HC Deb 11 November 1949 vol 469 cc1551-641

Order for Third Reading read.

11.9 a.m.

The Financial Secretary to the Treasury (Mr. Glenvil Hall)

I beg to move, "That the Bill be now read the Third time."

Apart from some relatively small Amendments now being dealt with in another place, this is the only proposal amongst those indicated some time ago by my right hon. Friend the Prime Minister to meet the changed circumstances due to devaluation, which requires legislation.

I understand that this has been something of a disappointment to the Opposition who had expected that, as a result of the changes which this Government would have to make following devaluation, we should have, on the analogy of 1931, a fairly comprehensive Measure dealing with economies in a number of directions. Why they should have thought this, I do not know, because, although it is not open to me on this Bill to go too far into this matter, it can, I think, be definitely established that the difficulties which we are experiencing today are very different from those which faced the country in 1931.

The Bill, of course, is a small one—almost a one-Clause Measure—and is confined to one simple proposition. In spite of this, the Debates upon it during the earlier stages have been sustained, and, at times, enlightening as to what the Party opposite really think on these matters. They have also been instructive to some of us as a lesson on how to make bricks without straw.

I think I did indicate at an earlier stage how appreciative I was of the ingenuity of the right hon. Member for Saffron Walden (Mr. R. A. Butler) who was able to keep the Debate going, and to bring into it matters which would normally not have been touched upon in a Bill of this kind. I would now only repeat the purposes of the Bill. The Government's economy measures will undoubtedly mean a certain amount of sacrifice by everyone. I think it is generally agreed on both sides of the House that devaluation will mean an increase—we hope not too great an increase, but, nevertheless, some increase—in the cost of living. This increase will fall—again I think I speak with the general agreement of all quarters—on ordinary working people and old age pensioners in particular.

At the same time, in the nature of things, devaluation will mean that certain benefits will undoubtedly accrue to the profit earner, particularly in the case of those who export. The increase in the rate of Profits Tax on distributed profits, therefore, is designed—as my right hon. and learned Friend the Chancellor of the Exchequer explained in the course of his speech during the Debate on 27th September—to redress the balance between the poorer and the better-off sections in the community, and between the wage earner and the profit taker.

I should once more emphasise, I think—although there should really be no need for me so to do—that the rate applies only to the distributed profit. In spite of this, and although this fact is very well known to all hon. Members, the main attack on the proposal contained in this Bill has been that the increase will effectively fall on reserves, and will thus diminish the fund available for re-equipment and modernisation. I think that has been the one real argument, apart from the contention that it robs exporters of incentive, that has been brought against this Measure during its earlier stages.

But this argument is quite fallacious. It is based on the fact that, unlike Income Tax, the Profits Tax is not specifically deductible from the dividend paid, and it is argued, as a matter of accountancy, that it must be debited against the other part of the profit, namely, the reserve. This is not true. As a matter of accountancy, the Profits Tax is a debit against the whole profit, not against any particular part of it. As a matter of finance, the 30 per cent. rate must be regarded as reducing the fund which would otherwise be available for the payment of dividend, and the 10 per cent. rate as reducing the fund available for reserve.

I think that hon. Members opposite must, if they are intellectually honest, agree that what I have just said is the irrefutable truth. If I may, I will take the case which has been cited more than once in the earlier Debates. For example, a company with a profit of, say, £100,000 decides to distribute half of it and to put the other half to reserve. Although it makes that decision it does not, in fact, distribute a dividend of £50,000. What it actually distributes is £37,500 only, and it will put to reserve, not £30,000, but £45,000, subject, of course, to Income Tax at 9s. in the pound. It seems to be assumed by the Opposition—

Mr. R. A. Butler (Saffron Walden)

Could the right hon. Gentleman with his usual lucidity explain his reason for saying that only £37,500 will be distributed?

Mr. Glenvil Hall

I have checked these figures with the Inland Revenue, and I have the sum worked out here. What I am now saying is, in fact, the truth.

Mr. Godfrey Nicholson (Farnham)

Can the right hon. Gentleman say how much, after distributing £37,500 of its net profit by way of dividends, the company will be able effectively to put to reserve?

Mr. Drayson (Skipton)

Are we dealing with a net profit figure or with a gross profit figure?

Mr. Glenvil Hall

I am not the only speaker from this side of the House in the Debate, and I would like to continue with my speech and make it, as I would wish to make it, in a straightforward manner.

Mr. Nicholson

Can the right hon. Gentleman answer my question?

Mr. Glenvil Hall

I do not wish to run away from any queries which hon. Members opposite may desire to put to me. I was in process of saying that I have checked these figures with the Inland Revenue and that they assure me that what I have now said is correct.

Mr. Nicholson

Will the right hon. Gentleman answer my question?

Mr. Glenvil Hall

I am about to. The 30 per cent. rate is not charged on the £50,000 but only on the £37,500, the difference between the two figures being technically undistributed and chargeable at only 10 per cent. The total tax on the £50,000, therefore, is 30 per cent. on £37,500 plus 10 per cent. on £12,500, which, together, makes £12,500. On the £37,500 the 30 per cent. works out at £11,250, and 10 per cent. on the difference between £37,500 and £50,000 is £1,250. That equals £12,500, and this, deducted from the £50,000 leaves the actual dividend payable, as I said, of £37,500.

During our earlier Debates it has been assumed by the Opposition that, whatever happens, the dividend must remain at its present level. If this were so, the increase in the distributed rate now proposed would, in fact, fall upon reserves. But the first call upon a company's profits is, surely, not its dividends, but its reserve. If in order to maintain an adequate reserve the increase in the tax would mean that the dividend would have to be cut, then, surely, a prudent company would, in fact, cut it. Moreover, if the present contention, that the whole tax falls on the reserve, is right, there would have been little point in the Amendment moved by the Opposition on the Finance Bill, which I for one remember very clearly.

During our Debates on the Finance Bill this year and last year, an Amendment was moved to reduce the rate on the reserves as such. The argument in its favour, put with great force, clarity, and persuasiveness from the Opposition, was that an increase in the differential between the dividend and the reserve would increase the incentive to put money to reserve, which is an argument completely at variance with the main arguments on this matter which have been put to us during our Debates on this Bill.

I should like to say one thing; I do not know whether I am entirely in Order, Mr. Speaker, in bringing this in, but it is part of the picture which we have to bear in mind when dealing with the proposals in this Bill. It is not true that the Government are not alive to the desirability of building up adequate reserves, and in proof of that I would remind the House that in previous finance Measures substantial provision has been made in order to assist companies to put money by for the replacement of plant and machinery. The initial allowance, as the House will remember, has been increased from 20 per cent. to 40 per cent., and this should not be forgotten. I know from interjections and assertions that have been made from the Benches opposite, that they regard this in some way not as a concession at all, but as somthing which in the nature of things the Government or the general body of taxpayers do not bear. Actually in a full year the increased initial allowance will mean a loss of £75 million to the Exchequer, and that will be so much more in the pockets of companies which they should put to reserve.

The only other criticisms of substance that have been made against this Bill are that the additional charge will fall on people who do not benefit from devaluation, and also that it takes away from exporters the incentive given by devaluation. These two arguments surely cancel out. If the increase in the tax falls on exporters and non-exporters alike, it cannot act as a disincentive to the exporter. During the Committee stage the hon. Member for Monmouth (Mr. P. Thorneycroft) moved an Amendment which, when I first read it, I thought had been copied straight out of the pages of "Alice in Wonderland" and was part of a soliloquy carried on by the Mad Hatter. I found it difficult to follow, but it was moved by the hon. Member during the Committee stage. He found that not a single Member on the opposite side rallied to his support. In fact the hon. Member for Chippenham (Mr. Eccles) said: It is clear that we could not press this bounty in this way without causing a vast number of injustices."—[OFFICIAL REPORT, 9th November, 1949; Vol. 469, c. 1291.] What the hon. Member for Chippenham said then was for once quite correct. I noticed too that other Members who followed were equally critical of what the hon. Member for Monmouth had proposed, which only goes to show that when we come to the problem of finding incentives for those who are exporting we are stepping into a realm where it is very difficult to find a solution. As a result, my right hon. and learned Friend the Chancellor feels that the flat rate which does bear on distributed profits is the fairest way of meeting the situation.

It is difficult on Third Reading to go beyond the confines of the Bill, and for that reason it is impossible for me today to do more than indicate to the House why it is that we on this side believe that this Bill, though small, is a useful Measure. For that reason, if for no other, I commend it to the House.

11.25 a.m.

Mr. R. A. Butler (Saffron Walden)

The one true remark made by the Financial Secretary was that this Bill is a severe disappointment to the Opposition. We have felt throughout that this Measure, although it may appear small, and the 5 per cent. may not appear to involve a great deal of money, perpetrates an act of economic injustice, which is of no value to the country and which further perpetuates the Profits Tax on industry. This, as we have claimed, falls largely on the reserves, something which is not in the national interests at the present time. I therefore propose to resume the discussion which we have had on earlier stages and to sum up our main objections to this proposal in the course of this Third Reading Debate.

The original reason for introducing this proposal, as mentioned by the right hon. and learned Gentleman on 27th September, was that it would impose a tax upon those who might benefit by devaluation, by gaining higher profits from their sales in the hard currency areas. This was referred to in column 27 of the OFFICIAL REPORT of that date by the Chancellor when he said that it would, in fact, remove some of those profits from those who, on the whole, were to benefit by the change especially in the case of exporters. That was the original reason for this proposal. The Chancellor went on to say that it can only be rough justice, but I believe it to be justice, and it will give some help in the matter with which I am now about to deal, inflation."—[OFFICIAL REPORT, 27th September, 1949; Vol. 468, c. 27.] We say unhesitatingly from this side of the House that all the Chancellor's reasons are bad and that none of the results that he anticipates will be carried out. We do not believe that this step is one which will deal with inflation. We believe that to transfer a certain proportion of the reserves of companies to the Government, to be spent perhaps in current expenditure—which will be the effect of this Measure—will, in fact, be an inflationary move. With the absolute collapse of the National Savings Movement under the administration of the Chancellor and the Government, we believe that further to prejudice one of the few forms of savings remaining, namely, the reserves of industry, is a short-sighted step in the financial policy which the Government have so disastrously pursued for so many years to the general detriment of the country. That disposes of the argument that this is in any way a Measure which is disinflationary in character.

We have already put our arguments quite clearly, that in fact it is madness to prejudice exporters to hard currency or dollar areas by imposing a further fine upon them. We regard this as the absolute contrary to what ought to be done in the interests of our position as a country at the present time. If we are to encourage people to improve their trade in dollar areas we should attempt to give them an incentive and encourage them, rather than impose a fine upon them. I am at present making my remarks upon the original reason for the Chancellor's introduction of these proposals. In the course of the discussions which have taken place we have tried to point out some of the difficulties which will be imposed upon those who are entering the dollar market perhaps for the first time.

We have come to the absolutely definite conclusion that to give them this slap in the face at this moment is extremely undesirable. We have indicated that the difficulties of transferring from the home market to the dollar market are likely to be very great. We have indicated that many firms, several of which I have investigated, are going to find devaluation an extra burden rather than a help, because they will have to spend a great deal more on raw materials from the dollar areas which will make it very difficult for them to enter that market and make any profit. Further switching over to the dollar area, the alteration in sales policy and so forth which will undoubtedly be involved will, we believe, result in great difficulties for those who want to make a success of this policy.

