been far wrong, because, broadly speaking, and very broadly speaking, that is a dividing line before and after the possibilities of war were envisaged. When he said that before that date the depreciation allowances were very carefully defined—and then he spoke a lot about mills and so on—there again we have to take a fairly broad view, because the extra allowance is to be given for extra wear and tear during the war.

Mr. Benson

You have not said so.

Captain Crookshank

It is only part of depreciation which may be attributed to the period 6th April, 1939, which will be allowed, and it is a special war-time allowance. In these days all sorts of uses have come to be war uses. They could not be anticipated, and they cannot be categoried in a long list. No one is more concerned in providing against the possibility of any leakage at the expense of the Exchequer, and, if there might be a ramp generated against the Chancellor of the Exchequer, I am sure we will look around very carefully to stop it. So long as this was accepted in the No. 2 Finance Bill, 1939, it seems only reasonable that it should also be accepted in the sphere of Income Tax. The hon. Member shakes his head, but I think most people would agree with that, and I hope the Committee will stand by the Government on this point. If there really is the possibility of some bad leakage, as the hon. Member fears, we shall see if we can stop it, but I do not think it applies at present.

Sir Frank Sanderson (Ealing)

I should like to say a word or two in support of the Government on this Clause, and what I have to say may be of interest to the hon. Member for Chesterfield (Mr. Benson). There are really two types of case to which this Clause refers. Firstly, there are firms which have very materially increased their output by running three shifts, whereas normally they would have been working only one shift. It is obvious that where three shifts are working under war-time conditions the increase of wear and tear is very considerable. In a case of that kind it is necessary in the interests of the country that there should be a reasonable increased allowance for wear and tear.

Mr. Benson

I am quite prepared to accept that argument, but does the hon. Member realise that under this Clause 90 per cent. of those who are doing this war work will not receive any increase?

Sir F. Sanderson

I am referring to the principle to which this Clause applies. The other case is this: The Government have required many industries to double their plant, and that building and plant are merely standing by in the event of their premises being destroyed by enemy action. It is being built to meet the requirements of the Government, and it is obvious that unless there was a very substantial depreciation allowance for such mills, which will have no value whatever after the war, it would not be possible to expect industries, out of their own resources, to respond to the Government in the construction of these increased mills required only for war purposes.

Brigadier-General Clifton Brown (New-bury)

I understand that agriculture has now to return Schedule D. As this refers to Schedule D, and it is quite possible that there will be increased wear and tear to tractors and other machinery, I should like to know whether it covers any extra wear and tear caused by the war in the case of agriculture.

Captain Crookshank

As a matter of fact there is provision with regard to agriculture in Sub-section (5). Needless to say, it does not appear on the surface, because it never does in these matters. The relevant words are on the top of page15— deductions allowed or deemed to have been allowed. The importance of the words "deemed to be allowed" is that they refer to farming. My hon. and gallant Friend's point is, I think, met, because farmers who are assessed under Schedule D can claim wear and tear deductions in respect of their farm machinery; and, if a farmer remains continuously under Schedule D, paragraph (6) of Rule 6 of the Income Tax Acts would normally apply. He may in fact be charged on an annual value under Schedule B for one year or more and in that case for the purposes of paragraph (6) of Rule 6 he is under the existing law, the Finance Act, 1925, deemed to have been allowed the appropriate wear and tear allowance for that year. By the use of this method it can be brought in if the other conditions are fulfilled.

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

Clauses 16, 17 and 18 ordered to stand part of the Bill.

CLAUSE 19—(Provision for the repayment after the war of certain Excess Profits Tax.)

Mr. Levy

On a point of Order. I assume, Sir Dennis, that you are calling the Amendment of the hon. Member for South Croydon (Sir H. Williams)—in page 16, line 38, to leave out from "After," to the end of line 2, page 17, and to insert: any accounting period after the first day of April nineteen hundred and forty-one.

The Chairman

No, I am not calling it.

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

Mr. Levy

The object of the Clause is that out of the 100 per cent. Excess Profits Tax there shall be what my right hon. Friend described as a nest egg of 20 per cent., from which 10s. in the £ will be deducted provided the Income Tax remains the same, though it would be less proportionately if Income Tax went up. The majority of industrialists do not place very much, if any, value upon this so-called nest egg which is to be available after the war. What they desire is to eliminate the colossal waste and extravagance now going on in industry, because the employers have no incentive whatever to be economical. There is a large number of employers who are patriotic and are economical, but in vast numbers of instances the waste and extravagance which are known to all of us are nothing new. I am not overstating the case when I say they are appalling, and they ought to be avoided. If I am asked how it can be avoided, the answer is that if you have an incentive, however small, it would be exercised by the majority, if not all industrialists. The Clause affects industry throughout the country. Instead of creating a maximum war effort, in a number of cases it is having the reverse effect. It is a great pity that my hon. Friend's Amendment was not selected by the Chair.

The Deputy-Chairman (Colonel Clifton Brown)

The hon. Member has no right whatever to say that. He must not comment on any selection from the Chair. I might also inform him that the Amendment is completely out of Order.

Mr. Levy

If I have said anything that I ought not to have said, I am prepared to withdraw it, and will ask you please to attribute it to my ignorance of the procedure of the House. If the Chancellor could see his way even now to making some alteration which would be to the benefit of the war effort in this respect, I think he would receive from industry a greater effort than he is receiving even now.

Sir F. Sanderson

I rise to support my hon. Friend up to a point, because I do not agree with the conclusions at which he has arrived. I do not agree that industry is being run extravagantly. On the contrary, my personal experience is that if anyone engaged in industry requires a larger income, he has to fight for it to-day every bit as much as he had before the incidence of Excess Profits Tax came into being. That is as it should be. No industry has a right to conduct its business on the principle that the incidence of direct taxation is so high that it is immaterial whether his industry is conducted efficiently or otherwise, and my experience is that every consideration is given to maintaining the high standard which industry held before the Excess Profits Tax was introduced.

I suggest that some modification is due on two grounds. My first is that I think my right hon. Friend will find, when he attempts to put the Clause into operation, that it will create an endless army of officials. In order to arrive at the amount of allowance which should be paid there will be accountants and engineers, and a whole host of men will be required to get out the complex figures and substantiate their case at a time when they are required on far more important work. My second ground is this: I made considerable reference to it on the Second Reading of the Finance Bill, and I do not propose to reiterate the arguments I used on that occasion. I will summarise them by saying that my right hon. Friend is aware that there are many industries which have wasting assets, and to that extent they are entitled to expect some consideration. I believe that in the national interest it would prove to be an advantage if, in- stead of this complex means of repayment after the war, we had a clean-cut scheme whereby my right hon. Friend refunded the 20 per cent.

Mr. Ellis Smith

The hon. Gentleman the Member for Elland (Mr. Levy) built up an indictment against British industry which many of us on this side are not prepared to accept. He made a number of wild, irresponsible statements which do not apply to British industry. At this stage of the Finance Bill we reach a fundamental cleavage between many of us on this side and the Government in regard to war finance, and I want to show that there is no such thing in operation as a 100 per cent. tax. We also had down an Amendment which we are not in Order to comment upon. Before dealing with the Excess Profits Tax I would like to ask a few questions on the administration of the 20 per cent, of the excess profits. As I understand it, 20 per cent, of the excess profits is to be recorded and on the termination of hostilities, the amount recorded shall be repaid in such conditions and at such a date as shall be determined by Parliament. If we allow this Clause to go through, it will be equivalent to voting the Government a blank cheque on this matter, and I am surprised that there is not more interest shown by the Committee in such a proposal.

I want to ask the Chancellor what kind of policy the Government have in mind about this repayment. Upon what principles and basis will the repayment be made? Sub-section (2) deals with the procedure for the ascertainment and for prescribing the regulations. Will those regulations be submitted to Parliament, and, if so, will it be open to Parliament to amend them? The people, for the last two years in particular and for the last five years in the heavy industries, have been making Herculean efforts in order that this country could arm itself to deal with the situation in which it found itself. The Chancellor came to the House after Dunkirk and agreed that great efforts were being made. Our men and women were working night and day and were putting in the maximum of effort, and many of them were wearing themselves out in order to equip the country in the way that they did. The Government knew at that time that, in order to encourage the spirit and effort that were being shown, it was necessary to give the workers the impression that no excess profits were being made while they were making that great effort.

There was an incident in the North only last week about which I have first-class knowledge, and it would never have taken place had canteen and other reasonable facilities been provided for the men. The Dunkirk spirit exists among the men and women whom we represent, but there is a growing uneasiness that as a result of leading articles which have appeared in many newspapers, of inspired statements that have been put about by Lobby correspondents, and of statements at nearly all annual meetings of companies this year by the chairmen of boards, pressure has been brought to bear upon the Chancellor in order to get him to agree to a policy of this kind. They have used the Press, the wireless and every avenue open to them to bring this position about.

I want to state the case on behalf of the men and women to whom these avenues are not open and to plead with the Committee that there should be a real 100 per cent. Excess Profits Tax put upon manufacture in this country, especially for war purposes. I do not want to do that without producing concrete documentary evidence, so that every statement I shall make can be checked in official records and in the company statements that are issued from time to time. On 17th December, 1935, the "Economist" gave an informative report and an extended study of three decades of profits in this country. It would take too long to deal adequately with this issue to-day. What I want to do, within the limits of my time and having regard to the need for keeping in order, is to produce evidence that there is no real 100 per cent. Excess Profits Tax. The "Economist" stated: The ingenuity of accountants is used to hide rather than reveal the true state of affairs. The statistician can do little more than throw in his hand and take as his definition of profits what directors in their wisdom and in their knowledge of commercial and criminal law choose to declare. In spite of that we find on page 597 an analysis of profits made by trades, and I want to put this in as evidence of my case. On page 600 of this publication we get a table of profits and capital from 1908 to 1937, which shows great increases in the amounts paid out, particularly in preference dividends. Six months have been spent on producing the situation which the Government have now accepted. There is a growing uneasiness, particular!' in industrial centres, that the game is not being played with the workpeople and that while they are making great efforts the financiers and captains of industry are not making a proportionate effort.

