HC Deb 15 June 1944 vol 400 cc2266-76

Any person who shall, in any chargeable accounting period beginning at or after the end of March, nineteen hundred and forty-four, be assessed for that period to excess profits tax shall, notwithstanding any provision in Section thirteen of the Finance (No. 2) Act, 1939, or any amendment of that Section, be entitled to substitute seven per cent. on his sales turnover for that period as his standard for such chargeable accounting period.—[Mr. Higgs.]

Brought up, and read the First time.

Mr. Higgs (Birmingham, West)

I beg to move, "That the Clause be read a Second time."

This new Clause is on the Order Paper in the name of the hon. Member for Duddeston (Sir Oliver Simmonds), myself, and more than 70 other Members. The hon. Member for Duddeston is away on important war service and I move it in his place. The Chancellor in his Budget speech was sympathetic to industrial reconstruction. I could refer to many sentences. The Committee is very familiar with his attitude as to the necessity for the reconstruction of industry after the war.

One thing that is absolutely necessary is a cash reserve. We are very familiar with the present position of E.P.T., and hon. Members will agree that that tax in some form or other is essential and that the limitation of profits is necessary owing to the absence of normal competition. But the position of E.P.T. at the present moment is exceedingly unsatisfactory for a large number of medium-sized industries. The Chancellor, in this Bill, has granted a concession of a very valuable character to small industries, and large established firms with pre-war standards are also in a satisfactory position, but this Clause has been drawn up with the object of assisting the medium-sized firms in particular. Hon. Members will agree that all firms are entitled to a financial reward for services rendered. I know some will say that if this Clause is accepted large firms will benefit, and I agree that certain firms would benefit if they had a large turn-over. But that is begging the point. A few firms may get an additional profit to which they are not entitled, but an injustice would be corrected for the medium-sized firms which I have in mind. E.P.T., for a number of these undertakings, is inequitable and it becomes more so as time passes by.

When E.P.T. was enacted four years ago it was not anticipated that the war would last so long. We have now had nearly five years of war, and industry, over such a period, changes considerably. Whatever the outlook might have been when E.P.T. was introduced conditions in industry are very different to-day. I would like to cite one case which came to my notice in my constituency. It concerns a jewellery firm which had an excellent tool room, and which changed over to munitions, particularly gauge making. That firm had no pre-war standard. In the same building there was a firm of wireless accessories manufacturers, which also had a good tool room and also changed over to gauge work. This firm had a good pre-war standard but the jewellery firm, which had been in existtence for 50 or 60 years, had practically no pre-war standard. These two firms were serving the community and one was benefiting itself while the other was not. I do not think Parliament ever intended that certain companies should be virtually pauperised through the war effort.

I would like to read three paragraphs from a letter I have received, because they clearly point out the injustice of E.P.T. as it stands at the present time. This is from a firm of general engineers: You will see in this case the percentage of profit on turnover is three-quarters of one per cent. and this is on high precision work. We are working down to 'half a thou' on our main products. The company will not benefit by the extra £1,000 in the Finance Bill as it is a subsidiary of an investment trust. The factory was taken over from the former owners at half price because of the proved ability of the writer, who was to introduce new business. Because of this fact, therefore, the percentage standard becomes half what it otherwise would have been. In other words we suffer year after year through under capitalisation Every firm that is under capitalised suffers in the same manner. Those are three important points of which I should like the Financial Secretary to take note. We may be told that the idea is settled and cannot be altered. That idea has been exploded on the last Clause. Concessions have already been granted. As time passes, conditions alter, war or no war, and I hope the Chancellor will give some sort of consideration to the case on its merits. It does not radically interfere with E.P.T. Also, the wording is not binding. The principle is there. The 7 per cent. is an arbitrary figure. I am not asking for 7 per cent. I am asking the right hon. Gentleman to draft a Clause something on the same lines. He knows the suitable percentage better than I do. I ask for this percentage to be alternative to E.P.T. I consider it important that the amount left after payment of E.P.T. should grow with the turnover. We may also be told that it will mean a loss of revenue. I agree that the State has to have revenue but I wonder whether it would really mean a loss. All manufacturers have had the experience of turning over a shop or factory from day work to piece work. They have realised that it would increase their wages bill by 30 or 50 per cent., and have experienced a greater output relative to wages. The output grows much more quickly than the cost of the labour. One section of the community should have as much incentive to production as another. We have heard much during the last few weeks about the necessity for ploughing back but there are a large number of firms which have nothing to plough back.