Taking, therefore, quite purely and simply the original argument of the Chancellor, we do not think there is a case for this Bill and we regard it as the exact opposite of our own policy, namely, that incentives and encouragements should be offered, which we believe would be much more effective than this step. The Financial Secretary permitted himself to repeat the argument, which we have often demolished before, namely, that if you impose a tax on the whole range of industry it is great fun for all concerned and, if one man was a little better off before, then he has an actual incentive when the new tax is imposed. The argument was that he should be better off because he is pleased at the tax being imposed on somebody else. We regard that as a most ridiculous argument, not even worthy of the standard of our distinguished friends opposite. We regard it as an elementary fact that when an extra burden is imposed upon an animal, then that animal feels it; and if it is told that others in the neighbourhood are to have burdens placed on them, we do not regard that as an incentive to the animal.

This is a very curious doctrine of incentives on the part of hon. and right hon. Gentlemen opposite. In fact, the only incentives the Government and the Labour party can think about are to impose extra burdens and, where there was inequality before, to compensate the person who was likely to be better off by telling him that he will still have the advantage over his weaker breathren. We consider that this argument is not worthy of any further serious consideration.

The right hon. Gentleman very rightly said that one of our main arguments was, that this tax will, in fact, come out of the reserves of industry. I should like now to, jump rather more quickly than the-Government jumped to the second reason which they imported for these proposals. In that famous, and now I would rather say notorious, cuts programme introduced by the Chancellor of the Exchequer we were informed that this proposal had taken its place. Four weeks after the Chancellor had announced it on 27th September, it was then lifted from being a tax on exporters to the dollar market—which, incidentally, the Chancellor reminded us would fall on everybody—to a position of having a social significance. It was clothed in all the garments and oratory of hon. Members opposite as being, in reality, a tax to compensate the poor for the fact that the rich were making profits. As we study the Debates we see the manner in which that argument has been garnished by the soft hearted hon. Members opposite. No doubt in the further stages of this Debate further embellishments will be given to this noble idea.

In fact, however, I do not think things, will work out at all as hon. Members opposite imagine. If this were a convenient and happy way of "soaking the rich" further—despite the Chancellor's statement that already taxation has reached such levels that we cannot proceed further by the method of taxation in the redistribution of the national wealth—there might be some argument for hon. Members to troop into the Lobby after their leaders for one further effort at "soaking the rich" and at further satisfying their generally vindictive policy towards one section of the population. In fact, they are going to be disappointed in this objective and if they support their leaders on this occasion they will find themselves wholly misled. If they are capable, as I believe from the quality of their speeches many of them are capable, of applying themselves to serious economic arguments, I feel convinced that they will go home very sad tonight at the manner in which they have been misled by their own Government.

The first elementary point to which I want to draw the attention of the very learned and able economists who have most unfortunately seen fit to join the Labour movement at this critical period in the history of our country—the first elementary point in my short essay on this subject—is to describe the nature of the modern shareholder. The modern shareholder is really a very ordinary person and, I regret to tell hon. Members opposite, very seldom rich. Let experts on the other side of the House study the annual reports of big companies and even small companies, although I refer mainly Ito those massive concerns which are the target of all their criticisms and which incidentally are very often in the van of social progress in industry today. If they care to study some of the returns of the big companies, they will be astonished to see the nature of the shareholders of our biggest companies in England today. I have taken figures from one annual report of one of our biggest concerns in this country and I find that 92 per cent. of the shareholders in that company own under £500 worth of shares—92 per cent. in one of the biggest concerns in the country.

The Economic Secretary to the Treasury (Mr. Douglas Jay)

The right bon. Gentleman must, of course, realise that that is completely misleading because the same individuals who hold a small number of shares in that company also hold other shares in other companies.

Mr. Butler

The hon. Gentleman has laid down a general rule which he is quite incapable of supporting because, failing his spending the whole of his time in Somerset House—and I trust that he spends rather more time on the affairs of the country than in ferreting about in these matters in Somerset House—he has no possible means of proving his assertion. I think I can safely say that the large companies of the country are supported, in the main, by very ordinary people—in many cases men of very small means.

Mr. Jay

I do not want to interrupt the right hon. Gentleman, but I can prove that statement from researches already done at Somerset House. It is a fact that more than half of the Surtax revenue today is derived from investment income, which conclusively proves that, by and large, those receiving dividends are the richer section of the community.

Mr. Butler

That is an interesting assertion and if the hon. Gentleman has the opportunity of intervening again in the Debate, I trust he will develop it in his own speech. It is an interesting economic fact, but it has nothing to do with the point I was making, which is that the small shareholders, with very small sums of money, form the majority of the holders of most of the shares of the large companies in this country. That is a fact, and if the hon. Member addressed himself to the heads of some of our large businesses he would find that it was confirmed by their experience.

The nature of the modern shareholder is that he is a modest man with an income which would appeal to the very generous and growing conception of the nature of a personal income which is now being shared by hon. Members opposite. I feel certain that he would fall within the scope of what hon. Members opposite regard as respectable, considering that the standard which they admire is gradually rising all the time.

If that be the case, I want to put a small point to hon. Members opposite. Those who are responsible for conducting the financial affairs of companies in this country, both large and small, basing themselves as they do upon the present company law, as it stands, regard themselves as having an absolute moral duty, when they make profits, to give the first share of those profits to their equity shareholders; and that is one of the reasons why the word "equity" is brought into this consideration. There is a moral obligation on the part of those who conduct our companies to pay out to their shareholders as much of the profits they have made as they possibly can. It is a fact that if firms are to make larger profits, as they may do, in some cases only, as a result of devaluation, there will be an even stronger obligation upon the leaders of our public companies to pay out even greater sums to their shareholders.

I therefore fail to see why it is to be expected that if larger profits are made there will be less obligation upon leaders of companies to pay to their equity shareholders what is their due. In fact, what will happen is this: if a company, in the hard currency trade, makes an extra profit, it will be the case, according to what I can find out, that that company will try to obey the injunction made by the Chancellor of the Exchequer not to raise dividends. In some cases, I believe, there will be a feeling that dividends could be reduced, but I think that in general, if profits are increased by the dollar trade, the leaders of companies will tend to wish to give more to their shareholders who have loaned their capital to the companies and thereby made it possible to conduct industry on the basis on which we understand it today. I personally think that nearly all companies—as in the figures which I gave in Committee on this Bill—will feel an injunction upon themselves not to raise dividends, and I am quite ready to say that I hope a proportion will consider a reduction of dividends.

That is the answer to the hon. Member for Nelson and Come (Mr. S. Silverman), whom I am so glad to see in his place, and who, I hope, will later take part in our Debate. That is the answer to the charge of the hon. Member, who had the audacity to suggest that we were indulging in economic sabotage in the arguments we were using on this side of the Chamber. We have no intention on this side of the House to do other than encourage industry to do its duty by industry, the shareholders, and the public weal, but we are equally ready, in discussing these serious matters in the House of Commons, to give our opinions, from the experience we can obtain, of what is likely to happen.

I am convinced that I am right in saying that in the vast majority of cases the result of the imposition of this extra tax will be to reduce reserves, whether we like it or not on either side of the House. However moral we may be—and I claim that I am as moral as hon. Gentlemen opposite—however moral we may be, we are entitled to look at the facts of the situation, and, however moral we may be, the facts are that this tax is going to be taken out of the reserves of industry.

Mr. Daines (East Ham, North)

The right hon. Gentleman has just said that he and his friends will use all the influence they can in industry, to get companies, to play the game by the country. Will he use his influence and that of his right hon. Friends to get the insurance companies to change their attitude in regard to supporting gilt-edged on the Stock Exchange?

Mr. Butler

If the hon. Gentleman will get his friends to alter their policy towards the insurance companies and to alter their nationalisation talk. If the hon. Gentleman will meet me outside after this Debate, which I think is likely to go on a long time, we may come to a friendly agreement on this point, and thereby do a great deal of good to the national cause in every way.

The Financial Secretary read us some statement from the Inland Revenue which only made us shiver, because our own personal associations with that body lead us to regard it with great deference. Greatly daring in foreseeing the line he would take, I have armed myself with certain figures which, I am informed by an accountant of great ability, though not necessarily of the acumen of the hon. Member for Blackley (Mr. Diamond), are important and relevant. I have armed myself before coming to this Debate. The right hon. Gentleman read us some figures with, I thought, commendable accuracy. Although I have not been able to see his brief, I shall attempt to follow him, and I must appeal to the indulgence of the House if I also read out some sums.

I have taken, for the purpose of my illustration, a profit of £300,000; so I am three times as ambitious as the right hon. Gentleman. I calculate that if we do a sum in which we decide to distribute half in dividends and to plough in halt the mathematics work out somewhat as follows. There will be £150,000 to distribute in the gross dividend and £150,000 to plough in. So far I do not think anybody can doubt by arithmetic. The Profits Tax at 30 per cent. on the gross dividends portion amounts to £45,000, and the 10 per cent. on the ploughed-in portion amounts to £15,000, which amount to £60,000, which we subtract from £300,000, leaving £240,000. We then pay Income Tax at 9s. in the £ on that amount, which leaves £168,000, less some recoverable deduction from dividends, on £150,000 at 9s. in the £, which is a sum of £167,500, and which leaves a net Income Tax to be borne of £40,500. We then have a figure of Profits Tax payable of £60,000 and Income Tax payable of £40,500.

Where I differ from the right hon. Gentleman is that the effect of the combined Profits Tax on undistributed profits and of Profits Tax on distributed profits plus Income Tax falls normally upon the portion which we do not distribute. The portion we do not distribute goes out in dividends, and that means that we have to deduct from £150,000 a total of Profits Tax payable and Income Tax payable amounting to £100,500, which leaves only £49,500. It is this sum, after the payment of dividends, which is to be put to reserves, and that means that if we make a total profit of £300,000, if we distribute half and plough in half, the total accruing to the reserves of industry in that particular company is only £49,500.

These figures become very much more alarming if we decide to distribute two-thirds and to plough in one-third. The same arithmetic applies. I calculate the total sum left to plough into reserves out of a total of £300,000 profit is only £16,500—if we distribute two-thirds and plough in one-third.

Mr. Ronald Chamberlain (Norwood)

The right hon. Gentleman is working, is he not, on the assumption that the whole burden falls on the undistributed profits put to reserves? It is only an assumption he is making.

Mr. Butler

With a desire to build up my speech with beauty and symmetry, I have already established the fact that in the majority of cases reductions of dividend are not likely to fol- low the policy, however much we may desire that to happen, adopted by the Government.

Mr. Glenvil Hall

Is not this an argument—it is an extremely clever one—that goes to show how wise the Government have been to produce this Bill, because, if I understand the right hon. Gentleman's argument aright, it is better not to distribute profits but to plough them back?

Mr. Butler

I really do not follow the right hon. Gentleman, because I personally consider that there is a great deal to be said for building up the reserves of industry, and my entire case is that, owing to this addition to the burden of Profits Tax, and the existing policy of Profits Tax introduced by the present Chancellor's predecessor, and the incidence of a high rate of Income Tax, in fact we are mulcting the whole of companies' reserves in cases where three-quarters of the profit are distributed and one-quarter ploughed in. I therefore conclude my argument by saying that if the policy is to distribute three-quarters to the shareholders and to plough in one quarter, the calculation I have made shows that nought is put to the reserves of the companies under the present accretion of tax.

Now, that is a very serious economic argument, whether hon. Gentlemen opposite like it or not, and I have taken care to work it out carefully, so that hon. Gentlemen may realise that the present taxation policy of the Government may have results of which they themselves may not be aware. This extra addition of 5 per cent. is, in fact, just that extra burden which is going to break the reserves of companies and do great ecomonic harm to the country.

Mr. Chamberlain

I am sorry to interrupt the right hon. Gentleman, but I think this is important. He is insisting that the additional burden falls on reserves. Is he bearing in mind that the latest ascertained free reserves after all taxation are some £445 million, and that the amount involved now is only £13 million? Is it not stretching the imagination to say that that will break these reserves?