Mr. Hammersley

If the figures to which the hon. Gentleman refers are for 1935, they have no relevance to the Excess Profits Tax.

Mr. Smith

If the hon. Gentleman had been good enough to have been listening, he would have known that the figures were those of 1937.

Mr. Hammersley

They would then relate to profits made in 1936, and again they would have no relevance.

Mr. Smith

They have some relevance, as I shall prove. I shall also produce figures dealing with the basic years 1937, 1938 and 1939, and shall attempt, if allowed, to prove that the basis for the fixing of excess profits is all wrong and unfair to the people. I know that the interests I am speaking against now are well represented in this House, but I am speaking for the people as a whole. According to the "Economist," the dividends on ordinary capital were: In 1908, 8.3 per cent.; in 1914, 13.72; in 1919, 19.92; in 1937, 15.85. Now I come to the point that the hon. Member was good enough to make, because it has been helpful. Over the period of 30 years the trend of absolute profits has been upwards, on the whole, and during the years which the Chancellor takes as his basic years for the Excess Profits Tax the profits in the heavy industries in this country were higher than they have ever been in our history, except during the last war.

Mr. Hammersley

My hon. Friend is making a statement which is really contradictory of what he said a minute ago. He suggested that he was talking for the whole of industry, and in point of fact the years which he has taken were, in the cotton trade, very bad years.

Mr. Smith

I admit that, but to pick out one industry does not disprove the case I am making. I am speaking in particu- lar about heavy industry, and the hon. Gentleman, who is associated with a certain section of it, knows that the statements I am making are correct. If he has any doubt about them, let him consult the files of the "Economist," and official publications, and he will be able to check them up. The "Economist" quarterly report deals with 2,260 companies. Their net profits—remembering what "net profit" means, and I want to emphasise that — in 1938 were £216,000,000. In 1940, after the deduction of tax—and I want to emphasise that —their net profits were still £208,000,000. Putting it in another way, the same companies' net profits were: In 1936 96.5; in 1937, 103.2; in 1938, 120.7; in 1939.110.8; and in 1940, 106.6. Here we get proof that the basis chosen by the Chancellor for collecting Excess Profits Tax is a complete farce. Let it be remembered that since 1928 there has been a great increase also of capitalisation in industry, with all that that means to the people of this country. I remember speaking in the House at 11 o'clock one night and an hon. Member coming to me afterwards and saying he had had great experience on the Stock Exchange and could assure me that the fluctuations in the value of shares and a number of other points which I had raised did not concern the workers. That was only proof that he knew nothing about the effects of all this business upon the workers employed in industry. Those of us who were engaged in the heavy industries during the period when the Dudley Dockers were manipulating companies in the way they did, when Americans and others were trying to dominate certain sections of our industry, when they were sending up the values of shares, knew to our cost what we suffered at that time.

The average rate of dividends paid on ordinary shares has been as follows: In 1935, 7.9; in 1936, 9.2; in 1937, 11.2; in 1938, 10.6; in 1939, 8.2; and in 1940, 7.2. [An HON. MEMBER: "The rate is going down."] If any hon. Member wants to interrupt I am quite prepared to give way, because this is an unanswerable case and it can be checked up.

Mr. Denman (Leeds, Central)

On a point of procedure. May I ask whether a general discussion on Excess Profits Tax such as we might expect on the Third Reading of the Finance Bill is appropriate to the limited purposes of Clause 19?

The Deputy-Chairman

I myself was considering whether or not to stop the hon. Member, because he is discussing the Excess Profits Tax as a general proposition and not what is in this Clause.

Mr. E. Smith

I am saying that before we part with this Clause this Committee ought to know the facts, and not rely upon some of the statements which have been made at company meetings which prejudice the issue. I am stating facts which can be checked up. Greater efforts than ever before have been made in industry to increase the output of aircraft, anti-aircraft guns, detectors, instruments, and many other things. Industry is being called upon to make still greater efforts.

The Deputy-Chairman

The hon. Member is proceeding too far. He is discussing the tax generally and not what is proposed under this Clause.

Mr. Smith

If I am prevented from putting the facts before the Committee, I cannot help it, but I propose to deal with the Excess Profits Tax itself in order to show what a farce it is. Excess profit, as I understand it, is the amount earned by a business in excess of its earnings in a standard year. The standard year which a business may select for itself is the average of the years 1935 to 1937— [Interruption]. It is the average of the years 1936 and 1937 or the profit for the years 1935 or 1936. Is that correct? Those were the boom years for most of the businesses in the heavy industries. [HON. MEMBERS: "No."] Oh, yes, that is right. Some of us have been talking in this House for the past six years, and if the Official Report is looked up hon. Members will be able to conclude who have proved to be the friends of this country and who have not. I do not want to be provoked into saying too much about that. Those were the boom years for heavy industry in particular. Those were the years when rearmament got going in this country. In 1937 rearmament was beginning to get into full swing. This meant more employment, more wages, and a bigger civil demand.

The Deputy-Chairman

It is time to ask the hon. Member to address himself to the Clause, which is a proposition to repay the tax down to 80 per cent. after the war and not to the merits of the tax itself.

Mr. Smith

I am endeavouring to show that this step will give the Government a blank cheque. I am endeavouring also to point out that the basis for fixing excess profits is all wrong, and I am producing evidence for that purpose. In 1937, profits were the highest ever recorded by British industry in peace-time.

The Deputy-Chairman

The basis for fixing excess profits was decided before, and must not be gone into now.

Mr. Smith

Before we agree to the proposal in the Clause, surely we ought to have regard to how the profits are calculated. If we can produce evidence to show that the Excess Profits Tax, as it is administered at the present time, is not a real 100 per cent. tax, surely that is in Order when dealing with the proposal contained in the Clause?

The Deputy-Chairman

Not on the Question, "That the Clause stand part of the Bill." It would have been in Order upon the Second Reading, and it might be in Order on the Third Reading, but it is not in Order now.

Mr. Smith

If it is in Order on the Third Reading, I shall certainly remember that. The profits that are being made in a number of industries which I cited are giving great concern to the people, and it is very interesting to watch Amendments and proposals coming from certain directions when there is no possibility of their being ruled out of Order. [An HON. MEMBER:" Do not say such things."] One is bound to have regard to that matter. I suggest that the basis for fixing the excess profit is all wrong and that this Committee has no right to vote the Government a blank cheque in the way which is proposed. Seeing that it is not in Order to pursue this matter any further at this stage, I shall take the opportunity of raising the same thing on the Third Reading, in order that the case for the people in the heavy industries may be put before this House.

Sir H. Williams

I shall not follow the hon. Gentleman who preceded me in his argument, except to point out that, whatever this Clause does, it does not give the Government a blank cheque. I think the hon. Gentleman might read the Clause before he makes a speech about it. It says: The amount so ascertained and recorded as aforesaid shall, if such conditions as Parliament: may hereafter determine are satisfied, be repaid at such date as Parliament may hereafter determine. That is not a blank cheque for the Chancellor of the Exchequer. It is laying down that a certain amount, 20 per cent., is to be put into cold storage, and it says that the way in which the 20 per cent. is to be used is to be determined later on by Parliament. That cannot very well be called a blank cheque for the Government. This is an effort by the Chancellor of the Exchequer to stop some of the evils to which the Excess Profits Tax has given rise. Those evils included, among other things, the fact that the trade union to which the hon. Member who has just spoken belongs should not be encouraged to profiteer unduly. At the moment it is not to the interest of the employers to prevent undue wages being expended. There is not the slightest doubt that great wastage is taking place, and the Chancellor of the Exchequer is trying to do something by this Clause to stop a first-class evil.

I wonder whether he is succeeding. I do not think he is. The ordinary person to whom I speak takes the view that the 100 per cent. Excess Profits Tax remains unaltered. That is the psychological attitude to the 100 per cent. Excess Profits Tax. I have not the slightest doubt that it is producing evil results and that waste and extravagance are adding very much to the charges which the Chancellor of the Exchequer has made. I have not the slightest hesitation in saying that the continuance of the 100 per cent. Excess Profits Tax is more extravagant to the Treasury than the clean-cut 80 per cent. which my Amendments would have produced if you, Colonel Clifton Brown, had selected them. You came to the conclusion, no doubt properly, that my Amendments were so drawn as to be revolutionary in the way they changed the Clause. The Chancellor of the Exchequer looks very regretful and hopes that I will not continue the Debate unduly. I have no desire to do so.

After all, we are discussing something which is one of the major hindrances to the war effort. I wish that the Chancellor of the Exchequer would take a rather more serious view of it than he is now doing. He would do so if he were from day to day concerned with what is happening in industry. I am trying to impress these things upon the Committee. Certain things have been forced upon this House by certain industrial interests who think they are very clever. It is a political bargain. It has resulted in having in the Government certain people who are not as clever as they are thought to be. [Interruption.] It is not as though the Minister of Labour were an outstanding success at his job. [HON. MEMBERS: "Oh!"] He is not an outstanding success, and nobody thinks he is. He is not nearly so successful as his own friends thought he would be when he was appointed. [An HON. MEMBER:" He is the man who saved the country."] I know I am reaching the stage at which I shall be called to Order, but there is no harm in things being said in this House which are being said everywhere outside. It is a poor thing if this House is not willing to allow Members to express fearlessly what the great mass of the people are thinking. I recognise that the Clause represents a small advance, but it will not achieve the primary object which my right hon. Friend has in mind, that of making people anxious to be as efficient as possible, which is a vital necessity of the war effort.