I again emphasise that I am not suggesting this new Clause as an alterna- tive to E.P.T. It does not affect the structure of E.P.T. I would go so far as to say that if the Government could see their way clear to grant this concession they would limit the dividends of shareholders. We are not asking for it in order that greater profits can be distributed; we are asking for it solely to give industry greater stability after the war. The Chancellor in his speech made a point of the 10 per cent. of the 100 per cent. E.P.T. that will be returned to industry after the war, and he said the amount accumulating was something like £40,000,000 to £50,000,000 per annum.

I would like to cite a case. Suppose a firm with a capital of £100,000; it is reasonable to say that it turns over its capital once a year. Before the war it would be reasonable to say that the profit, at 10 per cent., was £10,000. In present circumstances we all agree that profits are more easily made. That firm, therefore, now makes £20,000, or 20 per cent. There is, therefore, an excess of £10,000 to be paid in E.P.T. There will be returned £1,000 per annum, or £5,000 over the five years. What is £5,000 to a firm with a capital of £100,000 for replacing its plant, putting its buildings in decent condition, replacing its tools and jigs, and changing over, when the prices of machinery are increased by 50 to 75 per cent. and the buildings by 100. per cent.? The Chancellor was misleading when he said that the net gain to industry would be considerable. I hope that the right hon. Gentleman will see his way to bring something in on the lines of the Clause in question. I am appealing on behalf of medium-sized firms with a poor pre-war standard. We want an agreement on the Chancellor's part that the standard of any company shall not fall so low as to constitute an injustice. We merely ask for a reasonable minimum below which the standard should not fall.

Sir P. Hannon

I support the Second Reading of the Clause. The Clause has many implications and must be taken in relation to the whole reconstruction policy of the Government hereafter. All the manufacturers referred to by my hon. Friend in his clear statement are naturally anxious as to the process by which they shall be restored to industrial activity when the war is over. In order to do that they must have some substantial financial reserves available. This sugges- tion, that a certain percentage of the turnover of the business should be appropriated for the purpose of reconstruction of the business after the war, is a reasonable one. As my hon. Friend has said, it is for the Treasury to consider the reasonable percentage which should be arrived at in relation to the turnover of the business.

Many firms in the Midlands would appreciate a concession of this kind. Many big, medium and small manufacturers are anxious to know how they are to get orders and to continue the facilities for the employment of their people when the war is concluded. I beg the Financial Secretary to realise that the Treasury can help in this matter without any sacrifice of revenue. In the Debate which will take place next week in connection with the White Paper, matters of this kind will be threshed out, but meanwhile a concession such as is suggested in the proposed new Clause would give encouragement to small manufacturers to believe that they had some hope of receiving the sympathy of the Treasury in the industrial conversion to peace production which will take place in the near future. I hope that my hon. Friend will recognise not merely the propriety but the necessity for an improvement of this kind, and that many hon. Members on the opposite side, who are particularly concerned with continuity of employment, will sympathise with our plea. I can assure the Committee that a concession on the lines proposed, either of 7 per cent. or some smaller percentage, would raise some of the small manufacturers from a position of making only a fractional profit to making something reasonable, out of which they could create a reserve, and that it would be warmly received by a large section of the community.

Sir Stanley Reed (Aylesbury)

I appeal to the Financial Secretary to the Treasury to give very careful consideration to the principle of the new Clause. He can do so without affecting the general structure of the Excess Profits Tax, otherwise we should not be supporters of the proposal. Within that structure I am certain that the Chancellor can make any adjustment which may be proved to be desirable in the interests of the rapid rehabilitation of our industrial power. Material alterations have been made which will affect the great and the small industries, but it is the middle stratum which is out of benefit to a large extent, although it is upon that stratum that we shall largely have to depend for rapid rehabilitation of our industrial power and our export trade.

This position is not confined to the Midlands but exists in every industrial centre in Great Britain, and mostly where there is a diversified industry with a large number of small manufacturers. This concession will have an intimate bearing upon our export trade. I have some experience of the export trade both as an exporter and as overseas buyer, and I know that it is a constant source of pre-occupation and anxiety to me. I wish I could dismiss it as lightly as do some hon. Members who never made a thing or sold a thing in their lives, and that I could be so optimistic about the future of our export trade. I am convinced that we have by every means in our power to rehabilitate rapidly our industrial capacity for export, or we shall be grievously left in the post-war years. I will not go beyond that. I will not ask the Financial Secretary to commit himself to a figure, but I do ask him to keep the principle of this new Clause actively before his mind, and either between now and the Report stage, or between now and the next Budget, to do his utmost to see that this is embodied in our financial mechanism, not for the benefit of the manufacturer, not for the benefit of the shareholder, but for the benefit of the whole industrial community and the export trade, on which our only hope of maintaining our standard of life must rest, and which is of such paramount importance.