Mr. Butler

I am obliged to the hon. Gentleman for his interruption, for it gave me a breather. I was coming to this particular point. It is true to say, as has been said before in the House, that there has been an alleged increase in the profits of industry, but I remind the hon. Gentleman of the words of the Chancellor, who said that a large part of the so-called profits is not a continuing surplus but must be put to reserves to pay for replacements, for the repair of plant and machinery, and for industrial expansion to meet our new industrial needs.

I have worked out at a previous stage of this Bill a sum to indicate this extra cost. Taking the figure of £170 million as reserves in industry in 1938, we can work out a figure which indicates the total of this tax and the increased costs of replacement. Taking that as being some 300 per cent. more than in 1938, the total amount to be put to reserves in this year of accountability is only £100 million compared with £170 million in 1938. That, I think, is a very serious figure indeed. It means that it is not easy for industry to proceed with the use of its reserves because it is not even getting enough to make up for the immediate needs of the moment, quite apart from replacing the machinery which needs replacing.

There have been further arguments used, which I have noticed in the bulletin of the Oxford University Institute of Statistics, which indicate that the rise in the depreciation allowances is more than sufficient to compensate for the increased costs of industry. I have investigated this matter. I find that these statistics neglect very important working considerations. First, because the higher depreciation allowances are made on new assets and simply provide, in due course, for the replacement of these new assets; secondly, because no account is taken of the running down of capital during the war and the inadequacy of the replacement funds applying to older assets; and thirdly, because the total is swollen by the increased initial allowances, which are simply an anticipation of future tax allowances. That is my answer to the Oxford School which I am always ready to attack, coming as I do from a different institution.

I have tried to introduce some of these important arguments because there is no doubt that, while hon. Gentlemen opposite are animated by the friendly, or some people would look at it as unfriendly, desire to mulet the rich, in fact, if we apply our minds with reality to this subject and look at it from the angle of economics, what we are doing is simply to add a little extra burden to the amount which is taken away from the reserves of industry. The result is that the total burden on industry today is so remarkable that in fact if anything like a big distribution is made to shareholders very little can be put to reserves, which are vital to the country at the present time. I hope, therefore, that hon. Gentlemen opposite will, at this last minute of the last hour, revise their view of this Bill and obtain some conception of what its effect is likely to be, contrary to what they themselves have so much desired.

Mr. John R. Thomas (Dover)

The right hon. Gentleman has given a figure of the amount of tax involved but he has not given the figure which this Bill will add to that figure. Would he mind giving the figure separately as affected by this Bill?

Mr. Butler

Good as I am at mathematics, although it was not my special subject, I would not be able to work out my own figures in time to catch this particular speech, but I can tell him that the total sum is £13 million under this Bill.

Mr. Douglas Houghton (Sowerby)

Will the right hon. Gentleman allow me to suggest that under the example he gave the additional Profits Tax to be borne by that company would be £7,500?

Mr. Butler

The hon. Gentleman is quicker than I am at working that out, and, out of the regard which I have for his ability in these matters, I am ready to examine that figure when I resume my seat. That does not alter my argument, because I have been careful to say that the actual additional imposition involved in the 5 per cent. does not represent the whole seriousness of the position. The whole seriousness of the position is indicated by the fact that we allow this process of adding to the Profits Tax to go on unchecked and if we do not protest, as we should do in opposition, violent opposition, to this proposal, this procedure will go on unhindered, and the result will be that the reserves of industry will be further mulcted by this Profits Tax, which does not redound to the credit of hon. Gentlemen opposite or to the advantage of the country.

Mr. Diamond (Manchester, Blackley)

I am sorry to interrupt, and I thank the right hon. Gentleman for his courtesy in giving way. He will remember that I gave way to him on the last occasion. I want only to correct a misstatement which my hon. Friend has made in grossly exaggerating the amount of tax which will fall on this company. My hon. Friend, who is an expert in these matters, knows full well that the amount of additional Profits Tax to be borne by this company is, of course, £7,500, but we all know that that forms a deduction from Income Tax. For all practical purposes, the amount paid to the Inland Revenue on the right hon. Gentleman's example is a figure of approximately one-half of £7,500.

Mr. Butler

In view of the intervention of all these distinguished Members, I have decided to brief my right hon. Friend the Member for the City of London (Mr. Assheton) to work out this sum for me. At a later date, I hope to be able to make the results known to the House.

Now we come to the remaining observations which I desire to make on this Bill. I think that I have made quite clear, beyond the possibility of peradventure, our objections to this particular tax. I want to conclude on big matters of principle which are raised by the Bill and which divide us completely from the other side of the House. The trouble about this tax from the equity point of view is that it falls on the equity shareholders and the preference shareholders or debenture shareholders get off comparatively scot-free. The objection in principle we hold, therefore, is that this is a tax which is designed to touch the risk-taker on those occasions when the dividend is reduced. We regard that principle as entirely wrong. We regard the risk-taker today as the most vital person in the British economy, to which person every possible encouragement ought to be given. We therefore regard the principle which underlies this Bill as wrong.

When we add to this mistake on the home front the undoubtedly serious effect which the increase of Profits Tax on industry has in the international field, and when we reflect on the communiqué after the Washington Conference, which said that we were going to give incentives to exporters to the dollar area, and reflect that we are now deciding to take money away from them—to give them discouragement instead of incentive—we see that this Bill has deeper psychological repercussions than its contents lead us to suppose.

I do not accept the Economic Secretary's argument that the object of devaluation was in fact the incentive that was intended for exporters to the hard currency area. The problem of devaluation had been discussed at Washington, and it was not until after the Conference at Washington had taken place that the communiqué was issued describing the further incentive which it was hoped to give to exporters. The hon. Gentleman cannot do more than repeat the statement which he has made several times that, in fact, devaluation was supposed to be an incentive.

Mr. Jay

Has the right hon. Gentleman got his facts right? The Washington communiqué was published before devaluation was announced.

Mr. Butler

The Washington communiqué was published before devaluation, but we understand that devaluation was mentioned to the Americans during the talks in Washington, and full action was taken on that. We do not consider from all the evidence in our possession that devaluation was regarded as the only incentive that should be given to exporters. I do not think that it is very encouraging when we want to encourage foreign capital to invest in this country for them to read the figures which I have given to the House this morning, and for them to see that the increased burden of the Profits Tax, falling as it does on the top of Income Tax at 9s. in the £1, is an extreme disincentive to capital investment in industry at the present time. I think it is wrong that the Government should choose this moment to bring in these disincentives rather than to encourage industry.

There are only a few weeks or months left before the country will have the opportunity of deciding whether this so-called economic policy of restriction and clamping down and of putting our economy in a strait waistcoat will be good enough for the people of our land. We believe that the time of hope is coming, when incentives and encouragement will be given to our risk-takers, and to our people generally.

Mr. Chamberlain

To the profiteers.

Mr. Butler

Strange to relate, it is because we believe that profits are even made too easily at the present time, it is because we believe that we want to free industry of restrictions, monopolies, and everything else, it is because we believe that we must return to a real policy of risk-taking and enterprise in industry that we oppose this small and miserable Bill which is leading us in the wrong direction.

12.1 p.m.

Mr. Jenkins (Southwark, Central)

We have just listened to a remarkably interesting speech, in the course of which the right hon. Gentleman made what seemed to me to be a number of very surprising statements. Perhaps the most surprising, if not the most relevant, of those statements was the one he made in reply to an interjection of my hon. Friend the Member for East Ham, North (Mr. Dames), when he suggested that the reason the insurance companies were holding off the gilt-edge market at the present time was because that might help towards the withdrawal of the Labour Party proposals for nationalising industrial assurance.

Mr. R. A. Butler

I really must intervene here. I have no wish to make any observations on the policy of insurance companies towards the gilt-edge market, except to say that it is the duty of all patriotic citizens to support the gilt-edge market now or at any time. [Laughter.] That is a perfectly serious remark. What I did say was that if the Government will withdraw the policy of nationalisation we might have a very friendly talk on all these matters.

Mr. Jenkins

I am afraid I should be ruled out of Order if I were to pursue this point. I think the implications of the right hon. Gentleman's earlier remarks were fairly clear.

The second somewhat extraordinary statement which I thought the right hon. Gentleman made was when he said that equity shareholders have the first claim on the profits of a company. I thought the very nature of an equity shareholding was that it had the last residual claim on the profits of a company, and that that claim might be either large or small according to how the company had done, and according to the other claims on the profits.

Mr. Nicholson

And depending on the prosperity of the company.

Mr. Jenkins

Depending upon the prosperity of the company, upon the calls of other forms of capital, upon taxation, and depending, too, I should have thought, on the need to build up the reserves of the company for its future development.

Mr. Nicholson

Does the hon. Gentleman not agree that the equity shareholder, just as he takes the first knock if things go badly, has the first claim on the results of increased endeavour—in other words, increased prosperity?

Mr. Jenkins

No, I cannot agree that there can ever be a first claim for the equity shareholder. The claim of the equity shareholder is essentially a last claim, a residual claim. It may be a bigger claim than that of anybody else, but it comes after everybody else; and I should have thought it should also come after the need of the company to plough back money to reserves to ensure the future of the company.

One of the most remarkable things about the series of arguments on this Bill which the right hon. Member for Saffron Walden (Mr. R. A. Butler) has addressed to the House in the course of the last week or so is the fact that he assumes all the time that the shareholders, and indeed the directors of the company, have little responsibility for building up adequate reserves. He puts the responsibility all the time on the Government, and says that it must ensure that the reserves of a company are adequate, but he implies that the company itself will treat as its first responsibility the distribution of dividends, and that if a choice has to be made between building up adequate reserves and distributing adequate or more than adequate dividends, the company must give precedence to dividends, and reserves must come second. And he says that it is the duty of the Government by reducing, or at any rate not increasing, taxation to counteract the tendency of the company to do this.

The third statement of the right hon. Gentleman which struck me as being very surprising, and as giving away a great part of the Opposition's case on this Bill, was when he said that, as a result of the extra profits which will accrue to exporters to the dollar area from devaluation many of these firms will feel that it is right—I think he talked about a moral duty in this connection—for them to increase their distribution to their shareholders. Now, that seemed to me to be a most remarkable statement for the right hon. Gentleman to make, and I should have thought it fully justified the Government in taking measures to ensure that the greatest possible disincentive is placed on companies to disobey the policy of the White Paper in this respect.

Let me revert for a moment to the old argument about whether or not this Bill is a direct blow at the successful dollar exporter. Despite the arguments the right hon. Gentleman addressed to us this morning, I really do not think that we can accept this for a moment. Clearly, if profits go up for a certain class of firm—and I do not think anyone will deny that for most exporters to the dollar area profits will go up quite substantially—and if at the same time a slight extra tax is put, not on those firms alone, but on all the firms in industry, then I do not think that the extra incentive of devaluation is destroyed. The net result of these two factors will be that firms exporting to the dollar market will still, on balance, be better off than they were before devaluation—not quite as much better off as they would have been without this Bill, but on balance better off—while firms who are not in the dollar market may be slightly worse off. That seems to me to be a perfectly sensible way of ordering things: a little extra incentive for the dollar exporters, but at the expense, not of the community as a whole, but of other profit-takers who are not exporting to the dollar area.

The other great argument of the right hon. Gentleman is to say that it is no good assuming that this extra tax will be paid by reducing dividends. He said that we must face facts and recognise that, however much we may like this to happen, it will not in fact occur. Well, this argument of course assumes a complete lack of responsibility for building up the reserves of the company on the part of the shareholders and the directors. But let us allow that to pass for the moment. Let us assume that the right hon. Gentleman is right. He may be right when he says that companies as a whole will not reduce their dividends but will pay this extra tax wholly out of reserves. The amount involved will be a small amount. I think we know that from the argument my hon. Friend the Member for Blackley (Mr. Diamond) addressed to the House on Second Reading. The amount which will come out of reserves will be a small amount.