Mr. Tinker (Leigh)

It is well that some of us should speak as openly as the hon. Member for South Croydon (Sir H. Williams) has spoken just now. We take exception to the attitude which he has adopted. I want to take the mind of the Committee back to the position as it existed when we started this 100 per cent. Excess Profits Tax. The war had gone on for a little while, and we were determined to show the country that people were to be no better off during the war than they had been before. For that purpose we decided it would be fair to have an Excess Profits Tax of 100 per cent. Parliament acclaimed it, and it went to the country in that way. The country responded to it, because people felt that financial interests and large companies were not to make a lot of money out of the war. We achieved common unity in that matter. Owing to pressure from such people as the hon. Member for South Croydon and those associated with him—we all know it—the Chancellor of the Exchequer told us that people were not putting their backs into the war effort because of the 100 per cent. tax. They were dodging it. A large number of people are dodging the revenue in the sale of their commodities, and everybody knows it. The Chancellor of the Exchequer, in order to get unity and to get more into the Exchequer, determined on this method of saying, "I want to persuade you to come along. At the end of the war 20 per cent. of the 100 per cent. shall be handed back to you, so that you can replenish your industry and start again in the old way that you followed before." I ask the Committee whether it is fair to the workers of the country. We have been told about the drain on the workers because of the excess work which they are putting into the war effort now. Does anyone think about the call upon the human being who is putting in all that work at the present time? Does the human being not need replenishment? We shall have to pay the 20 per cent. out of the workers' efforts.

We are taking a very wrong step. What will happen when the real position is known to the people in the country? At the present time the working class are whole-heartedly in the war effort because they believe that we are trying to deal fairly by them, but when it gets out that we propose to hand back a large percentage of this Excess Profits Tax which is due to the exigencies of the war, it will have a bad effect. I do not believe that the Government believe in this proposal to try to persuade them to do something decent in connection with the affairs of the country. That is not the right way to do it. I am glad that my hon. Friend has made a protest about this kind of thing. It would be wrong on our part to allow it to go through without some protest. I do not want to cover a lot of ground about percentages in certain years. We took a fair average in the three years given. We put this percentage they should have as high as possible and then all above that was to come to the State. I ask the people called capitalists whether they are doing right in putting pressure upon Par- liament and the Chancellor to force money back out of the profits that they have made in this manner? I do not think they are, and I do not think it will react as they think. The ordinary working man and woman are watching this kind of thing. When I go before the workers I tell them, "Do what you can because we are watching this Excess Profits Tax. We are demanding that it should be 100 per cent. and I believe we are doing right." Now I have to go before them and say that it has been decided that the tax is to be only 80 per cent. The hon. Member for South Croydon will say that they are paying it all in now and will get it back afterwards. They will get 20 per cent. back afterwards.

Sir H. Williams

Ten per cent. because of Income Tax.

Mr. Tinker

Twenty per cent. That kind of tale does not go with me. The worker who earns £5 a week has to pay Income Tax on it. Twenty per cent. will be handed back for the purposes of making those who are to get it honest. If they cannot be made honest by fighting the greatest battle in history and saving themselves, I do not know what will make them honest. I think this would be a very unfair method and I trust the Chancellor will take: the feeling of the House of Commons on this matter. Many of us feel that the tax should be put back to 100 per cent.

Sir K. Wood

I hope my hon. Friends will see fit now to conclude the discussion on this Clause. We have a fair amount of business to do before we finish our proceedings, and I should think that the case has been fairly stated both for those who approve of the proposal, those who object to it and those who think it does not go far enough. I ventured in my Budget statement and on the Second Reading of this Bill to state the reasons that actuated me in coming to the decision I did in putting this proposal before the House, I think, taking it as a whole it has been generally approved. When my hon. Friend the Member for Leigh (Mr. Tinker) explains this matter to his constituents and others, I hope he will do me the justice of carefully stating to them, at any rate, the reasons I gave for suggesting to Parliament that at the conclusion of the war this 20 per cent. should be available, on certain conditions, for trade and industry. If he does so I think those who hear him will agree that this 20 per cent. which is to be repaid, is not to be repaid for any selfish reason, or in order to give money to capitalists for their own selfish purposes or anything of that kind. In fact, this repayment will, if properly administered, and under proper conditions, be of considerable value to the workers as well.

There is no doubt that at the conclusion of hostilities, whenever it may come, trade and industry, not only in respect of the employers but in respect of the workpeople, will require all the help that can be given to them. The conditions which the Government have in mind are the result of decisions of the Government as a whole, including my right hon. Friend the Minister of Labour. I must take exception to the statement made by my hon. Friend the Member for South Croydon (Sir H. Williams). I speak of my right hon. Friend as a good and loyal colleague who is associated with all the decisions made on this matter, including this particular provision. When I stated the decisions, it was after careful consideration and in view of the composition of the Government. My colleagues who came from the Labour party and those from the other parties wished to have their position properly stated, and I did so, I said in regard to the conditions of the 20 per cent.: The ban upon bonus shares would be continued and any necessary steps would be taken to prevent the money from being dissipated in dividends and generally it must be assumed that the money would require to be expended for suitable purposes, among which I may mention is the replacement of obsolete or unsatisfactory machinery by up-to-date machinery; the scrapping or adaptation to new uses of redundant installations; the extension of the export market; and, in the case of farmers, the improvement of the fertility of the land; and the promotion of business."— [OFFICIAL REPORT, 7th April, 1941; col. 1320, Vol. 370.] Who on earth could possibly take exception to conditions of that kind—having regard to the conditions of the country after the war—particularly those who assume for themselves very often that they speak for the workers of the country? This decision was given in the interests of the whole country. He would be a foolish man who did not think that provision of this kind should not be made after the war to enable industry to take its part and to help any trade that may be carrying on under very difficult conditions. I do not make the slightest apology for this Clause. It represents the decision of the Government as a whole and is well designed in the interests of trade and industry. As has been pointed out to my hon. Friend, whose speech I will study carefully, there is no suggestion of giving a blank cheque to the Government in relation to this matter. All these matters will have to be considered by Parliament when the right time comes to consider them. I gave a general indication of what the conditions would be in order to remove misconceptions. If hon. Members wish to be fair they should explain the conditions laid down by the Government of the day. There is to be no blank cheque. The matter will have to be considered by the Government of the time. There is no proper ground for any real objection to this proposal, and certainly no reason to state that it is some sort of transaction affecting the capitalists and not the workers, because it is in the interests of the whole of industry that this is being done. I have maintained, and the Government have maintained, that it has not been a question of doing anything under pressure. It has been a question of considering what is best to be done in the interests of everybody at the conclusion of the war, and my answer to all the questions that have been raised to-day is that as it has been placed before the House, it is a fair and reasonable solution, which gives some promise of assistance to trade and industry after the war. For that and the other reasons I have mentioned on previous occasions, I commend it to the Committee.

Mr. C. Williams

I am sorry my right hon. Friend thought it was necessary to intervene quite so soon, because I had wanted to criticise this particular Clause on lines entirely different from those followed in the speeches we have already heard. The speeches we have heard, with much of which I agree, in themselves form a very strong condemnation of the indefinite position set up by the Clause. I cannot help what other Members think, but I have found it very difficult to explain to my constituents what is meant, for instance, by the words "be repaid at such date as Parliament may hereafter determine." After all, this is a business matter, and the State is dealing with it as such. At least a very large part of the members of the community do not want to see anything in the shape of excess profits made during the war, and that is my own feeling, but if that is the case, and if it is necessary—and I believe it will be in the interest of industry itself after the war to have certain definite sums for the repair of industry—surely instead of having a figure of 80 per cent., which can lead to two interpretations, as we have already heard to-day, it would be much better to lay aside definite sums to be available after the war for the repair, replacement and continuation of industry and for keeping the men in work. I know the Chancellor's difficulty, and the only protest I have to make against this Clause is that it makes the position vague and very indefinite. It is absolutely essential that some time in the very near future the Chancellor should make a very clear and definite statement on this position, laying down the facts, so that there can be no sort of feeling outside that this is a loophole through which excess profits can get away with it. That is all I wanted to say, and I regret that I could not have put in that protest before the Chancellor had spoken.

Mr. Evelyn Walkden (Doncaster)

I listened with deep interest to the hon. Member for South Croydon (Sir H. Williams) and also to the Chancellor's explanation of why this Clause appeared in the Bill we are discussing to-day. I wish to be perfectly frank with the Committee; I have never up to now discussed the Bill at all. I made a contribution a few days ago on an entirely different subject, but these Clauses have never been the subject of my contributions. The ordinary folk whom I know will look at this Bill, if they are privileged to do so, and they will see what is called the marginal column. In that column they will see that it says: Provision for the repayment after the war of certain excess profits tax. There is no question about what those words mean. They mean the repayment of money to persons to ensure profits—those profits which they have made during the war and which have been taken away from them. A portion will be restored to them after the war. "On certain con ditions, "said the Chancellor. As I was sitting listening to the hon. Member for South Croydon I was thinking of a little poem, or of one verse of a poem, which I learned at school: The Romans, in Rome's quarrels, Spared neither land nor gold, Nor son nor wife, nor limb nor life, In the brave days of old. I am beginning to think, as I am told by the hon. Member for South Croydon, that one of the major hindrances to our war effort is the title to profit after the war, the title to have some guarantee from His Majesty's Government that people will have this money repaid to. them if they comply with certain conditions. I was astonished to hear that. I hope that nobody accepts the word of the hon. Member for South Croydon, because I sincerely believe that what we suffer from most to-day is misunderstanding of such speeches as we have heard here. I do not believe that the hon. Member for South Croydon believes it at all.