Major C. S. Taylor (Eastbourne)

I would like to say a few words on the idea behind this Clause. Where there are two companies, one, say, manufacturing cameras before the war, and the other manufacturing watches, and both are turned over to war-time production, perhaps making the same instruments of war, it seems unfair that one, having a good standard before the war, should be entitled to a fair remuneration for the work they do, whereas the other company, say the one making watches, have no reward whatever for their labours. I would join with my hon. Friends in asking the Financial Secretary to consider, at any rate, the idea behind the Clause, and before the Report stage, perhaps introduce some Clause or wording which would give a little equality between two concerns in the circumstances I have mentioned.

Mr. Assheton

I do not think any Member of this Committee can doubt the intention of the Chancellor of the Exchequer to do what he can to rehabilitate industry in this country after the war. He has given this Committee every evidence of his intention in that direction, and I know that my hon. Friend the Member for West Birmingham (Mr. Higgs) would be the first to recognise that. So will other hon. Gentlemen who have spoken on this subject. The Committee will remember that the object of the Excess Profits Tax was to take the profit out of war. I know very well the inequalities which that tax has imposed upon the commercial community of this country. I know very well how harshly it has operated in many cases—in some cases almost disastrously harshly. I am well aware that any tax which takes 100 per cent. of profits must be essentially bad. We all understand that we have accepted it during this war for a bigger and wider reason: because it was necessary to obtain national unity in this country. That is why we have accepted it, not because we think it is a good tax from the fiscal point of view; no one thinks it is. Having accepted that, what has the Chancellor done this year? He has made certain concessions to the small man, and the House and Committee have accepted them. I think they were reasonable. I think the Committee really thought that was the best way to meet some of the worst difficulties that have presented themselves.

The proposal put forward here is a proposal which runs counter to the fundamental principle which underlies the Excess Profits Tax. That is the determination of excess profits by comparing the present profit with the prewar profit. This proposal has nothing to do with that. Let us look at the effects which such a proposal would have. Perhaps I could give my hon. Friend the Member for West Birmingham a few figures, and then he will see where his proposal would take us. I have the figures, for example, of a number of aircraft concerns. In this particular set of concerns the aggregate standard is £2,220,000. The aggregate turnover is £96,400,000. So seven per cent. of the turnover would be £6,749,000, which would be an increase of the standard by over £4,500,000.

Mr. Higgs

I said that 7 per cent. was an arbitrary figure, and that the figure might be 3 per cent. or 4 per cent.; but my right hon. Friend has taken the figure of 7 per cent., as though that were the only figure.

Mr. Assheton

I quite understand the hon. Member's point; but if we lowered the 7 per cent. too much, he might find that he did not like it. I was going to take, next, a dozen engineering concerns. The aggregate standard there is £4,800,000. Seven per cent. of the turnover is £9,630,000. So I could go on. It is quite dear that proposals of this kind would have the effect of increasing the standard.

Sir P. Hannon

Are those examples quite fair? We are concerned with the smaller and medium manufacturers, not with these great concerns, which have a turnover of £90,000,000.

Mr. Assheton

I do not think that my hon. Friend's criticism is at all apposite. This is just a set of statistics, which has been compiled from actual cases. I am only trying to show my hon. Friends the effect which their Clause would have. I agree that, if the 7 per cent. were reduced, it would have a different result. But the Committee should know what the proposal means. Let us look at it solely from the taxation angle. The primary objection to this Clause from that angle is that it does not provide a proper standard at all. The only basis for an alternative standard, I think, is the capital employed. But in any case turnover is a factor which varies according to the circumstances of each industry. One industry may turn over its capital several times each year; but let us look at the shipbuilding industry, for example, in which the period of turnover might exceed a whole year. I cannot see that a tax based on the turnover is one that we could recommend to the Committee. I believe that the Committee realise well that the real objection to the Excess Profits Tax is that it is 100 per cent. Nothing except reducing the 100 per cent. would get over the objections which my hon. Friends have pointed out. I think I have made it clear that the method set out here of a turnover tax would not have the effect which my hon. Friends would like to see. In view of that I must reject the Clause on behalf of the Government, but I do not want any Member to think that the Government, and the Chancellor in particular, are not fully aware of the serious hardships which the Excess Profits Tax imposes on many people in industry.