Clearly, none of us wants to reduce company reserves without a very good reason for doing it. Company reserves are an essential means of paying for the capital investment programme, and we want to keep them at as high a level as possible. But one of the decisions the Government have taken in the last two months has been that there must be some slight reduction in the capital investment programme generally, and that point of view has been accepted by the Opposition. Indeed, the right hon. Member for the Scottish Universities (Sir J. Anderson) in his speech a short time ago, said that the capital cuts were not nearly big enough. Now, did he mean they should be much bigger in so far as they affect all the social services but should not apply at all to industry? I do not think the Opposition can even claim that that is their point of view. After all, we have the cuts on the nationalised industries; we have substantial cuts on fuel and power investment, and there have been no protests from the Opposition against those cuts.

It seems to me that in a situation in which, unfortunately, as we must all admit, there has to be some slight scaling down of the capital investment programme affecting both investment in housing and in other social services, and investment in fuel and power and nationalised industries generally, it is reasonable that there should be some very slight reduction in the amount which companies are able to put to reserves. If that is happening, while not itself a desirable thing, it does not seem to me to be in any way a decisive argument against this Bill. I think the arguments which the Financial Secretary put before the House earlier today, and some of which we have heard before in different form, are valid. This Bill is an attempt to correct the slight but perceptible shift to profit which will occur as a result of devaluation. I believe that, as a result of devaluation, there will be a slight shift to profit not merely in the export trades alone, but over the whole field of industry.

Hon. Members opposite must surely accept this view. They believe that we are getting into a dangerously inflationary situation. They think the recent cuts will not be sufficient to save us from the danger of growing inflation. But we have never known anything approaching an inflationary situation in which there was not a great increase in profitability all round. If their argument is right, we are getting into a situation in which profits, not only in the dollar export industries but in industry as a whole, will be increasing substantially. I believe it is intolerable, in the present situation, when there has to be an all-round reduction in the standard of living, that we should allow this shift to profit to take place.

The right hon. Member for Saffron Walden concluded by saying that there was a substantial difference of principle between the two sides of the House on this issue. I strongly agree. I think it comes out in this way: that we, in a situation in which there has to be some all-round reduction, believe, not as he believes, that that is an argument for greater inequality, but, if anything, an argument for greater equality. The Bill helps in that direction, and I support it.

12.12 p.m.

Mr. Gerald Williams (Tonbridge)

The hon. Member for Central Southwark (Mr. Jenkins) spent most of his time criticising my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) rather harmlessly and without much success. He told us nothing very new, and I do not propose to say any more about his speech.

I am convinced that by this Bill the Government will do just what they do not want to do. They are always telling us that they want to lower costs and increase output, but my view is that this extra tax will lead to increased costs and less output. I disagree with what the Financial Secretary told the House about dividends. Looking at it from the point of view of the average company director, although I think that in some cases dividends will be reduced, I am sure he will say, "The Government are not encouraging us to reduce dividends by the policy they have already adopted. If we reduce our dividends we shall never be able to raise them again." Directors will want to keep dividends at their present level, because many people will be hard hit by dividend reductions.

My right hon. Friend the Member for Saffron Walden told us that in the majority of cases shareholders are small investors who have often put their life savings into one, two or three companies. The company director will be thinking of those middle-class people who would certainly be distressed by any reduction in dividends. If my contention is correct that most dividends will not be reduced, it will cost a company more money to pay the same dividend because of the extra tax. I know hon. Members opposite laugh because we make out a big case about a few thousand pounds, but it is the principle—

Mr. Daines

No, it is the interest.

Mr. Williams

—that we are concerned with. The Chancellor asks companies to bring their machinery up to date and make sure that it is working efficiently. He wants them to use more money on research and put more money to replacements, which will now be more expensive because of devaluation. They have indeed been encouraged by the Chancellor to increase replacements because he has given them a small advantage in the initial allowance for depreciation. All this will receive a setback if there is less money to plough back into the company. Costs will increase by not having up-to-date machinery, and production will suffer.

It is known that this tax is a sop to the workers, but I believe it is the workers themselves who will be hit by the tax, and not the rich. What is the other result? The extra money gained by the tax will be spent by the Government, instead of being put back into company reserves. Surely that is another encouragement to inflation which the Government want to avoid. They are always telling us to do one thing and encouraging us to do the opposite. They tell us that we must not spend capital or it will cause inflation. Yet only last week they introduced a Bill to enable married women to anticipate their income, which they can then turn into capital, and "blow" the whole lot if they wish. It does not make sense. We must think of the old age pensioner on 26s. a week if this tax is going to put costs up.

Here the Government are defeating their own object. We have a Profits Tax, heavy Income Tax and Surtax, and now the Profits Tax is to be increased. The Government's policy appears to be designed to kill incentive. The law of diminishing returns applies just as much to Income Tax as it does to the taxes on beer and tobacco. The higher the tax the more will incentive be killed. Could not the Government have arranged that overtime should not be subject to tax, or that the earned income allowance or personal allowances be increased? I believe this would get results which would enable them eventually to reduce Income Tax and get even better results. Members on this side are often accused of being mercenary because we believe in incentives. Members opposite say there is something besides cash to work for. That applied all right during the war, when there was such a thing as patriotism, and may obtain to some extent today, but it is only human nature that the man who can put most cash into his pocket will do the best job.

This tax will also have an undesirable effect on the raising of new capital. If an hon. Member speculates a few hundred pounds to try to produce something required by the public, and loses the lot, he is unlucky. But if he is lucky he can keep only about one-third of what he makes. By this tax the odds are lengthening against him. If they are made a little worse as time goes on, by small increases in taxation, no one will be encouraged to put up money for industry in future. I believe, and the Financial Secretary himself must realise it, that the more taxation there is on industry the less likely industry will be to get that capital which in many cases is so much desired.

I am not annoyed about this tax because I sit on these benches, but I sincerely believe that the Government are defeating their own ends by this tax, and it is being done at a time when companies have to pay more for their raw materials. Is this increase in the Profits Tax going to do anything towards reducing prices? Will it produce anything more efficiently? Will it produce more? Is it preventing inflation? I believe it will do none of those things, and is a harmful tax that will do nobody any good. We know why it is imposed—as a sop to the unions and to the Minister of Health. In my opinion, the Government are going to pay dearly for their mistakes.

12.21 p.m.

Mr. M. Philips Price (Forest of Dean)

The hon. Gentleman the Member for Tonbridge (Mr. G. Williams) has referred to the incentives which may actuate citizens of the country, and he has said that those incentives may be material or patriotic. He seems to think that the patriotic motive is less strong now than it was during the war. I deny that that is so. It may be harder, but it is possible I am certain, if the Government take the lead, as they have done, to arouse patriotic feelings in view of the danger the country is in. Actually, the Trades Union Congress and the Government have asked the workers to be moderate in their demands and not ask for increased wages unless there is increased production. The response has been fairly satisfactory, but at the same time the Government must make similar provision in the case of those who have money invested in equity shares. They also must bear their share.

I look upon this Bill imposing this slight increase in the Profits Tax as proof that the Government are asking for sacrifices from those investors. The hon. Gentleman the Member for Tonbridge spoke of a sop to the workers. I do not think that that is the correct way to name it. Rather is it fair sacrifices all round. It is obvious that the workers cannot be expected to give of their best if they see, as a result of devaluation, increased profits being earned by the industrialists of this country.

The right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler) presented some very interesting figures in the course of his speech, which were based on the reputed profits of a firm earning, say, £300,000 a year, and the way in which the incidence of this tax would work on the distribution of the profits and the putting away to reserves. As I understood it—I took it down as best I could—the figures seem to prove that if distribution at the rate of 50 per cent. took place for dividends then the company could put by £49,000. If, however, the distribution went up to two-thirds it would distribute £15,000.

Mr. Nicholson


Mr. Price

Anyway much less than £49,000 and if it distributed three-quarters it would have nothing. Is not that the best proof that we could have in support of the incentive not to distribute so much. To my mind the right hon. Gentleman is proving our case. It is wiser for a company to put more to reserve, which is what the Government are aiming at. I am prepared to admit that most companies have done what the Chancellor of the Exchequer has asked them to do. In the main they have not increased dividends over the last two or three years. I have seen figures—I cannot carry them all in my head—which go to show that there has been on paper increased profits, but that nothing like that amount has been distributed in dividends. The bulk presumably has gone to reserve. Therefore, I think the request of the Chancellor of the Exchequer has been carried out. I do not see low this very small tax on profits can do any harm, especially in view of the fact that there is no increase in the tax on the amount put to reserve. It remains still at 10 per cent.; the other goes up to 30 per cent.

One would rather like to see this tax falling heavier upon those who will earn higher profits from devaluation, and who are working in the dollar markets. But I do not see how it is possible to devise machinery whereby that can be done. After all, there will not only be increased profits by those firms working in the dollar market as a result of devaluation. I have no doubt even in the sterling area there will be inflationary tendencies which might lead to higher profits. One hopes that that can be kept under control. Therefore, there is not disequilbrium, through this tax being imposed on all alike.

It is desirable to do all we can to encourage those firms that are working in the dollar market, because the difficulties there are great. Recently, I was in the United States, and I saw what great difficulties are facing British firms working there. The Americans have got a tremendously efficient industrial machine, and only in certain lines are we still able to compete. The dollar drive is going to mean increased expenses to companies travelling over there, paying for agencies pushing their goods and so on.

I wonder, however, would it not be possible to give them some incentive in this way—permit those companies over there to keep a portion of their dollar earnings on condition that it is spent on equipment and machinery in America for the improvement of their industrial plant here. That would not to my mind be a sacrifice, and I cannot see how the Treasury would lose much revenue. It would certainly make it easier and give an incentive to those companies working in America to enable them to overcome the great difficulties which they come up against as well as improving their equipment and their capacity to compete with the Americans. I would conclude by saying this is a just Measure—rough justice undoubtedly. I do not see how any other measure could be adopted which would carry out the object which the Government and the country have in view.

12.30 p.m.

Viscount Hinchingbrooke (Dorset, Southern)

The hon. Member for Central Southwark (Mr. Jenkins) was either accusing or praising us on this side—I am not sure which—for not complaining about cuts in the investment programme, and saying that therefore we should not mind about the imposition of this tax, because it would be paid out of those reserves which would no longer be required for such capital development. I believe the view of my hon. and right hon. Friends on this side to be that we would like the capital fields of industry outside the purview of the Government to be quite free of cuts. Our complaint is directed towards the Government's attempts to narrow the field of industrial re-capitalisation and development outside the field of the Government. Where we would like to see cuts made greatly in excess of what has been achieved is chiefly, in the current expenditure of the Government, and, secondly, in the capital side of Government expenditure. Therefore, the hon. Member for Central Southwark is not right in saying that logically our opinion should be that reserves would now be adequate to provide the money for the tax.

Mr. Jenkins

I do not suggest that it is in itself desirable to cut company reserves. We would like to have as big a capital programme as possible. My suggestion was that in a period where it is agreed that we must have capital cuts it is unreasonable to protest against a very small cut in private enterprise.

Viscount Hinchingbrooke

The hon. Gentleman did not listen to my opening remarks. What I said was that we do complain on this side that cuts have been imposed on capital expenditure outside the range of Government activities. We are now directing our attention to the Profits Tax on private enterprise, and we think that reserves ought to be adequate to deal with development which ought to be allowed, and should not be depressed by the Government.

I am very glad that my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) placed this Debate today in such broad perspective. As I sat through the Second Reading and Committee stages of this Bill, it seemed to me that we have got far too bogged down on the question of arithmetic; the ability of individual companies to pay or not to pay the tax that is expected of them. I view this Bill first of all as a blow to the expectation of the success of the Anglo-American partnership. On the export side we have Mr. Hoffman saying that the American market is open to British exporters. Over here we have those exporters encouraged to spend money and acquire labour and raw materials to be made into goods for the United States. And then the Government produce a little Bill of this kind which gives them a slap in the face and says that to the extent of an extra 5 per cent. their profitability is to be eaten away by the Government before they ever start.