Sir H. Williams

Yes, he does.

Mr. Walkden

Then it is a shame that he should believe it. I have quoted the Chancellor's words up and down the country; I have carried his speech with me, and have read the words. I have been very successful as a trade union organiser for the last 20 years and have been fairly good at explaining trade union rules; but the working men do not like these rules, because they seem to be rules for that fraternity which controls capital, and which looks for payment after the war. If the Chancellor can consult with his friends in the Cabinet as to the wisdom of withdrawing the Clause in its entirety that will satisfy us, and it will help us to convince people far more than the words of the hon. Gentleman below the Gangway opposite, who said in the Civil Defence Debate last week that neither privilege nor property should stand in the way of the war effort. That will be noted by us on these benches, and, I hope, by the hon. Member for South Croydon and all his friends who have prompted this agitation in the public Press in the last few months.

Mr. A. Edwards (Middlesbrough, East)

Not all of us on this side are in complete agreement as to the merits of this tax. I put a Motion on the Order Paper in order to get the Chancellor of the Ex- chequer to alter the tax. I was called up by my local party. I was pleased that they were so alert in demanding from me some explanation. I have always bowed to my colleagues, who speak with authority on the subject, on trade union matters; and I hope that on business matters I shall be listened to with equal respect by them. I explained to my constituents something of the principles of business, and I hope that I can explain the subject to my hon. Friend the Member for Leigh (Mr. Tinker). If a business is assessed for £100,000 E.P.T., and it is allowed £20,000, it will certainly have to pay £10,000 of that figure in Income Tax, and it will require the other £10,000. If those of us who run businesses feel that there will be a certain amount coming back, under certain conditions, in future, we shall be encouraged to keep plant in good condition. [Interruption.] My hon. Friend will have to listen to some of us who have experience

Mr. Ellis Smith

I do not like the inference that people who have been engaged in other sections of industry do not understand business matters. Such people may also have had experience of business matters.

Mr. Edwards

I do not suggest that they have not. I suggest that my contribution will have to be about business matters because I do not know so much about trade union matters.

Mr. Logan (Liverpool, Scotland Division)

I am wondering how the hon. Member got here.

Mr. Edwards

On another occasion I may be able to explain that. I am wondering how you got here. It is sufficient for me that the members of my local party were fairly well satisfied—I do not say completely satisfied, because they were not, but satisfied—that, at least, there was something to be said for my point of view. Let me tell the Committee what several of the people said at the particular meeting in order to show how they were misinformed. I am sure that people are not buying Rolls Royce motor cars out of excess profits. They cannot do that, because the inspectors of taxes have powers of discrimination which they have never had before to watch all these things, and they will be more strict. There is no chance, I can say quite clearly to the Committee, of people making vast fortunes as they did in the last war. They just cannot do it.

I am a Socialist who feels that the experience of the war will drive this country to a socialised form of government in the future. The Government have had to adopt many expedients in the Socialist programme in order to solve their problems. I do not say that it is good Socialism, but they have had to adopt the principles of Socialism to solve every problem. I am a Socialist who is confident that in future the Labour party will be called upon to govern the country and that we shall be able to socialise the various industries. I do not want us to have to take over derelict industries. It would suit most people if we had to take over derelict industries, believing that in consequence they would get another chance.

Sir Granville Gibson (Pudsey and Otley)

In fact it would be a blank cheque without any signature at the bottom.

Mr. Edwards

I do not see either the relevance or sense of that remark.

Sir G. Gibson

The hon. Gentleman has just stated that one of these days perhaps the Socialist party would come into power in this country and take over these industries and so on, so that the blank cheque which the hon. Gentleman stated was being given to the Government would, in fact, be a blank cheque and worthless.

The Deputy-Chairman

The interruption of the hon. Member shows that this is a very dangerous line. I think we had better leave the discussion of a Socialist Government in the future out of the question.

Mr. Edwards

I was just saying that it would be important that whoever is called upon to look after the industries of this country in the future should not have them derelict but in sound condition. You can no more keep businesses and machinery in sound condition without money than you can keep the bodies of the workers in condition without money.

Mr. Logan

They must have reserves.

Mr. Edwards

That is why I was saying that you cannot just take 100 per cent, excess profits. People with evacuees in their homes will find that they will want a little extra to replace furniture. This is in a small way, but it is the same thing. The Chancellor of the Exchequer said that those who had businesses and wanted to replace plant would require money. What about the kind of businesses where they make very excessive profits but have no equipment or stock-in-trade but are purely commission people?

Mr. Stokes (Ipswich)

I would like to add a word or two to what my hon. Friend the Member for East Middles brough (Mr. A. Edwards) has said on this particular point. I speak as a person who is 100 per cent. in favour of a 100 per cent. Excess Profits Tax, but, having said that, I very much endorse the action which the Chancellor proposes to take in this Clause. When my hon. Friend says that the depreciation allowed is sufficient to cover wear and tear on plant, I can only answer that the depreciation allowances now provided in this Bill are totally inadequate having regard to the intense demands on plant at the present time. It is really quite impossible to measure the extent to which plant is depreciating in present circumstances. The mere fact that they are working 24 hours a day is bad enough from the point of view of depreciation allowances, but you have difficulty with the people who are naturally unskilled and need training. They do an enormous amount of damage to the plant. I would like to assure my hon. Friend the Member for Leigh (Mr. Tinker) that I join with him in expressing the hope that this Clause will not be misunderstood. The only protest I make to the Chancellor is that he should make such provision as will insist that whatever is repaid is not taken out of the industry but is put back into the business and on no account paid out in dividends, bonuses or profit sharing among directors.

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

CLAUSE 20—(Borrowed money to be treated as capital.)

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

Mr. Spens

I wish to raise a particular point on this Clause which I hope will be appreciated by some of the hon. Members who have just spoken. This Clause introduces a new system in Excess Profits Tax collection, and it is a system which, in the great majority of cases, will be of advantage to industry generally as regards borrowing money. But there is one particular class of case on which it will fall hardly, namely, the class of industry largely found in the north—in Liverpool, Manchester and elsewhere—which has a comparatively small amount of capital but in fact finances the whole of their industry by loans from banks on the deposit of documents of title to the stock which they are buying. You are bound to get a case where in a standard year you have a company with a large sum of money on short term from the banks, and as the bulk of the commodities of these industries has now been commandeered by the Government, with a result that their business is no longer possible, you will have in an accounting period an absence of any borrowed money.

When you come to work out the arrangement under the original provisions of this Clause, you will find that the result will be that these companies will be very much worse off than they were before. It will result in the taking of the whole of their profits, so far as one can see, except the minimum under the minimum Clause. No alteration in the basis of taxation can be valid if it creates injustice of that description. I am sure this is a matter which on consideration can be dealt with, and I raise it so that my right hon. Friend can look into it between now and the Report stage to see whether the case of that particular class of companies can be made fairer than it is now. The Clause is retrospective, and I think it will lead to serious difficulty unless some further provision is made to meet that case.

Mr. Hammersley

I think there will be general agreement on the principle of this Clause, but I want to reinforce the remarks made by my hon. and learned Friend the Member for Ashford (Mr. Spens). It is obvious that, at times like the present, when certain industries are being pressed to extend, the view that borrowed money should be treated as capital is a correct one. But just as present circumstances force some businesses to extend, the concentration of industry forces other businesses to contract. It may very well be that a business which a few years ago required a large sum of borrowed money in order to carry on, now finds that, with the restriction of its enterprise, it has very little necessity to borrow from the bank. Consequently, the result of this Clause will constitute a hardship for such businesses. Their profits standard, by reason of the fact that they have decreased the quantity of borrowed money between the standard period and the year of assessment will be less. I feel certain that it is not the intention of the Chancellor to take anything away from the taxpayers by this Clause. He wants to give concessions to those who are forced to extend their businesses. I hope that between now and the Report stage my right hon. Friend will find it possible to add some kind of proviso the effect of which will be that the position of any taxpayer will be no worse by reason of this Clause.

Sir George Broadbridge (City of London)

I am entirely in accord with my hon. and learned Friend the Member for Ashford (Mr. Spens). It seems to me that the chief concern in this Clause is the possibility that certain firms will be very badly hit which have already suffered a great deal through the economies of the war. It is possible also that under the Clause there will be created a liability as from 1st April, 1940; in fact, I think it is practically certain that that will be the case. When the war is over, every effort will be needed from our merchants, dealers and others, for the rehabilitation of trade and industry, and therefore, we must be very careful in whatever is done now that these men and firms are not allowed to suffer so that they are absolutely incapable of resuscitation when hostilities terminate. I ask my right hon. Friend the Chancellor to give attention to the very lucid remarks made by the hon. and learned Member for Ashford and to see whether something can be done in this matter between now and the Report stage.

