§ I now wish to say something about tax matters and industry. The Committee will remember that during the course of the Finance Bill Debates last year various questions concerning the incidence of Excess Profits Tax and Income Tax on industry came more than once under discussion. I invited the representatives of industry to enter into consultations with the Board of Inland Revenue. A series of discussions have taken place with representatives of the principal industrial and commercial bodies and of the accountancy profession, and they have covered many questions. They have been most useful, and progress has been found possible on a number of matters. One matter of major importance which was considered is the question of what is known as terminal losses—that is, the expenses or losses that may be involved in changing back from war-time to peace-time conditions. This is mainly an excess profits question, and it is recognised by industry that it is one which cannot be dealt with in detail at the moment and must be left over generally until after the war, but I think industry is entitled to an assurance—which I give—that steps will be taken to see that all the expenses of a revenue nature which have been incurred in earning the excess profits will be allowed as a deduction in computing the liability to Excess Profits Tax. This is done in the ordinary course where the expenditure actually takes place during the life-time of the Excess Profits Tax, but in certain circumstances it may happen that the actual expenditure takes 960 place after the termination of the tax. This, of course, depends essentially on the life of the tax.
§ A particular example, and one which it has been found possible to deal with on a provisional basis during the life of the tax, is the question of those repairs and renewals which have fallen due to be carried out but, owing to the exigencies of the war, cannot be carried out now, and are therefore being deferred until the end of the war. Industry has to put by a reserve to meet those expenses, but the law allows no deduction for such a reserve. In such a case it is the practice of the Inland Revenue authorities to hold a part of the Excess Profits Tax charge in suspense, and this is done in order to give immediate relief, as though the repairs and renewals had actually been carried out during the war. When, after the end of the war, the deferred repairs and renewals are in fact carried out, the tax held in suspense, after making any necessary adjustments by reference to the expenditure actually incurred, will be discharged. Discussions have taken place with a view to simplifying the procedure in this matter, and a satisfactory working arrangement has been come to. The form of procedure for claiming the allowance involved a special investigation, which absorbed an amount of expert time which industry could ill afford, and the Inland Revenue authorities have agreed to dispense with that detailed investigation and to found the provisional allowance on the measure of the repairs and renewals which were carried out annually before the war.
§ Another example is the cost of changing from war-time to peace-time conditions in regard to the lay-out of factories and the restoration of units which may have been dispersed. Any expenditure of this nature borne by the taxpayer in the change-over from peace-time to war-time conditions will already have been allowed for taxation purposes, and I have agreed that similar treatment should be accorded to the corresponding expenses, so far as borne by the taxpayer, in changing back from war-time to peace-time conditions, and that for the purposes of Excess Profits Tax these expenses should be related to the Excess Profits Tax period if it should happen that the tax comes to an end before the change back has taken place.961
§ There is another important question. The return of industry from war production to peace production may involve the scrapping of buildings, plant and machinery which have been provided as part of the war effort. The law already provides relief both for Income Tax and for Excess Profits Tax in respect of any loss so incurred, and I agree that this relief should not be confined to cases where the equipment is actually scrapped but should cover also any loss of value in the case where the equipment may continue in use.
§ Another matter which, I understand, causes concern with industry is the treatment of losses in the event of a fall in value of stocks occurring after the war. In the Excess Profits Duty of the last war there was special provision in regard to post-war stock depreciation in the Finance Act, 1921, and I can now say that I certainly recognise that, at the end of the Excess Profits Tax, it may well be necessary to consider the question of a similar provision. Consideration, however, of this question and the precise nature of the provisions which may be required must obviously be deferred until the end of the war, when it can be undertaken in the light of conditions then prevailing.
§ In addition to this question of terminal losses, there is the more general question of the incidence of the Income Tax on industrial profits, which has been represented to me as a matter of post-war fiscal policy of great importance in relation to post-war reconstruction. I have in mind, in particular, the position of profits that are not distributed but are ploughed back into the business, and the treatment of capital expenditure, for which no allowance is made in the existing taxation code. I agree that this and other questions call for the most careful consideration, and in fact very full representations have been made to me—[An HON. MEMBER: "I bet they have."]—by the representative bodies of industry, commerce and accountancy, who have already had discussions with the Board of Inland Revenue. I believe it will be most advantageous that discussions on these matters should be carried still further. The Committee will appreciate that it is not sufficient to consider these important matters on the plane of general argument alone. It is necessary to look closely at the facts, and, above all, to find out what 962 is the real effect of the tax provisions in actual cases over a period of time. That is why I hope, as the next step, to set on foot a detailed examination by the Board of Inland Revenue of the various matters which have been raised, for they are not only matters of moment for industry itself, but they have a wider importance in the general sphere of economic policy. This, of course, will take some little time, and the various matters will obviously, at the appropriate time, have to be considered by the Government and by Parliament.
§ One other matter which has been under consideration since last year is the treatment for Excess Profits Tax purposes of concerns operating wasting assets. Section 31 of the Finance Act, 1941, gives relief from Excess Profits Tax to concerns engaged in mining metal or getting oil in cases in which production has been accelerated in the interests of the war effort, with the result that profits are brought into the charge to the tax which otherwise would not have arisen until a later period, when the tax might no longer be in force. Similar conditions have been found to exist in the case of certain minerals, such as sand and gravel, and I propose in the Finance Bill to extend the relief to these cases also. I am also proposing to provide relief in cases where normal management practice, both in the mining of metals and in the getting of oil, has been departed from in order to accelerate production for the war, but in such a way that working costs after the war will be increased. The measure of relief to be given is necessarily rather complicated, and the Committee will not expect me at this stage to explain it in detail, as there will be an adequate opportunity of doing this when we come to the Finance Bill.