I consider for that reason—although I admit there is a contrary argument in the sense that devaluation has produced a fertile field and will give them a biggish profit—that to introduce this Bill and apply it to export as well as home trade is a serious blow, and one which will be resented in the United States.

What will be resented very much more in America is the effect on the import side. The Washington communiqué said that we ought to look in an early period for American investments in this country, and presumably the Colonial Empire and the Commonwealth generally. What could be more irritating—to use a mild word—to those American business investors than to find this Government coming along, within a few days of the Washington talks, and imposing an extra tax on industry? I have always taken the view that there is no hope for this country to fill the dollar gap other than by private, or semi-private, commercial investment on the part of the United States over here and in the Colonial Empire. That is the one sure way in which the gap will be filled. This business of our exporting to the United States is small stuff compared with it. If that view proves to be right, then it is absolute folly for the Government to put their extra 5 per cent. tax upon profits of American enterprise when it comes into this country.

Mr. Jay

The noble Lord does realise that subsidiaries here of foreign companies only pay the 10 per cent. rate? They are not affected by this Bill at all.

Viscount Hinchingbrooke

I am not referring to foreign subsidiaries at all. What I am talking about is the distinct possibility of the American financial market acquiring interests in British companies. The hon. Gentleman cannot tell me that, as a result of their doing so, it will be possible to remit 5 per cent. Profits Tax on the British companies in which they invest their money; and that is exactly where the penalisation comes in.

I want to say why I think this tax is inflationary at home. It is generally agreed that there are three ways in which it will be possible to find money for this tax. One is out of reduced dividends. The second is out of existing reserves, and the third is a way which has been barely mentioned in this Debate—although it was raised on the Committee stage by someone on this side of the House—that is, by charging higher prices to the consumer for goods supplied by firms, enabling them to make a larger profit. I believe that it is no use talking arithmetically about this thing. We have to introduce a political argument into it.

A large number of people engaged in industry today—as witness the speech of Lord McGowan, which would never have been made a few months ago—are expecting a change of Government in this country at an early stage, and therefore they will expect that a climate for industry will be created in which it is possible again for them to revert to the ordinary business of the full-scale working, or the partial-scale working, of private enterprise. In normal times companies keep their reserves and add to them year by year in the expectation that they will be able to spend them on recapitalisation. I have no doubt at all that after the General Election they will be enabled to spend their reserves on recapitalisation without too much restriction and too much control.

Again, it is the normal practice in private enterprise in a favourable political climate for companies to use a progressive dividend policy to maintain their capital and create an atmosphere in the City in which it will be easy for them to get the new capital they require. I suspect that business today, thinking in the way it is thinking, will say, "We are not going to reduce our dividends to pay this tax. At the moment we cannot fairly increase them, but we hope that in a very few months we shall be able to increase them again, in order to create the successful atmosphere for our concern in which it will be possible to go to the City of London to get the capital we need for redevelopment and improvement. Therefore,"—those companies are bound to argue—"we must, if necessary, charge a slightly higher price for our goods." I think they will take that view and that is inflationary. In the particular political circumstances of the moment, never mind the arithmetic of what the companies can pay and cannot pay, this Bill is distinctly inflationary.

Mr. Sydney Silverman (Nelson and Colne)

Does the argument of the noble Lord, when stripped of the very pleasant and effective words in which he puts it forward, on analysis come down to this: that this Bill will not do its work because big business will not play until they get the Government they like?

Viscount Hinchingbrooke

I do not say it is big business at all. The hon. Member must not assume that because I mentioned Lord McGowan in passing, I was thinking exclusively of Imperial Chemical Industries. I was thinking of industries large and small up and down the country.

Mr. Silverman

But they will not play unless they get the Government they want.

Viscount Hinchingbrooke

This is a party political Measure. The hon. Member for the Forest of Dean (Mr. Philips Price) said it was an example of fair sacrifices all round. He agreed with the Chancellor of the Exchequer that this was rough justice. I do not think it is rough justice at all, nor do I think it is an example of fair sacrifice. For three or four years now the Socialist Government have been operating more or less in the sunlight. We have not had anything very grave in the way of a political or economic crisis, and during that time they have been steadily benefiting one section of the community and steadily penalising another section. They have been penalising the section of the business entrepreneur and the capitalist throughout.

Now we enter a period of darkening skies and crisis and immediately they change the policy of helping one section and penalising another into a new ideology of fair shares all round. In the crisis everyone must suffer, although in the last three or four years only one section was to suffer and the rest have a glorious time. That is why this Bill is so distinctly partisan, because it continues the penalisation of the men who, if given a free opportunity, could recover the position of this country. For the rest the Government's general measures and economies only call a slight and temporary halt to those much more closely politically associated sections of the community, which hon. and right hon. Gentlemen opposite have been aiding for so long.

12.44 p.m.

Mr. Gallacher (Fife, West)

When the hon. Member for the Forest of Dean (Mr. Philips Price) spoke of a decision of the T.U.C. as being very satisfactory, I said that it was very unsatisfactory and an hon. Member behind me asked, "What do you know about industry?" I do know something about industry, and that is more than can be said by most of those who are advocating the freezing of wages.

Some time ago I went to the cinema, and in a newsreel I saw an Australian with a wagon and a team of oxen. He had a short-handled whip with a long thong with which he could reach the oxen farthest away. To show his skill he got a lady to stand in front and sent his whip crackling towards her. One got the idea that the victim would suffer serious injury, but when the thong was taken from her neck it was seen that she had not suffered the slightest upset. That is like the Chancellor with the whip he has and the young lady, or rather the Old Lady of Threadneedle Street, who gets the present thong, as represented by this Bill, round her neck.

In the Committee stage, an hon. Member on this side of the House spoke on one of the Amendments and raised the cry, which is being continually raised, "What is all the fuss about?" Cannot he answer his own question? All the fuss is about nothing, in case they have to make a fuss about something. That is the deception that is going on. Will hon. Members who are calculating £7,000 and half of £7,000 go and tell the people that this Bill is a fraud? What did the Financial Secretary say? It has been said so often that sacrifices must be made on all sides. The workers are making sacrifices and so the others should make a sacrifice. But there is no sacrifice here whatever. When the Chancellor says that he is only in favour of increased wages in keeping with increased production, he is saying that the ratio of wages to production will go down. What did the Economic Secretary to the Treasury say?

Mr. Jay

I was asking the hon. Member what he meant.

Mr. Gallacher

It is very simple, if the hon. Gentleman knows anything about industry. Let him go into any industry and he will find a number of skilled men there—I have been one—who do not do repeat work. They do particular work, and get a penny an hour extra on the basic rate, it may be, but they get no piece-work, or bonus. It would be impossible for the piece-workers, or bonus workers, to get higher production, without the labour of those men and the labourers on basic wages and the semiskilled men on basic wages. The only men who will get any advantage from the increased production, according to the Chancellor, will be men working on repeat work. As an example, I draw the attention of the Economic Secretary to the mines, where there are a number of men working at the coalface, hewers, brushers and so on, but there are men working on the basic rate of £5 15s. 0d. a week below ground and £5 0s. 0d. above ground, and if there is increased production the men at the coalface will get the increase, but the men on the basic rate will get nothing.

Mr. Speaker

I do not quite understand where the hon. Member's argument is leading the House. We are discussing the Profits Tax and not conditions in the coal mining industry.

Mr. Gallacher

The Economic Secretary asked me to explain what I meant and I was explaining. Production goes up, but wages remain the same, so that in relation to production wages are going down. Is that understood?

Mr. Jay

indicated dissent.

Mr. Gallacher

Then let me put it this way. I challenge the Economic Secretary and hon. Members opposite to deny that profits in relation to production are going up even with this extra 5 per cent. tax. Does anyone opposite deny that? All this nonsense about the 5 per cent. is to take attention away from the situation, and the Opposition are helping the Chancellor to get away with this deception of the working class.

Profits in relation to production are going up, and the Chancellor said that as a result of devaluation they will go up still higher. On the other hand, wages in relation to production are going down. Do not let the Economic Secretary or anyone else try to fool the workers of this country that the sacrifice is being spread over all. It is not true. The whole burden is being placed on the workers, and this Bill, with its 5 per cent. deception, will not help in any way to solve the crisis that is confronting the country and it will not help in any way to get the Chancellor out of his difficulties.

A Socialist Member on these benches—I take it that the hon. Member is a Socialist, though I am not sure what are real Socialists and what are pasteboard Socialists—when discussing an Amendment during the Committee stage, said that the extra profit from devaluation was the result not of enterprise or imagination—

Mr. Henry Strauss (Combined English Universities)

In order that I may follow the hon. Gentleman more clearly, may I ask him whether he is supporting or opposing the Bill?

Mr. Gallacher

I am criticising the Government for bringing forward such a puny, meaningless Bill and trying to use it to deceive the workers. I am also trying to expose the fact that the Tories oppose it not because of anything in the Bill, but to prevent the workers from understanding what is going on and forcing on them a real cut in their profits. What is implied by the statement that profits from devaluation are not the result of enterprise and imagination—that profits other than those resulting from devaluation are the result of enterprise and imagination? That is anti-Socialist argument of 50 years ago. Any Socialist who understands Socialism and is prepared to stand by it will say that all profits are the outcome of the exploitation of the workers and the unpaid labour of the workers. This Government, which is supposed to take a Socialist attitude on this question, should have introduced a Bill which would make a real cut in the profits of the capitalist class of this country in such a way as to have brought nearer the stage when they would have put them out of business altogether and the workers would get what Socialists have always demanded, the full fruits of their labour.

12.54 p.m.

Sir Arnold Gridley (Stockport)

Perhaps the House will think it not inappropriate if one of their colleagues who is a director daily engaged in industrial operations makes at this stage one or two observations. If the hon. Member for West Fife (Mr. Gallacher) will forgive me, I do not propose to follow his remarks because I rather gather from him that he does not approve of what is proposed from either side of the House and, therefore, I imagine that he has only one supporter here to rely upon.

I shall deal with the allegation that as a result of this Bill and as a consequence of devaluation more profits, rather than less, will be earned by those who strive to get into the dollar market. With my colleagues I have been trying for months past to increase business in the dollar markets, and not only to get into those markets, but also to endeavour to manufacture here certain things which are at present only procurable from the States which, of course, would be just as useful from the point of view of the Government. The difficulties we are up against, amongst others, are the following.

In the first place, I do not think hon. Members, wherever they sit, are acquainted with the fact that, in general, U.S.A. prices have already been reduced by about 15 per cent., with the consequence that half the devaluation has already disappeared so far as the U.S.A. market is concerned. Indeed, I am told by industrialists in America that they will be prepared still further to reduce their prices if they find that the competition of increasing imports into their country is interfering with their production programme and increasing their unemployment volume.

In addition to what is going on in the U.S.A., nearly all other industrialised countries have, like ourselves, devalued their currencies and are in as urgent need of dollars as we are. Therefore there will be increasing competition for American and Canadian business from those countries. May I remind my colleagues in all quarters of the House that much of that competition will come from continental countries where the standard of living is much lower than it is here and where the wage rates are also lower?

The third difficulty we are up against is that we cannot get into the dollar market without expending a considerable sum in exploration, in sending people over there, and in various other directions before we can secure a single order, and that expense has all to be met out of what one may be earning at home.

The fourth difficulty which we shall be up against sooner or later, is that if in consequence of our being successful in increasing our volume of exports to the dollar countries, they find that their unemployment problem becomes a serious menace, they will soon see that action is taken to check it in the interests of their own workpeople. We would do precisely the same if the position were in reverse, if we had to agree to countries exporting into this country, and if our unemployment figures went up. I cannot see that our trade unionists would stand that for long without calling the attention of the Government to the serious consequences of such a policy.