Mr. Woodburn

There is one point I would like to put to the Chancellor in connection with borrowed money. It appears that a firm would lose only if it were earning a higher dividend on its own money than the interest it was paying to the bank on its borrowed money. For example, a company which was able to pay only 2½ per cent. on its own money and was paying 5 per cent. to the bank on borrowed money would clearly be in a better position under the Chancellor's proposals, whereas if it were paying 10 per cent. on its own money and 5 per cent. on its borrowed money, it would depend on the proportion of borrowed money to capital whether it would benefit or not. I do not know whether the hon. and learned Member for Ashford (Mr. Spens) had in mind any particular firm or whether he was stating a speculative case, but it seems to me that he did not give any concrete example which would justify the Chancellor in making a change in the position.

Sir K. Wood

Perhaps my hon. and learned Friend the Member for Ashford (Mr. Spens) will let me have particulars of the case he has defined, and I will examine it, without, of course, giving any undertaking in the matter.

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

Clause 21 ordered to stand part of the Bill.

CLAUSE 22.—(Addition to standard profits in the case of concerns producing certain metals and oil.)

Brigadier-General Clifton Brown

I beg to move, in page 21, line 45, after "includes, "to insert:

the ownership of minerals, clay, brick-earth, limestone, stone, chalk, gravel, or the mining, quarrying or getting thereof from mines or quarries or. There are two points which arise from this Amendment. The first relates to ownership. It is difficult to see why a private owner should not get the additional standards of profit as in the case of others. If he is a collector of rent or royalties, he has a wasting asset. All the mining companies put away money to make up for the loss of capital which is going on all the time. If the mine was privately owned, the owner would be taxed on his income, whereas in the case of a company there is Excess Profits Tax, which a private owner does not have to pay. The second point is this: Why is the Clause confined to mining of any metal or the getting of oil from oil wells? Why not include other industries necessary for the prosecution of the war, such as brick-making, limestone quarries and others? After all, there is nothing which is more important to the nation than bricks, and although many small firms have gone out of production, there are others which are carrying on, and I think they should be entitled to the same consideration. Perhaps we might have an answer from the Chancellor of the Exchequer on these two points.

Sir H. Williams

I have a series of Amendments on the Order Paper which are not quite identical to the Amendment of my hon. and gallant Friend the Member for Newbury (Brigadier-General Brown), but which raise the same question. I have been urged by some of my constituents to bring before the Committee the problem of those engaged in quarrying, sand pits and ballast pits, where, of course, all the time you are removing capital, which is being treated for the purposes of Income Tax as if it were income. It is exactly the same principle as is dealt with in the Clause in relation to oil getting and certain classes of mining. It seems to me that it is bad enough that you should be called upon for the purposes of ordinary taxation to treat capital as income, but when there is an Excess Profits Tax in operation the burden becomes much greater. The position of some of these people is aggravated by the fact that because of war circumstances they will produce, during the war period, more of these products, as a result of which a larger proportion of their capital assets will have been used up, in spite of the fact that they are treated as if they were income. It seems to me fundamentally unjust. [Interruption.] The hon. Member and I may differ as to whether you should have 100 per cent. Excess Profits Tax or not, but that is a tax on profits. What I am dealing with is the case in which you take a capital asset and pretend that it is a profit when it is not. In some cases a man has paid a substantial sum for a field, knowing that under it there is a. great quantity of sand. At the end of the period he ought to have stored up enough capital so that he can buy another field and have another sand-pit. But that is not the case. Part of the capital value is to be appropriated. A concession is made to one set of people but not to another. If you are dealing with wasting assets, you ought to treat everyone alike.

Sir K. Wood

Various representations have been made to me that some special consideration should be given in cases which are of exceptional importance to the prosecution of the war. I have endeavoured to meet that situation and the Clause provides for the granting of an allowance to concerns engaged in raising metal or oil, which are of exceptional importance for the prosecution of the war where it has been essential in the national interest to increase the output above the normal rate. Of course, the danger always is that when you make an exception of that kind a number of others come along and ask why they are not included, which is sometimes rather discouraging, when you are endeavouring to meet a special case. I had in mind matters which are really essential to the prosecution of the war and I have endeavoured to meet that situation, I hope with satisfaction to those concerned. Now my hon. Friend comes along and says, "What about all the others?"

Sir H. Williams

Concrete is as important as steel.

Sir K. Wood

You cannot put that particular category in the same class as others of really exceptional importance.

Sir H. Williams

Why is it more important to have steel than to have concrete? You cannot carry on the war without both.

Sir K. Wood

I am not confining myself to that defence alone. One of the reasons why I am giving this exceptional treatment is that in the cases I have in mind there will be very exceptional exertions, coupled with a shortening of the life of the industries concerned, which does not apply to the cases indicated by my hon. Friend. Some of those whom I am endeavouring to help will be very seriously affected by the exceptional efforts that the Government expects them to make. I do not think anyone will say that quarrying and concrete will be knocked completely on the head and will not be able to continue business after the war. I have made this differentiation and I have endeavoured to meet exceptional cases in which the Government are asking for exceptional efforts and there is likely to be a considerable adverse effect. But I must ask the Committee to stand by me, and not to agree to have dragged in everything else. That would defeat the object which the Government have in mind, and would not deal fairly with the situation.

Mr. Woodburn

I would like to support the Chancellor in rejecting the Amendment because ownership in itself contributes nothing to production. While the ownership of metals and so on should be brought in, it is not a stimulus to the production of metals at all. If the Chancellor had asked the hon. Member for South Croydon (Sir H. Williams) why this exception should be made, the hon. Member himself would have given perfectly sound reasons, but it is obvious that concrete, limestone, clay and so on are all produced in this country normally and there is no need to apply any stimulus to their production. On the contrary we have normally to import our iron and oil. Therefore, it is the business of the Chancellor to stimulate the production of these things at the present time as an exceptional task. That places them outside the category of any of the other minerals mentioned in the Amendments. The Amendment seeks to include the ownership of minerals, clay, brick earth, limestone, gravel, and so on, but there is no justification for including ownership because ownership contributes nothing to the essential necessity of stimulating production. These things require no extra inducement because, presumably, they will get their normal inducement.

Amendment negatived.

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

Sir G. Broadbridge

Metal mining and oil-getting companies, notwithstanding the concession of the Chancellor, feel a considerable amount of anxiety on account of the complicated conditions which art-set out in the Bill. It is probable that the Chancellor can give some intimation as to how it is proposed that these conditions shall be carried out, so that their anxiety may be allayed. I feel sure that while they are thankful for the concession, they would be still more grateful if they could learn that the conditions that are to follow will not mean that the concession will result in no benefit to them.

Mr. Stokes

In so far as this Clause covers any concessions to the gold-mining industry, I wish to enter a short protest to the Chancellor of the Exchequer. It is specifically stated in subsection (1) that it must be in the national interest that the work should continue. I have endeavoured in the past to explain to the Chancellor why it is in the national interest that the output of gold should stop and no encouragment be given to the efforts of those people who are producing something which, ultimately, is utterly useless and has already been over-produced so far as its commercial use is concerned. I merely wish to enter that protest to the Chancellor of the Exchequer, and hope that between now and Third Reading, he will make a special exception of gold-mining companies.

Sir K. Wood

I will duly note my hon. Friend's protest and give it consideration. I should like to give an assurance to my hon. Friend the Member for the City of London (Sir G. Broadbridge) on the matter which he has raised. I have observed a certain amount of apprehension lest the conditions which we have laid down in this Clause may be made so difficult and complicated that a good deal of the benefit which we desire to give, will be taken away. The matters to which my hon. Friend has referred have to be dealt with by Regulations, and I will undertake, before those Regulations are made, to have a conference with the interests concerned. In fact, I shall be glad to do so, because this is a difficult technical matter which obviously could not be discussed with them before I had made my proposals to the House of Commons. Now that the proposals are known and have been put forward in the Bill, there can be consultations, and I hope that as a result we shall show there will not be the difficulties and the delays which were at first apprehended owing to the rather complicated nature of the Clause and the conditions. Therefore, when the House of Commons has approved this matter finally, I will take steps to see that the interests concerned have, at any rate, the opportunity of putting their views forward with a view to seeing that the desires of the House of Commons in this matter are fairly and properly interpreted in the sense that the greatest benefits that we can give to the concerns affected shall, in fact, come to them.

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

Clauses 23 and 24 ordered to stand part of the Bill.

CLAUSE 25 (Power to recover where expenses of payments for services are disallowed in computing profits.)

The following Amendment stood upon the Order Paper in the name of Mr. SUMMERS: "In page 26, line 24, to leave out 'forty,' and insert 'forty-one'."

The Chairman

Before the hon. Member deals with his Amendment, I think I ought to call attention to a point of which I believe he is aware. I was inclined to think that this Amendment was out of Order because it was in the wrong place, and that if he wanted to make this alteration from "forty" to "forty-one" he must make it on the previous page, but I understand that he does not agree with that view, and so I give him the opportunity of explaining why he wants to make the alteration here and not on the previous page.

Mr. Summers (Northampton)

I beg to move, in page 25, line 3, to leave out "forty," and insert" forty-one."

I was going to refer to that point. I was advised that the alteration on page 26 would accomplish the object which I had in view, but in view of what you have said, Sir Dennis, I should be more than happy to have it altered and to move the substitution of the word "forty-one" in page 25, line 3. The Clause, as it stands, gives to a company a right to reclaim from a director or one of its staff money which it has paid last year in excess of that which the authorities regard as reasonable. The object of this Amendment is to to deprive the company of that retrospective right to reclaim the difference between the two sums. It in no way seeks to improve the position of a company which may be thought to be evading its financial responsibility by dissipating profits before taxation. I urge the Amendment on grounds first of principle, secondly of equity and thirdly of hardship.