Sir Arnold Gridley (Stockport)

I apologise for intervening, because I have not been able to listen to the discussion on this Clause, having been engaged on important business upstairs until five minutes ago. I want to say a word on this new Clause, because of its effect on a very large number of the smaller industries. I am not attempting here to deal with the large industries, such as the Financial Secretary has referred to, but I have in my hand a telegram from the Engineering Industries Association, which says: Hundreds of our members with low E.P.T. standards will be compelled to close down on the termination of the war, creating unemployment, unless some Amendment to the Finance Bill, as proposed by Sir Oliver Simmonds, is given effect. Seed money must be left in the business, if it is to survive. This Association covers thousands of the smaller industries. I am not in any way connected with it, and, therefore, I am speaking quite impartially, but the result of the taxation standards at present is that there are many firms, whose output has increased ten times since the war broke out, who are left with profits less than half what they earned in the standard year. Their position, at the end of the war, with the heavy E.P.T. liability which they have to face, will land many of them in a position approaching complete bankruptcy.

We have had, in this present Budget, very useful help to industries which the Chancellor has so wisely introduced. We shall be discussing next week the Government's Command Paper on Employment, and, if we are to be asked to help, as we are anxious to do, in an expansionist policy after the war in order to provide the maximum employment, it is most important that those who have to deal with the Budget proposals and their effect on industry, should be prepared to keep an open mind on the adverse effect of the present crushing burden of taxation on the smaller industries. Just before the war they may have faced a period of depres- sion or development, but they have developed since and are performing work of the greatest importance to the nation. There are hundreds of these hard cases that really deserve much more consideration than they have so far been given.

Sir F. Sanderson

May I ask my hon. Friend one question? Does he not agree that a very considerable number of the firms to which he makes reference commenced during the war?

Sir A. Gridley

No, of these firms for whom I am speaking they are, I understand, a very small proportion of the total. I do not think that we hoped for much success with this Clause to-day, but it is of the first importance that this serious position should be ventilated, and it can be safeguarded. There are no firms in this association, so far as I know, that have any desire to be allowed to retain large profits which they can distribute. What they want to be clear about is that their cash position will be such that, at the end of the war, they will be in a position to carry on through the difficult transition from a war to a peace position, and I do not think there would be any objection if the Treasury introduced a safeguard which prohibited them from paying more that a very modest dividend. The Clause could also limit the volume of the turnover to which it applied, which would take care of the smaller undertakings and leave the larger ones untouched. Therefore, I have only risen to point out these matters to the Treasury. They will have, if the situation is left as it is, a most adverse effect upon unemployment after the war, which all of us in this Committee are most anxious to do our utmost to avoid.

Sir George Schuster (Walsall)

I had not meant to intervene in this Debate, because I did not see my way to support the particular Clause which has been proposed. I see great difficulties in its particular form, but my right hon. Friend the Financial Secretary said something which has brought me to my feet. He said that the real objection to Excess Profits Tax is the 100 per cent. I put it to him that the real objection is the injustice with which the standard is calculated. At least, that is my experience. I want to put this point to him. He has told us how anxious the Chancellor of the Exchequer is to see that industry gets a chance of continuing after the war. Many of us receive hard cases caused by Excess Profits Tax, which are within our own experience and within our own businesses, but none of us has a chance of ascertaining how far the condition revealed in particular cases really affects the position of the country as a whole.

The point that is worrying me is that raised by my hon. Friend the Member for Stockport (Sir A. Gridley). What will be the financial position of the great part of our manufacturing businesses after the war to face the terminal charges and the charges for converting back from war to peace? I want to ask the Financial Secretary: Would the Treasury consider making use of all the information which is available to them, through their Inland Revenue returns, to make a sort of sampling inquiry, so that we can have presented to us a clear picture of what is the position? You can take your sample in any way that you like, but sample inquiries are capable of producing a fairly true picture. It would be of great value to the Committee to know just how much general truth there is in this fear which oppresses some of us, that the present system of taxation is completely undermining the financial structure of British industry. I want to know whether that fear is justified. I do not want to exaggerate it, but if there is any truth in it, it is really a very serious matter.

Question, "That the Clause be read a Second time," put, and negatived.