Those are some of the difficulties which those of us who are trying to help the Government by increasing the country's business with the dollar countries find ourselves up against. Notwithstanding these difficulties, it is our duty, and it is our intention—in the case of the majority of business undertakings that can deal with the exports of this country—to do everything we can to increase our business with the dollar countries.

Now I want to speak about the effect of this tax on dividend policy because, as chairman of a group of companies, I feel a sense of responsibility on this question. I see my hon. Friend the Member for Edgbaston (Sir P. Bennett) sitting on this bench. He claims, I think a little more than is justified, that he was responsible for persuading the directors of companies a year or two years ago into agreeing to dividend limitation. I am sure, however, that he would be the first to admit that he did not do it alone.

Sir Peter Bennett (Birmingham, Edgbaston)

No, my hon. Friend is wrong. I only claim to have put forward a suggestion for something that could be done as an alternative to other things which could not be done. That is all I claim.

Sir A. Gridley

My hon. Friend is fully entitled to the credit for being the originator of a plan to which the Chancellor found it possible to agree and which resulted in the whole-hearted co-operation of the great mass of directors of companies, as has been proved by the loyalty with which the policy of the limitation of dividends has been observed, with one or two minor exceptions which do not in any way spoil that record.

If I may take as an example the case of a holding company, for the dividend policy of which I am very largely responsible with my colleagues, I would say that we have not for years paid a higher dividend than 5½ per cent. Can anyone suggest that that is an unreasonably high dividend? I think not. Last year, we earned enough money to declare another 1½ per cent. We did not do it; we left it at 5½ per cent., and the rest of the profit was placed to reserve or included in the carry-forward, which comes to precisely the same thing.

We are not quarrelling with this tax of an extra 5 per cent., considered as one single item. The trouble is that, after agreeing to limit dividends, we are met with a 25 per cent. tax on distributed profits, and now, after loyally observing the Chancellor's request for another 12 months, we have another 5 per cent. added to the tax on the distributed portion of profits earned. In the case I have quoted, am I to ask the shareholders, who have been receiving only a modest 5½ per cent., to agree to a lower figure so that I might be able to place more money to reserve? I could not ask the thousands of shareholders in this particular concern, who asked at the last general meeting why we did not give them a little extra when we had earned it, to agree to that. I was one of those who, like my hon. Friend the Member for Edgbaston, persuaded his colleagues in industry to agree to the Chancellor's request, and therefore I should be the last to suggest that we should depart from that policy.

The arguments so frequently used in this House, and particularly by hon. Gentlemen on the other side, cannot be of general application. There are hundreds of concerns like my own where modest dividends have been paid for many years past, and which are not in a position now, in fairness to their shareholders and after treating their work-people fairly, to reduce their dividends in order to make sure that the amount of money carried to reserve shall not be less than before. It is a discouragement to those of us who really are honestly doing our best to help the Government, at this time of financial crisis, to extend our business to overseas dollar countries. After we have striven for months past to do our best, and when we are now endeavouring to re-double those efforts, it is a discouragement to have a Bill which is gong to add, not a very large amount, but still a further additional tax on the efforts that we are making, and which we shall, in spite of all, continue to make.

There is an old saying about the last straw breaking the camel's back, and this Bill may perhaps be described as the last straw. "Take care," I say to the Government, "lest your policy does not break the camel's back."

1.7 p.m.

Mr. John McKay (Wallsend)

I listened with interest to the speech of the hon. Member for Stockport (Sir A. Gridley) and was rather surprised at its moderate tone. It was an exceptional speech in a way, indicating a moderate attitude in regard to the industry over which the hon. Gentleman has some control. He did, of course, develop the point of view, which is generally accepted, that we cannot get into the American markets or into any other country and expect to command a large amount of trade merely by changing the exchange rate. We must have something more—quality of goods and the right price. A question that does arise is whether the devaluation of the pound is a factor in helping us in this country to get into the American markets. There is no doubt about that at all. It is an accepted provision that it does definitely give us an opportunity far beyond what we have had in the past of getting into these markets.

My concern with this Bill is the justification for this tax. It is a special tax arising out of a special situation. If we are to take a sensible attitude in political matters, we must of necessity attempt to analyse the position so as to be able to justify any proposition that we are supporting. Not having any financial experience or directing power in industry, I have to try to convince myself that this special tax deals with special circumstances in relation to industry at large. When introducing such a tax in a special period like the present, we must build up a case for it, not only on political but also on moral grounds.

One of the speakers on the other side has suggested that this is a political move, and that the idea of imposing this extra 5 per cent. tax on profits is purely political. When one makes a political move one ought to be able to state the justification for it, and not take action merely because it may be popular with a certain section. Popularity is a great thing, but, in the main we must of necessity by our actions and policies maintain the moral approbation of the people. Therefore, when I come to analyse the position, I wonder at first why it was that this tax was placed upon industry. We all know that in industry there are the large investors and also investors on a very much smaller scale. We must remember that among these latter people there are those who are too old to work and who are compelled to live on a given income. That being so, we must ask ourselves whether we are justified in taxing such people in this way.

I will take the analogy of the landowner upon whose land a factory has been built, and who is, let us say, getting £1,000 a year from that land. Then there is the shareholder in the business who, we will suppose, is getting a similar sum of money, and then, again, there is a director of that firm getting the same amount of money for the job which he is doing. The question then arises why, as these three individuals are all getting the same return, should one of them have to pay a special tax while the other two do not. On the face of it, such a position seems a little extraordinary and needs to be analysed. Of course, it depends upon one's outlook and one's valuation of the various activities in industry as to what one's decision will be.

The whole situation has arisen largely out of devaluation. While it is accepted that devaluation does help the exporter to the hard currency countries, the question arises whether it is of necessity a help to the home producer. It is an accepted fact that devaluation will cause a rise in the price of raw materials imported into this country for industrial production. If those materials are being used in producing commodities for the home market, what will be the effect on the industries concerned? In such circumstances, how can devaluation be helpful to the home producers? I fail to see that they will receive any benefit arising from the exchange position.

It may be argued, of course, that owing to increased exports from this country there will be fewer commodities on the home market to be bought with the money available, and that, therefore, there will be a better chance for the home producer to raise his prices. But how can the home producer raise his prices if the consumers of his goods, who, in the main, will be the ordinary workers, are in a worse economic position than they were before owing to the increased cost of living? In that sense, it is very difficult to see how the home producer will receive any benefit from devaluation.

Mr. Deputy-Speaker (Major Milner)

I am sorry to interrupt the hon. Gentleman, but I doubt whether the questions which he has been discussing really arise on this Bill, which deals with the imposition of an increased Profits Tax. The whole economic position or devalution cannot be discussed on the Third Reading of this Bill.

Mr. McKay

I am not attempting to do that, Mr. Deputy-Speaker; I am merely trying, if possible, to find a justification for the tax, but I have not satisfied my hearers on that point.

It has been argued that a situation has arisen which will encourage production in certain ways and will also increase profits. The question then arises whether, because of these new conditions, we are justified in imposing this new tax upon industry. That is my chief argument. I may be going a long way round, but sometimes one has to do that in order to get to the right spot in the end.

It has been said that this tax was intended to pacify the ordinary workers in the country because they will eventually be in a worse position owing to the increased cost of living which is likely to come about. If that is the reason, it is not one which I like. Whatever argument is put forward in favour of imposing this tax, it should be one of moral justification as well as of economic necessity. Are we justified, on the grounds that the workers will suffer owing to the new situation, in going to the top, as it were, and placing an increased penalty on the profit makers or profit receivers? We must remember that the people who are drawing dividends will also have to suffer the increased cost of living as, also, will all the other people in the country buying the goods. Therefore, whatever argument is put forward in order to pacify the workers, ought also to be possible of sustainment in regard to the rest of the community.

The question then arises, how far are we justified in pacifying the workers? In so far as the new tax will place a penalty on consumers, we ought to argue that they also should be pacified. That being so, it might be said that, in order to meet the position, a tax should be placed upon consumers in accordance with their ability to pay. But that is not the position at the moment. We are dealing with a tax upon profits. Profits are a form of special income which arises not necessarily from the ability of the people who receive them. The whole question must be examined from a new point of view. This type of income is of a special character, and when one taxes this class of income one should indicate the reason why. The workers, various shareholders and directors are factors in industry which are active all the time. They are all doing a job of work. Those factors will, therefore, get a return which is justifiable.

But there is one factor, the dividend section, which is elastic. We should analyse the position and decide from a moral point of view whether a special kind of profit of interest is justified. What is the difference between the ordinary dividend receiver and the ordinary receiver of interest? People may put their money in Lloyds Bank, the Co-operative Society or the Post Office. The point is that when one puts capital in those places, the cost of living may go up, the value of machinery may rise, and so forth, but the money which one puts in Lloyds Bank or the Co-operative Society or the Post Office yields the same return.

Worse than that is the fact that the money so invested, instead of rising in relation to ordinary dividends in conditions such as we have had during and after the war, depreciates in value. It may depreciate to the extent of 50 per cent. Yet many shareholders in industry have been taking little or no risk; the returns might be said to be guaranteed to some extent. Who are these people who are getting this increase in dividends? It may be argued that, having invested their money, they are justified in all the returns they receive because of the risk that they have taken. Let us analyse that situation. When is a man entitled to a greater return for any money he invests in industry?

Mr. Deputy-Speaker

I am sorry to interrupt the hon. Gentleman again; I fully understand that he had to go a long way round to reach his point, but I did not think it would be quite so far. I hope he will come to the point and relate his remarks to the contents of the Bill, which are really very limited.

Mr. McKay

I will finish in a minute or two, Mr. Deputy-Speaker. I am trying to keep in Order, but perhaps I have a bad habit of going wide of the point before I get to it.

The large returns which these shareholders are getting during this artificial period do not arise from extra risk. There was more risk for these shareholders before the war because there was greater competition. There was more difficulty in guaranteeing that the commodities would be sold in sufficient volume. It could be argued, therefore, that they should be getting less dividend and not more.

I will now conclude. Whatever others may say, and however much they may think differently from me, I maintain that a shareholder is not an active participant in industry. He invests his money but the profit returns arise out of the activities of directors, administrators, workers and technicians in the industry. Dividends have been rising during this period not because shareholders have taken extra risk, but because of the social conditions and the activities of the really active people. In so far as they are active, they get their returns because of their participation in the industry, administrating, guiding and being active in the job. To a large extent the dividend receiver is a sleeping partner and he is not justified in the returns which he gets. Therefore, the Government are right in imposing this tax on dividends.

1.29 p.m.

Mr. Henry Strauss (Combined English Universities)

I have listened to all the speeches which have been made on the other side of the House, with the exception of the speech of the Financial Secretary to the Treasury to whom I apologise; I was unable to be here at the beginning of this Debate to hear his speech.

I was puzzled by the last speech to which we have listened. At one point the hon. Member for Wallsend (Mr. McKay) said that he was seeking a justification of the Bill if one was possible, and almost the whole of his speech seemed to indicate that in his opinion none was possible. Nevertheless, for reasons which he gave at the conclusion, he is apparently going to vote for the Measure. I ventured to interrupt the hon. Member for West Fife (Mr. Gallacher) who said—and in this I agree with him—that he found this a rotten Bill, and I asked him whether he was speaking in favour of it or against it. I did not press him and I think we shall not get the answer to that question until we observe the Division at the end of this Debate. Nevertheless, I must say that I understood the argument of the hon. Member for West Fife and thought it far more logical than many other arguments I have heard from the other side of the House, because the hon. Member for West Fife frankly thinks and says that profits are wrong and, therefore, the more of them that is taken the better he thinks it is. I disagree with that attitude but it is at least an understandable attitude at least it could be maintained. I find it very much more difficult—

Mr. Gallacher

That was the conclusion I reached, but I want the hon. and learned Member to understand that my main argument was the same as that of the right hon. Member for Saffron Walden (Mr. R. A. Butler) who said, in effect, "I admit this is a small affair but we must make a violent attack upon it to prevent it from being extended."