On the question of principle, the Committee has, in the past, registered its dislike on several occasions of retrospective legislation and has consented to that course only where it has been satisfied that the national interest had a paramount claim. I suggest that in this instance there is no national interest involved to warrant retrospective legislation. It may well be that the Clause was drafted as put down because of the position in certain companies, who had an intolerable burden as a result of tax-free contracts. We have already learnt that that burden will be dealt with separately, so that, if that were the reason for the retrospective right, it seems unnecessary to deal with it in the Clause when it has already been dealt with elsewhere.

On grounds of equity I would point out that, in cases where the recipient is an entirely innocent party to an extravagant payment—as viewed by the referees—the effect of the Clause will be to transfer the penalty from the company, who may, for illustration, be described as guilty— I do not mean to imply necessarily any improper motive—to the recipient. It may well be that an innocent person will, as a consequence, pay that difference, which should properly be paid by the company. Where the recipient is in collusion with the company to evade financial responsibilities, the effect of the Clause gives only rights and is not compulsory. It will merely mean that those rights will not be exercised. Whether the recipient is party to an improper arrangement or not, the Clause does not in any way ensure justice.

On grounds of hardship I would point out that it will not be infrequent for the person from whom a company wishes repayment of the money paid last year already to have spent that money. He may be called upon—after all, directors of companies have responsibilities to their shareholders—to give back £2,000, £3,000, or £4,000 or whatever may be regarded as the difference between what he received and what the authorities have regarded as profit. There seems no justification, either from the Treasury point of view or the national point of view, for subjecting individuals to that position. For that reason, I urge the Chancellor of the Exchequer to see his way to accept elimination of the retrospective right by altering the beginning of that right from 1940 to 1941.

Captain Crook shank

When an Amendment is advanced on grounds of principle, equity and the hardship involved, if it is not accepted, it is very difficult for my right hon. Friend to persist in the words of the Bill. My hon. Friend is quite right in his description of the Clause. When there has been disallowance on grounds which are in the existing law—in Section 24 of the Act of 1940—the question at issue is, who should pay for the disallowance? The Clause, is it stands, enables a trader to recover from the recipient excess allowance in respect of directors' fees, and payment for services, in so far as his, that is to say the trader's, liability is increased? Everybody must agree with that as a proposition. The only point at issue is whether it should or should not apply to the year after the end of March, 1940, which is in the Bill, or 1941, as proposed by the Amendment. As there is an element of retrospection in the words of the Bill, my right hon. Friend is prepared to accept this Amendment. I would point out that it is also involves, as a consequential Amendment, the insertion of the word "forty-one" on the next page.

Amendment agreed to.

Further Amendment made: In page 26, line 24, leave out "forty" and insert "forty-one."—[Mr. Summers.]

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

Mr. Ellis Smith

I wish to raise very briefly a question about which the Chancellor committed himself. Those whose interests are involved have not yet seen a statement where he has put that promise into effect. It is difficult to find a Clause on which this could be raised. I think that this is the one. The Chancellor will remember that in February this year he made a statement to the effect that where capital expenditure had been incurred for canteens it would rank for relief from Excess Profits Tax, and he added that he intended to make proposals in order that an allowance of relief could be made for the purpose of Income Tax and N.D.C. It was understood at the time that the expenses incurred by a trade in the maintenance of canteens would be allowed for. The Chancellor made a statement, and we would like to know whether this is in the Finance Bill. He will be aware that the Minister of Labour is going about the country advocating the provision of canteens. It is a big step in the right direction. It will have to be developed more and more. Those interested and affected would like to know where this is in the Finance Bill.

Sir K. Wood

If the hon. Member will look at the Third Schedule, on page 36, he will find that an Amendment has been made there.

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

CLAUSE 26.—(Transactions designed to avoid liability to Excess Profits Tax.)

Mr. Denman (Leeds, Central)

I beg to move, in page 26, line 33, to leave out from "that," to the first "they," in line 37, and to insert: liability to Excess Profits Tax has been improperly avoided or reduced by means of any transaction effected either before or after the passing of this Act. I do not think that this Amendment need take long, because with the purpose of this Clause I believe the Committee as a whole is really well agreed. The question is whether the purpose will be achieved in the best way. As the Chancellor said on the Second Reading, this is, of course, a very drastic proposal. It practically says to the Revenue that it can compel the. bad taxpayer to play the game. That is what we want, and the only matter is whether the method is the best one. I believe it is to the interest of the good taxpayer that a drastic provision of this kind should be inserted in our laws. Just as in the Factory Acts it is the good employer and worker and the State in general who benefit by the provisions of the Act, so I think the good taxpayer will certainly benefit if the tax dodger is properly chained. I hope that by this Clause we shall succeed in chaining him.

The actual words of the Clause I suggest, are open to objection. I raised the point on the Second Reading. The objection is that the Clause as it stands does seem to include a great mass of entirely innocent people with the people whom we all want to catch. I pointed out, and I think it is true, that anyone who is to be liable to Excess Profits Tax and is incurring expenditure which will come out of the increased profits of his increased business knows he will thereby be reducing his liability. He will know that perfectly well, and if you know that a certain course of action is bound to produce a certain effect, you cannot possibly argue that that effect is not among the purposes of your action. In these cases —a very large mass of cases—the Commissioners would have to hold, in the words of the Clause, that one of the purposes was the avoidance or reduction of liability to Excess Profits Tax. There you would have a man who might be wholly innocent and who had incurred a perfectly proper expenditure brought within the tax-dodging Clause. I shall, of course, be told that the Commissioners need not make any adjustment in the tax, that the power to make adjustments is purely permissive, and that they need. not do it if they do not want to. That is true enough, but what will be the considerations which will induce the Commissioners either to make or not to make adjustments? They will not make an adjustment if they think the expenditure is legitimate. They will make an adjustment if they think the-expenditure is an improper method of avoiding taxation. That being so, I suggest that the simple thing is not to bring within the Clause a great mass of people you do not want to get there, but to tell the Commissioners directly what it is they have to consider, and, in the words of my Amendment, say that where the Commissioners are of opinion that liability to Excess Profits Tax has been improperly avoided or reduced by means of any transaction effected either before or after the passing of this Act, they may make adjustments. That is putting the direct question. It is far better that they should examine the facts than that they should try to examine the motive of the taxpayer. The motive of the taxpayer is not, I should have thought, a very convenient subject for the Commissioners to investigate; at any rate, it is not an easy one for them to decide. Let them take the facts of the case and eliminate the motive of the taxpayer altogether. I believe that some words on the lines I have suggested would form a simpler and more effective method of achieving the purpose.

Sir H. Williams

I think the whole Committee are agreed as to the necessity of a Clause for this purpose, but, even with the words proposed by my hon. Friend, the Clause will still be unsatisfactory, although better. What is the direction to the Commissioners if this Amendment is accepted? They have to deal with improper avoidance. What does that moan? It does not mean anything. The Commissioners must be of the opinion that a crime has been committed, but the crime has not been described, and it is very difficult to describe. I therefore say that the Clause as it stands, and even as amended, will not be a satisfactory document. It is like the old phrase we used to argue about, "genuinely seeking work." We had to examine the state of mind of the applicant for unemployment benefit, and here you have to examine the mind of directors. Let me give an example. Let us take a private limited company, or at least a company which is under the control of the directors, and whose standard for the purposes of the Excess Profits Tax has been ascertained by a reference to its capital. I find it difficult to remember all the provisions of these Acts, but in such a case only a certain amount is allowed for directors' fees.

Let us assume that there are three directors and that it is not necessary to have more than two—and further let us assume that one of them dies or retires, so that the question arises as to whether the manager shall be put on the board. If he is put on the board, some of the Excess Profits are lost, because his salary is no longer a chargeable expense. In those circumstances, accordingly, no one in this room would put the manager on the board. They say that it is going to save them £500 a year. Is that an improper or imprudent act? Is it still true, as the judge advised in a certain notable case, that the citizen is entitled to arrange his affairs in such a manner as to attract the minimum of taxation? That is a true principle. We are not entitled to depart from that because we are desirous of stopping really improper transactions.

May I give another example? A great many manufacturers have been asked by the State properly to make things outside their normal line of business. Many people for quite proper reasons run separate departments of their business because they are rather different in character, through the agency of more than one limited company. These companies may be closely linked, or one be the subsidiary of the other, or they may be quite separate though the ownership and management are substantially the same. A man has two separate businesses. He is invited by the Government as an individual to make this, that or the other, and ultimately, as he has had the right kind of experience, he says that he will do so. Superficially, it is a matter of indifference whether the contract is placed with firm "A" or "B." They both belong to Mr. Smith. Naturally, he will choose the company which will look better so far as Excess Profits Tax is concerned. His reason for placing the contract may be a different one. He may say that firm "A" is more suitable for the job, and he will have the contract put into the hands of company "A," but by so doing he may retain more profit than if he places it with company "B." Is that a proper transaction, and what are the Commissioners going to do?

These are two typical examples quoted to me by the chairman of a company who is a leading constituent of mine. They have two businesses extraordinarily different in character, one with a large works in the country and the other with smaller works. The one deals with the import of certain products, and the other puts them through certain processes. The same people own both companies. The point might arise whether they would be unfairly treated because the Commissioners were of opinion that they had diverted some transaction from one company to the other for the purpose of avoiding taxation.

Sir F. Sanderson

Is the one a subsidiary of the other?

Sir H. Williams

They are not subsidiary companies. They are associate companies, but independent entities; the directorate of both is substantially the same, and there is a substantial common shareholding. Beyond that they are absolutely separate companies, and no one can say that one is a subsidiary of the other, though they share the London office for convenience. The question of the category comes into this matter. There comes the problem arising out of increased remuneration. I believe that I am a beneficiary of the Excess Profits Tax to the extent of a few guineas per annum. On one occasion the chairman of a company of which I am a director wanted to have a meeting. There was only one item of business that mattered. He said that he did not think it was necessary for me to travel 200 miles to town and that he proposed to do so and so. This is many months back now. He proposed to increase the salary of the works manager which had been thoroughly well earned and the salary of the secretary, which was also well earned. They had their meeting, and I was deemed to be present. When I got the minutes I found that they had put up my salary under the service agreement. I was delighted and went on my knees, figuratively speaking, and thanked the Chancellor of the Exchequer for Excess Profits Tax. Although I think I thoroughly earned this increase, the Chancellor will get the bulk of it back.

Sir K. Wood

I shall have to look into this.

Sir H. Williams

I will not give the name of the company, but it will not make much difference, because the Chancellor will get most of it back. I have only temporary custody of it. I regard this Clause as of the greatest possible importance in its connection with what we have called legal avoidance, but what I might call legal evasion. We ought not to ill-treat people because in the opinion of somebody an undefined crime has been committed. Therefore, I hope the Chancellor will accept the Amendment, but will further examine the Clause when it is amended in order that clearer guidance may be given to the Commissioners as to what action they should take.

Mr. Woods

The hon. Member for South Croydon (Sir H. Williams) referred to improper avoidance. That phrase does not appear in the Amendment. The Clause speaks of avoidance and whether there is avoidance or not rests on somebody's opinion. But personnel may change from time to time, and you may get a variety of opinions. There is a number of additions one could make to the illustrations which have been given. For instance, the Co-operative movement has been built up largely on the idea that profits should be returned to the people from whom they are taken—that is the very essence of mutual trading—and that fluctuates according to the amount of profit. It might easily be argued that the dividend or bonus should be increased specifically to avoid paying Income Tax. That might be the opinion of a Commissioner, and while I am as anxious as anybody in this Committee to see that improper avoidance, manipulation or indulgence in transactions which are mainly paper transactions, should be stopped, in legislation of this kind it is vitally important for the proper conduct of industry that it should have something more specific to work upon than somebody's opinion. I hope, therefore, that before the Report stage there will be modifications, so that there will be no doubt as to what is intended.

The Solicitor-General (Sir William Jowitt)

This is an important Clause. It is a Clause for which some of us have hoped for a long time. It has been the experience of Law Officers day after day to listen to most ingenious schemes pro pounded by people who have now become specialists in argument and who receive a percentage of any reduction of tax—

Mr. Tinker

Dodge money.

The Solicitor-General

We have had, in consequence, in every Finance Bill—I am dealing with Income Tax for the moment —to put forward a whole series of Clauses so complicated that, speaking for myself —and I spend a great part of my time studying these things—I find them exceedingly difficult to understand. When we have propounded a new Clause, some more ingenious person comes along with new devices, and if it had not been for the ingenuity of tax dodgers—if I may give them that description—our Finance Acts would have been far simpler and the whole structure of our Income Tax law would have been simpler than it is to-day. We should not have been put in the position, in which we are to-day, of having to make this perpetual chase, then somebody trying to find a hole and then the Chancellor having to come along and tie up the hole in the net. It is a difficult thing to leave anything to a person's discretion, because once you do so, you leave it also to his indiscretion. It is, of course, conceivable that, with regard to the case which was put by my hon. Friend the Member for Finsbury (Mr. Woods), there might be some tribunal so ill-advised as to come to the conclusion that the sort of incident he has in mind was meant to be ended by this legislation.

Mr. Woodburn

Does not my right hon. and learned Friend agree that under Regulation 18B we have entrusted the liberty of the subject to the discretion of a tribunal, which can put a person away until the end of the war? Surely, there is no greater danger in entrusting this matter to the discretion of a tribunal.

The Solicitor-General

One always likes to have a code clearly denned rather than to leave the matter to discretion. I should like to give a few illustrations. A person finds a company with a very big deficiency, below its standard, and buys it up, amalgamates with it or buys all the shares, and in that way puts up his own standard. There may be a series of five farms, with a standard of £300 each— a total standard of £1,500; each may be made into a company and at once the standard goes up to £1,000 each—that is to say, £5,000. I think the whole Committee is in agreement with what we are endeavouring to do. The difficulty is to find the perfect words with which to do it, and it is very much easier to criticise other people's words than to suggest appropriate words oneself. For instance, my hon. Friend the Member for Central Leeds (Mr. Denman), who moved the Amendment, used words which wholly miss the point. He used the word "improperly." He would allow the tribunal to disregard devices improperly arranged. [HON. MEMBERS: "To regard."] It depends on the way one looks at it—to disregard from one point of view, and to regard from another. But as long as a device is carried through legally, it is proper. However artificial it may be, as long as the documents which carry it through are genuine and not fictitious documents, it is a proper device, because one is entitled so to arrange one's affairs as to attract the minimum amount of tax. However bizarre, however artificial, unnatural, and unreal the transaction one enters into may be, and even though the sole motive in entering into the transaction is to reduce a tax obligation, it is not improper as long as one does not put forward bogus documents or anything of that sort. If the transaction is improper in that sense, it can already be dealt with adequately. I understand what my hon. Friend seeks to do in his Amendment, and I am in sympathy with it, but unfortunately, the form of words he proposes would have no effect.

Mr. Denman

May I point out that I do not refer to an improper device, but only to a transaction that causes an improper avoidance or reduction?

The Solicitor-General

It comes to the same thing. If a man enters into a wholly artificial transaction designed solely for tax avoidance, has he improperly avoided tax liability or not? The answer is that as long as the document was not fictitious, the man was entitled to do it. He has done that which is legal, and he has not improperly avoided taxation. Therefore, while we cannot consider for a moment the use of the word "improper," we will certainly look at the matter again. I would point out that looking into the motives of the taxpayer is not unknown. The hon. Member for South Croydon (Sir H. Williams) will remember that in dealing with Surtax under the Finance Act, 1936, in regard to the formation of foreign companies, we are entitled to look into and consider what were the motives operating in the taxpayer's mind when he formed such a company. On the whole, that procedure has worked very satisfactorily and has stopped tax avoidance. This Clause, or a Clause on these lines, may do a very great service. It will do the best service if it never has to be used. If it stands there, the tax-dodger may in consequence think it is no good going to experts and incurring expense, because, if he does so, and adopts these artificial devices, then this provision may come in and sweep it all on one side. I make no promise to the Committee, but I will look into the matter again.

Sir H. Williams

Co-operative societies are assessed for Income Tax, broadly speaking, on what is left after they have paid out what is commonly called "divi" to purchasers. They are liable to Excess Profits Tax like anyone else, but what happens when a co-operative society seeks to evade Excess Profits Tax by increasing its dividends to purchasers? Would the decision of the board of a co-operative society to increase "divi" on purchases, so as to limit Excess Profits Tax, be regarded as one of the transactions coming within the scope of this Clause, and if not, why not?

The Solicitor-General

Obviously not, I should have thought. It is not an artificial transaction, and is not designed solely for the purpose of tax-dodging. If I had to judge a case of that sort I should certainty say it was not.

Sir H. Williams

Supposing the normal rate of "divi" was a penny in the shilling, and that in the year when they found they had this substantial Excess Profits Tax to meet, it was increased to a penny-halfpenny in the shilling. I think it would be perfectly clear that that was done for the purpose of tax avoidance, and if so I want the co-operative society to be as justly treated as anyone else.

Mr. Woodburn

If that applies to the co-operative societies, it would automatically apply to firms who might normally have increased their prices to the Government, but who, because the Government are charging Excess Profits Tax, have not done so; therefore, because they do not increase their prices they are adopting a device to avoid paying Excess Profits Tax.

Mr. Benson

Is it not a fact that co-operative societies are not assessable for Excess Profits Tax? If they were, on what basis would it be?

Mr. Edmund Harvey (Combined English Universities)

I think the Committee is indebted to the Solicitor-General for the assurance that he will look into the wording of the Clause. The whole Committee is, I think, as he has said, at one with the Government as- to the objects of this Clause. I feel, however, that the hon. Member for Central Leeds (Mr. Denman) made a real point in his Amendment. It would be of great value if the Government could find a form of words which would place the onus on the nature of the transaction instead of on the motives. If it were possible to find a form of words which would give the substance of the Amendment, it would be a great satisfaction to many who are entirely with the Government in the object in view.

Mr. Woods

The reply of the Solicitor-General still leaves this matter for interpretation by individuals. I am certain that the Committee is unanimous about the end desired. In the previous Clause, under which complications arose, a safeguarding sentence was inserted providing for cases in which there is an established practice or custom, and from the reply that we have had, it is, obvious that the main intention is to put an end to this chasing and dodging for ever. That is to deal with new manoeuvres, but where there are established trade customs which have been going on for years, it seems to me that a Clause providing for their continuance would probably meet the position and allay anxieties and fears.