Mr. Strauss

I am content that the hon. Member has made clear what was the main point of his speech, if the House was under any misapprehension about it, but he will not think that I agree with his summary of the speech of my right hon. Friend. There is one thing in which I very much agree on this occasion with the hon. Member for West Fife. He said that the Economic Secretary to the Treasury ought to say what he meant. I think that is a very good idea indeed, and I am sorry that I am making these remarks in the absence of the Economic Secretary. In considering the Third Reading of this Bill we cannot forget the background against which it is being considered—the background is the question of the survival of this country; and in saying that I am not quoting only my right hon. and hon. Friends but also what was said by the Prime Minister and the Chancellor of the Exchequer in recent Debates which will be within the memory of the House. If we are to take some measures to secure our survival—and we must remember that this Bill is one of the measures which is being put forward with that purported object—we must use words accurately and with some meaning. In a recent speech the Financial Secretary to the Treasury used these words: I am afraid that the dollar crisis is probably here for our lifetime. One of the very few things that cannot be here for our lifetime is any sort of crisis, unless our lifetime is to be particularly short.

Mr. Glenvil Hall

May I interrupt the hon. and learned Member? Is he quite sure that that sentence comes from one of my speeches or does it come from one of the speeches of my hon. Friend the Economic Secretary?

Mr. Strauss

It was said by the Economic Secretary; I thought I said "The Economic Secretary." I certainly meant to attribute that remark to the Economic Secretary to the Treasury. It was contained in a speech at Bristol on 17th October this year.

One thing that cannot possibly be here for our lifetime, unless our lifetime is to be very brief indeed, is a crisis, and I think that "crisis" is one of the words which should be used with some accuracy. It is a point or moment of time. We are very familiar with the simile taken from disease. Every mother who has nursed a child through certain diseases knows that there is a moment of crisis or climax after which, if the child survives, recovery is almost automatic and certain.

I only wish the present position was one of crisis. It would be much better if it were. But we are faced not, of course, with crisis but with calamity, and it is against the risk of calamity that this Bill is brought forward as one of the necessary measures. I say that this Bill is bad on several grounds. The chief grounds on which it is bad are that it is utterly unjust, and, secondly, that it is utterly silly; and when a Bill is both completely unjust and completely silly it is unfortunate that the country whose survival is menaced should put it forward.

In contrast to the hon. Member for West Fife, whose attitude to profits is at least consistent, the Government are quite unable to make up their minds whether they think profits a good thing or a bad thing. Very often they speak—as often they or their supporters have spoken in the course of these Debates—as if profits were a bad thing and should, therefore, be diminished. At other times they speak as if profits were a good thing. Let me say at once that my attitude is that profits are better than losses, although I think that, as a result of the Government's policy of inflation which was so continuously pursued for a long period, profits in this country were often much too easy to make. I should like to see profits far more difficult to make, although I also think them good and that, when they are made at a time when they are difficult to make, then they should bring reward to those who make them.

What we suffer from at a moment at which our survival is threatened is that we have a schizophrenic Government. They suffer from split mind. For instance, at a moment when every economist agrees that we are over-taxed, they bring in this Bill to tax us more. At a moment when they say—as they have said frequently in the course of this Debate—that what we want is more dollars, they propose to bring in measures which will demonstrably lead to our getting less. At a moment when they say—and here they are right—that we need greater savings, one of the chief Ministers goes about the country saying that property is going to be redistributed by way of retribution. In other words, we have a Government with a split mind.

What does this Bill do on this point—and this, I thought, was coming out in the thoughtful speech of the hon. Member for Wallsend to which we have just listened. This Bill does not deal with profits generally; it deals only with profits of joint stock companies. It has no regard whatsoever to the ultimate recipients of those profits. They may be rich or poor; they may be millionaires or old-age pensioners. As far as this Bill is concerned nothing is known of the ultimate recipients of these profits. Now, unlike a great number of hon. and right hon. Gentlemen on the other side of the House and a number of my hon. Friends on this side of the House, I am not and possibly never shall be a director of a limited liability company—

Mr. Gallacher

The hon. and learned Gentleman is quite unique.

Mr. Strauss

—and I do not pretend to know whether the result of this Measure will be a reduction of dividends or a diminution of moneys placed to reserve, or both, or sometimes one and sometimes the other. The probability is that in some cases it will lead to the reduction of dividends and that in other cases it will lead to a reduction in the moneys placed to reserve. However, whichever it leads to, there is no justice of any sort in it, nor will any good purpose be served.

As a result of devaluation—and that is the ground on which this Measure is put forward—or what used to be called, in days when we were a little franker, the debasement of the currency—the moneys placed to reserves, if they are to produce enough assets to renew machinery, and so on, in the near or distant future, have to be greater and not less than before. In so far as moneys are paid as dividends, which is the alternative—

Mr. Daines

Will the hon. and learned Gentleman allow me a moment?

Mr. Strauss

In a moment. I think the House knows that I generally yield, but I should like to finish this part of my argument. The alternative, if the money is not to be taken from moneys placed to reserve—and, as I have pointed out, we need more, not less, placed to reserve—is that it will be taken from dividends. Now, the dividends will be worth less even if they are maintained. If they are reduced we shall get a position in which the recipients of those dividends are doubly hit, first, by the debasement of the currency, and, secondly, by the diminution of the dividends. Now I shall pass to another topic, and before doing so I will give way to the hon. Gentleman if he wishes.

Mr. Daines

The hon. and learned Gentleman at the beginning of his speech spent a considerable amount of time dealing with the evaluation of words, and he will recall what he said when he dealt with "crisis." Now he has just told us that foreign exchange rates are the same as the debasement of the currency.

Mr. Strauss


Mr. Daines

That is what the hon. and learned Gentleman said.

Mr. Strauss

No. I did not mention foreign exchange rates. I did, it is perfectly true, say that in franker days we did talk about devaluation as debasement of the currency. But, whether that is always and inevitably so or not, I do not think any hon. or right hon. Gentleman on the opposite side of the House doubts for one moment that our money is worth less as a result of what has taken place, first, by inflation and then by the recent act; and as a result, in the admission of the Government themselves, there is going to be a rise in the cost of living.

Mr. Daines

The only point I am trying to get at is that the hon. and learned Gentleman was advising us to be careful in the use of words, and yet he himself, in order to obtain a cheap point, is committing the very sin he was trying to warn us against.

Mr. Strauss

I must let the House judge. I know that many hon. Members wish to speak, and I must let the House judge between my critic and me on that point.

The next point to which I was coming is this. It is a point that has been raised by many of my right hon. and hon. Friends. The only people—the only "persons," to use the legal term—who come within the provisions of this Bill are artificial or legal persons, namely, limited liability companies. Apart from them nobody is hit directly. Now, a limited liability company is an extraordinarily efficient instrument for the creation of new industries and the enlargement of old industries. It is the instrument on which this country must rely if we are to increase our production and do the various other things of which the Government sometimes acknowledge the necessity. Is it really suggested by hon. and right hon. Gentlemen opposite that they are likely to attract investments, either home investments or foreign investments—and we need both—into industry, if constantly new attacks are made, as in this Bill, on the whole idea of profit making by limited liability companies?

I say the suggestion is really absurd. There is not one single national purpose which will be helped by this Bill. I cannot help thinking that it is one of the many measures which come within that startling description given by the Chancellor of the Exchequer of Government policy up to the moment of devaluation. Do not forget that these are not my words. These are the words of the Chancellor of the Exchequer himself. This is the description of the Chancellor of the Exchequer of Government policy up to the date of devaluation: a series of temporary expedients, which have led to a series of crises. [HON. MEMBERS: "Oh."] I do not know why there are those groans from opposite.

Mr. Braddock (Mitcham)

We are sick of hearing about it.

Mr. Strauss

The hon. Member says he is sick of hearing about it. I have no doubt he is. He is not nearly as sick of hearing about it as he is going to be.

Mr. Daines

Be careful.

Mr. Strauss

That statement of the Chancellor of the Exchequer cannot be reconciled with the descriptions of Government policy that had been given by Ministers up to that date. Nevertheless, I have no doubt that this Measure falls within that description. There is really nothing to be said for it. I am very sorry that the Economic Secretary was away when I was dealing with a speech of his, but no doubt—

Mr. Braddock

He has heard it all before.

Mr. Jay

I am informed—I do not know whether correctly or not—that the hon. and learned Gentleman accused me of saying that the dollar crisis would last for our lifetime.

Mr. Strauss

"Would be here" for our lifetime.

Mr. Jay

What I said was the dollar "shortage." I am always very careful not to use the word "crisis" in this connection, because I regard this as a longterm problem, which is exactly the reverse of a crisis.

Mr. Strauss

If the hon. Gentleman gives me that assurance, of course, I accept it at once. I would add this, that considering the wide publicity that was given to that statement I think it would have been worth his while to correct it earlier. But, of course, I accept his correction, and I am glad that he agrees with me that what we are concerned with is not a crisis but something very much more serious; and that was the main point of that part of my speech, which I must not recapitulate. On the question of profits, I beg the Government, late though it may be, to try to make up their minds whether profits are good or bad, and then to act in a coherent and not a schizophrenic manner.

Here is an example which I cannot develop, Mr. Deputy-Speaker. I remember with some amusement when the Government were introducing an order which they themselves called the "spivs' order." When it was issued, it was accompanied by an explanatory leaflet which explained that no one would come within its provisions if he or she were gainfully employed. In other words, if the motive in life was the profit motive, one was all right; otherwise, probably, one was a spiv.

I beg the Government to make up their minds. If they believe that it is desirable that joint stock companies should make profits and should attract investors at home and abroad, then let them refrain from such action as the present Bill, which is bound to have one or both of two effects, both demonstrably contrary to the national interest—the reduction of dividends which will penalise the recipient, as. I have explained, twice over, or the diminution of the amount placed to reserve at the very moment when because of devaluation we need greater and not lesser sums placed to reserve.

Let me deal in conclusion with one point put by the hon. Member for Central Southwark (Mr. Jenkins). He said that capital cuts—and we all agree that there must be a slowing down of capital investment for the time being—were a ground for not placing sums in reserve at the present time. That seems to me to be perfectly mad economics. I conclude with the observation that there is literally nothing to be said for this Bill, that it is demonstrably unjust and quite demonstrably silly. It only remains for me to add that it is a characteristic production of the present Government.

1.53 p.m.

Mr. Diamond (Manchester, Blackley)

I must say that the concluding remarks of the hon. and learned Member for the Combined English Universities (Mr. H. Strauss) carried on to the full the tone which has been set in this Debate by the Opposition. I hope that I shall use the moderate words which I always endeavour to use in this House, but I must say that I have been shocked—sincerely and utterly shocked—at the general level of argument which has been produced by the Opposition.

They have continually stressed that there is one thing, and one thing only upon which business enterprise—those who work by brain as well as those who work by hand—rely for motive, and that is extra selfish gain. I do not think that attitude has been put more clearly than by the hon. Member for Monmouth (Mr. P. Thorneycroft) who spoke in the earlier proceedings on this Bill. I wrote to him saying that I was going to refer to his speech today. On 9th November, he said: If one wants a man or firm to do something there are only two ways of getting it done. One is by using some measure of compulsion and the other is by giving some additional reward.

Sir Ian Fraser (Lonsdale)

Hear, hear.