Captain Strickland (Coventry)

I am, indeed, disturbed by the attitude that has been taken by the Solicitor-General with, regard to the purpose which the authors of the Amendment had in mind when they put it down. What are the Government aiming at in their proposal? They must be aiming at those who improperly avoid the payment of tax, and when we find this Amendment resisted by the Treasury we must be led to the point of view that the Chancellor of the Exchequer is endeavouring to put into the Bill something which does not apply in the ordinary legislation of the country, because he is now trying to place in the power of the Commissioners what is described as a discretion in dealing with these taxes. But when the Treasury resist the idea of inserting any sort of definition in terms of an improper transaction it leads one to suppose that no one dealing with the financial side of business will be safe from this discretion of the Commissioners

On many occasions I have been somewhat puzzled by the persistence with which in Acts of Parliament the word "may" is inserted. I have often asked that it shall be altered to "shall," but have always been assured that "may" carries with it the implications of "shall." The Clause provides that where the Commissioners are of opinion that there was an avoidance, not an improper avoidance, "they may, if they think fit," make certain directions, which, in the terms generally understood, means that they shall do so. That puts a very different stress on the duties of the Commissioners. But if it is a transaction which avoids the payment of tax, the primary stress "Is put on the Commissioners to take such steps as they can to recover, if they think fit, when the word "may" will be regarded in the light of "shall" In any case it is a puzzle to me why the Government, with their power of consultation, profess that they are not as clever as these other people in getting rid of this avoidance of payment of taxation.

Mr. Magnay (Gateshead)

Does the hon. and gallant Gentleman want to make the oversight of the Commissioners more strict or does he not? Does he mean "shall" or "may"? He says if it is "may" there is discretion, and if it is "shall" there is no discretion.

Captain Strickland

I thank my hon. Friend for the interruption, because it is just the point that has led to the putting down of the Amendment to leave out this Clause. Many of us feel that this is a fresh departure in legislation and that such great power should not be in the hands of the Commissioners to take these proceedings where they think fit where a transaction has been done in good faith. We cannot legislate against a crime unless we specify the crime, otherwise we might give power to any court to proceed against people for all sorts of crimes against which there was no law. I hope that this Clause will be cleared up so that a fresh burden of worry will not be put upon industry through their having to consider whether every transaction they make may be deemed to be an avoidance of tax.

Mr. Woodburn

There is a mistaken idea in the Committee that we never pass legislation that leaves matters to some body's discretion. Everybody who has fought an election knows that what is a corrupt practice eventually depends upon the opinion of some tribunal. One action committed with one motive might void the election, but another action committed with another motive would not be corrupt. In regard to Regulation 18B we have left the liberty of the subject to the discretion of a tribunal. If that tribunal thinks that some person is likely to commit a crime prejudicial to the country—

Captain Strickland

When the tribunal deals with a man's liberty it does not make a criminal of him, but if the Commissioners proceed against a respectable business there is a feeling that the company is not respectable.

Mr. Woodburn

Regulation 18B may not make a man a criminal, but it puts him in gaol. His liberty may be taken away and he may be put in prison until the end of the war at the discretion of a tribunal. There is no need for the House to worry about a few matters on pounds, shillings and pence if they pass on such tremendous powers over the liberty of the subject to the discretion of a tribunal. This matter can safely be left to the discretion of the Treasury.

Sir K. Wood

Some of my hon. Friends have intimated that it is inconvenient to remain longer, and I want to get as far as the new Clauses to-day. There are only two more Amendments. I would suggest that the present matter should be left in this way. Except for my hon. and gallant Friend the Member for Coventry (Captain Strickland) everybody has agreed that a Clause of this kind is necessary, and has endeavoured to support the position that people cannot be allowed to go on as they did before. I thought that the Solicitor-General made a complete reply to the wording of the Amendment. It is difficult for anyone who has not a Parliamentary draftsman at his elbow to draft an Amendment, and one can understand the difficulty of putting such an Amendment down. There is also an Amendment on the Paper suggesting that instead of the board of referees the Special Commissioners should be substituted. I am doubtful whether in the interests of trade and industry that Amendment would be desirable. In fact, the Board of Referees to which this matter could ultimately be taken is composed for the most part of men of business, and it may very well be the answer to many difficulties which have been brought forward this afternoon to say that the tribunal will not be a tribunal composed of lawyers but a tribunal of business men.

Between now and the Report stage I will consider this matter and, if necessary, consult with my hon. Friends who are specially interested in it to see whether one or two Amendments cannot be made to meet their points, so long as we maintain the spirit and intention of the Clause. I desire to see the Clause in some better form and should be only too glad to improve it with the assistance of the Parliamentary draftsman. If my hon. Friend would be good enough to withdraw his Amendment I think we could complete the consideration of the Clause now on the undertaking which I have given.

Mr. Denman

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Sir F. Sanderson

My right hon. Friend the Chancellor referred to an Amendment which was down in the name of another hon. Member and myself in which we asked for the Board of Referees to be replaced by the Special Commissioners of Income Tax. In view of what my right hon. Friend has said, that the matter will have his consideration between now and the Report stage, I intended to withdraw that Amendment.

The Chairman

I assumed that, and therefore did not call it.

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

Clauses 27 and 28 ordered to stand part of the Bill.

CLAUSE 29.—(Amendments as to exceptional depreciation).

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

Mr. Stokes

I want on this Clause to raise the question of exceptional depreciation, and to ask the Chancellor between now and the Report stage, to reconsider the whole situation and certainly to consider a revision of the schedule of agreed rates of depreciation. I make this request for four or five reasons. The first is that plant and machinery are being run for 24 hours a day for long continuous periods, with very little chance of attention being given to running repairs, and in the heavy industries particularly the machine tools are now required to be used with much harder material and are subject to a much more severe strain than they have been expected to stand in the past, a strain which it is almost impossible for us to measure. Added to that there is the fact that semi-skilled and untrained people are working with the tools, and perhaps the Committee will recognise what that means when I say that it is impossible to teach a man a job unless you let him do it, and in the process of doing it there is often a breakdown. I would also ask the Chancellor to apply his mind to the extraordinary fact that there is considerable variation in the rates of depreciation allowed in different trades for the same tools. In the aircraft and motor manufacturing industry they are using exactly the same tools as are used in the heavy industries, where such tools are ordinarily subjected to much more severe strain, yet those tools when used in the aircraft or motor manufacturing industry are allowed a greater rate of depreciation than in the heavy industry. That seems to me wrong. The rate of depreciation should depend upon the tool itself and the hours worked, regardless of the work to which it is put; but if there is to be any discrimination it should be in favour of those trades in which wear and tear is hardest. Nobody can contend for a moment that wear and tear in an aircraft factory or a motor manufacturers' concern would be anything like as heavy as in a boiler works or a heavy engineering concern.

My sole concern or idea in making this request is exactly that for which I support the excess profits repayment. It is that we should find, at the end of this war, our machine tools in a proper state of repair and adequate reserves to put them right, if opportunity has not occurred to do so in the meanwhile. To that end, I hope that the right hon. Gentleman will, in considering the matter make such provision as will ensure that whatever allowance is made will be invested in the machinery, so that all may derive the benefit to which they have a right when the war comes to an end. I hope also that he has heard what I have said. If he has not, I hope he will read it in the quiet hours of the morning.

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

Clauses 30 to 39 ordered to stand part of the Bill.

CLAUSE 40.—(Provisions as to permanent annual charge for the National Debt.)

Mr. Benson

I beg to move, in page 32, line 24, at the end, to insert: and in every subsequent year such sum as Parliament may hereafter determine. The effect of the Amendment would be that, instead of the Chancellor of the Exchequer having to introduce a Clause each year fixing the amount of his National Debt charge at a given sum, in place of the old charge, fixed some 20 years ago, he will be able to fix it as he thinks best, and not under some temporary cancellation of a previous sum. I would ask the. right hon. Gentleman to consider that point.

Sir K. Wood

I will give consideration to the point which the hon. Gentleman has raised. I am advised that, even with his Amendment, the right occasion for any change in the fixed debt charge for 1942 and subsequent years will be the Budget for 1942, supported by the Finance Bill. Therefore I will give careful consideration to what the hon. Gentleman has just said.

Mr. Benson

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

CLAUSE 41—(Amendment as to deficit for 1940–41.)

Mr. Benson

I beg to move, in page 32, line 44, at the end, to add: and the said Section shall hereafter cease to have effect. Here again, I will be very brief. The Clause appears annually, as a result of a provision introduced by Lord Snowden in the first year after the right hon. Gentleman the Member for Epping (Mr. Churchill) had been Chancellor of the Exchequer. Lord Snowden desired to rap the previous Chancellor's knuckles for general extravagance. It is rather amusing to remember that the first Chancellor of the Exchequer to suspend the provision was Lord Snowden himself in his next Budget, and the Clause has been suspended every year since. It is rather ridiculous that we should pass a Clause which has to be suspended annually. In view of the fact that the right hon. Gentleman for Epping is now our Prime Minister, it would be very nice if the Chancellor of the Exchequer could go to him and take a message from the House, saying "Thy sins are forgiven thee."

Sir K. Wood

I am indebted to my hon. Friend for the suggestions he made, but I would like to say a word on this proposal on its merits. I think it would be generally agreed that the 1930 provision is reasonable enough in itself, and that there is a great deal to be said for making the Government get Parliament's approval for the suspension whenever it is proposed to suspend. The third point I would make is that it might very well be held in certain quarters that we ought not to make the temporary conditions of war time the occasion of interfering unnecessarily with parts of our peace-time debt arrangements. Having said all that, I do appreciate what my hon. Friend has said and, as my own personal contribution to this discussion, I would say that in my judgment all these arrangements will certainly have to be reviewed after the war. It is purely a question as to whether we suspend to-day or not. I do not want to take power away from Parliament at this time, and I suggest that "my hon. Friend could perhaps be content with having made his point.

Mr. Benson

In view of the right hon. Gentleman's remarks, I beg to ask leave to withdraw the Amendment

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Clause 42 ordered to stand part of the Bill.

Ordered, "That the Chairman do report Progress, and ask leave to sit again."—[Mr. James Stuart.]

Committee report Progress; to sit again upon the next Sitting Day.