Mr. Diamond

The hon. Gentleman opposite supports that view. The hon. Member for Monmouth went on to say: In the whole history of our human affairs no one has found other ways of getting these things done, particulary when the thing we want done is one which involves quite a considerable risk."—[OFFICIAL REPORT, 9th November, 1949; Vol. 469, c. 1280.] How such a statement came to be made by an hon. and gallant Gentleman—and I have no title to call myself a gallant gentleman as a Member of this House—I fail to understand. How he can forget at this early stage, the tremendous, courageous sacrifices endured by everyone of all parties when there was not a single question of individual profit involved at all, because there could not be, I cannot understand. The greatest possible reward was a small piece of ribbon to stick in one lapel, and the greatest possible sacrifices were made for that ribbon. We are proud of our gallant countrymen who did that. Yet the hon. Gentleman says that we in this country are only capable of doing what is in the national interest—what we all know to be in the national interest—diverting exports to America, when we have one of these two things: either compulsion of personal financial reward. I reject that statement absolutely and utterly. I say that it is libellous on the people of this country and a libel on the business community who are going to carry out this task.

Sir I. Fraser

Will the hon. Gentleman allow me to say in the absence of my hon. Friend that I think the attack on him is a little unworthy? Surely we are discussing quite different fields. The hon. Member for Monmouth (Mr. P. Thorneycroft) did not in fact say "financial reward" but "reward." A reward may be the satisfaction of pride, vanity, patriotism or money. Can the hon. Gentleman tell me any other way to get people to export to America? That is quite different from fighting for your country.

Mr. Diamond

I am grateful to the hon. Gentleman for that interruption. When an hon. Gentleman does not happen to be here when a speech of his is referred to, it is only right that no advantage of him should be taken in his absence. I have done what I could in that matter. I was here when the hon. Member for Monmouth made his speech, and I have the whole of his speech in front of me. It is absolutely clear that he was referring to one type of reward, and one type of reward only—personal, financial reward. There has not been one hon. Gentleman opposite—and I listened carefully to the right hon. Member for Saffron Walden (Mr. R. A. Butler)—who has referred to incentive in any other way than to its limited reference to money personal incentive. That is why I was shocked by this Debate.

Mr. Osborne (Louth)

May I on behalf of my business friends interrupt? I recently gave the example of my own company, and said that our exports for the first six months of this year were up by 68 per cent. but the profits were down by about one-third, and I gave the House an assurance that we would continue to carry on in that way because we considered it to be a duty to our country.

Mr. Diamond

I am delighted to hear that. If I have done the hon. Gentleman's speech an injustice, I apologise unreservedly.

Why has this little Bill been designed? It is alleged that it will be a great disincentive to our would-be exporters. I deny that, as a chairman of a company which is doing its utmost to transfer its manufactures from the home market to the export market. I deny that there is at the moment any director with the good of his country at heart who is concerned solely with the disincentive effect of this Bill, and who is therefore saying: "I am not going to try to export to America in spite of the inducements to do so, in spite of the 40 per cent. attraction on the selling price"—which is a fantastic sum in terms of profit. I deny that there is any director who, with that inducement and with the knowledge of what the country needs, will be put off by this 7d. in the £ Profits Tax on undistributed profits. I go further and say that despite all the stories we have been told during the course of the Debate by hon. Gentlemen opposite of occasions when they have spoken to their colleagues, not one has been able to produce a case where a director did in fact say so. All this argument is based on pure theory, on what they think directors are doing, and on what they think the business community is doing about it.

Mr. Osborne

That is not fair.

Mr. Frederic Harris (Croydon, North)

Has the hon. Gentleman considered whether the businessman can stand further taxation at the present time?

Mr. Diamond

Let us see what the amount of the taxation is, what the profits are, and whether businessmen can stand the amount of the tax. We do not want to go into all these figures again. I am sure that if I was able to satisfy the hon. Member for Farnham (Mr. Nicholson) that my figures are right I should be able to satisfy anybody.

Mr. Nicholson

I am sure that the hon. Gentleman will be able to satisfy somebody that his figures are right, but he has not satisfied me.

Mr. Diamond

The last time we went over this I thought he was satisfied.

Mr. Nicholson

No. I do not want to fight the battle again at this stage.

Mr. Diamond

I thought he was satisfied on the simple case of the net effect on distributed profits of 7d. in the £. Nobody can deny that 5 per cent. is 1s. in the £; that is the amount of the additional Profits Tax on distributed profits: Income Tax is 9s. in the £, which reduces the effect by 9s. in the £ on 5 per cent., and we therefore get back to the figure of approximately 7d. in the £.

Mr. Nicholson

I must make the matter clear. The hon. Gentleman is saying that two and two make four, and of course they do.

Mr. Daines

Hear, hear.

Mr. Nicholson

I am glad to have that corroboration. The point is that on the deductions to be drawn from it as to its effect on undistributed profits we are shooting at different targets.

Mr. Diamond

I have the Floor at the moment, and I am entitled to do my own shooting at my own targets. The hon. Gentleman will no doubt do his shooting at different times and at different targets. I am now answering the point raised by the hon. Member for North Croydon (Mr. Frederic Harris), who says it is doubtful whether companies can afford this extra taxation. He is saying they cannot, and he asks me whether I am satisfied that they can. Am I satisfied the profits are such that companies can stand this additional burden? The additional burden, as I have already pointed out, is 7d. in the £ on distributed profits. Do not let us take what I have to say about the ability of companies to withstand what is being continually referred to by the Opposition as this penal tax, but let us see what the companies themselves have to say. I should have thought that that was a fairly reliable piece of evidence. To ascertain that I have looked at "The Times"—a reliable newspaper—in which we find every day reports of the annual general meetings of public companies inserted by those companies. Nobody compels them to put in the papers anything they do not themselves wish to put in; they put in the report, they pay for it, and the paper reproduces precisely what they say.

I have looked at these reports for the last week. They always have a headline, with the name of the company and underneath a subheadline of the main thing the chairman wants the public to know about. Perhaps I can detain the House for a few moments by reading, not some of them but all of them, just to show that I am not picking any out. These are the reports of the annual general meetings of companies over the last week, when this matter has been of public importance, and has no doubt been discussed generally in public circles. I start a week ago, on Friday, 4th November. These are the three headlines: Another Record Profit Figure. Substantially Increased Profit. Record Sales.

Mr. Osborne


Mr. Diamond

I must be allowed to finish this. As hon. Members know, on Saturday and Monday no reports of annual general meetings appear. Tuesday, 8th November: Sales Attain All-Time Record. Wednesday, 9th November: Results Again Satisfactory. Larger Trading Profit. Satisfactory Year's Trading. I leave it to hon. Gentlemen opposite to interpret this next headline: Mr. Roland Jennings's Speech. I would not argue whether that is indicative of one thing or the other. Improved Production And Price. Liquid Balance-Sheet Position. Thursday, 10th November: Group Profits Well Maintained. Record Volume Of Orders In Hand. Any businessman will know the likely result of the next year's profits from the statement, "Record volume of orders in hand."

Today, Friday, 11th November: Gratifying Results. A Year Of Progress. Increased Dividend. Production And Profit Improvements. One now sees what a shocking state this country is coming to under a Socialist Government! I suggest that for hon. Members opposite to say that industry is not capable of standing this additional tax is the sheerest nonsense. I have never come across a Bill in the whole of this Parliament on which the Opposition have had to build up a case on something which has absolutely no foundation to it whatsoever. I must say, they have tried hard and have done an extraordinarily good job, but they have convinced nobody on this side that there is the slightest difficulty whatsoever in industry meeting this out of profits.

The hon. and learned Member for the Combined English Universities (Mr. H. Strauss) said that of course this additional tax would come out of one of two things, as I understood him. It would either mean a reduction in dividends, and he was all against that; whatever happens, he said, we must keep our hands off dividends: or, alternatively, it would mean a reduction in the reserves, and he said we must not touch reserves because reserves are the savings of this country. Several hon. Members opposite have said that reserves are the savings of this country. Well, of course, in general it is good policy that companies' savings should be there and should, within reason, be increased; and we must all remember that these companies' savings are within the control of the companies. So far as they are not nationalised companies they are within the control of the individuals, who can carry out what investment policy they like at any time they like. The hon. and learned Gentleman said there would be one of those two things.

Mr. H. Strauss

Or both.

Mr. Diamond

Or both. He did not want the second, and if it were only that there would be no difficulty whatsoever in any company meeting this additional tax. His hon. Friend the Member for Stockport (Sir A. Gridley) referred to a dividend of 5½ per cent.—a very reasonable dividend—and said, "Is anybody going to suggest that that is an excessive dividend? Yet this company will have to be faced with this additional tax." He has a very responsible position, but he never went so far as to work out what the tax would be. It is almost incapable of being measured. His 5½ per cent. assumes that the profits were exactly the same, and that the amounts put to reserve were exactly the same, both of which assumptions are untenable, because profits from one year to another are never precisely the same. But even if that were the case his dividend would have to be reduced from £5 10s. per £100 to £5 7s. per £100. That is a fact, and nobody can suggest that is a very difficult burden.

Mr. H. Strauss

The hon. Gentleman has dealt specifically with the point I made, for which I am grateful.

Mr. Diamond

I have not yet finished dealing with the hon. and learned Gentleman.

Mr. Strauss

It is, therefore, all the better that he should know the point he has to deal with. I said that the effect of this Bill on the profits of joint stock companies, and on them alone, would be a reduction in dividends or a reduction in reserves, or both. The point I put, with which I hope the hon. Gentleman will deal, is that, if the dividends were reduced, the recipient would be hit twice: first, by the reduction in the value of money, and, secondly, by the reduction in the amount of the dividend. If it came out of reserves, the reserves would be more and more inadequate to meet what was required on account of the devaluation of money.

Mr. Diamond

The argument that reserves must be continually increased in order to meet replacements is fallacious, and is none the stronger because every Member opposite repeats it when he speaks. If reserves go up by only a ¼d. a company is still capable of replacing its assets.

Mr. Osborne

The textiles which I have been trying twice to sell in America are, made on flat frames, which are bought in Switzerland. Because of devaluation the cost of these machines has risen by about 40 per cent. If, before devaluation, our reserves were adequate to buy these flat frames and keep the factory up to date, they are not adequate today because we have to put more money into reserve to buy that machinery.

Mr. Diamond

We are not dealing with the case where machinery was bought in 1900 and the factory did not buy another piece of machinery, but waited until 1945 and sold it all and then replaced it with new machinery. What we are dealing with here is the ordinary case where the company disposes of plant and makes a flat profit. Whenever a company replaces plant they sell their old plant at vastly more than they have rendered it in their books. So long as they are doing this over an even period the problem does not arise. Reserves, if they remain static, will be sufficient to enable replacements to take place and maintain the business.

It is said by the Opposition that the money must come out of dividends and that it is hard if the treatment meted out to the shareholder is the same as that meted out to the pensioner and others on fixed dividends. That is a shocking sentiment. If the hon. and learned Member suggests that the burden of knocking 7d. in the £ off a person who has thousands of pounds in dividends from various companies is the same as the burden of the increased cost of living on those whose total income is 26s. or 42s. a week, then I can only leave it to the House to judge. There is no reason to believe that the companies themselves should not be able to stand this extra tax. I am disappointed and disgusted that we should allow it to go forth that when we are in a situation like the present, when we have had to devalue for the sole purpose of guiding and channelling exports to America, in order to reduce the results of inflation to the extent of £13 million, every Member opposite says that this is something we must not do. It is clear that the Tories have one policy in this matter, and one alone: it can be expressed in three words, "Hands off profits."

2.13 p.m.

Mr. Frederic Harris (Croydon, North)

I should like to touch upon one point made by the hon. Member for Blackley (Mr. Diamond) with reference to the general issue of reserves. It was astounding to hear him, as a business man, put forward the argument that the reserves being carried by companies today are sufficient for future needs, that they do not need to be increased and that they are able to bear this increased taxation. Who is supposed to be standing this additional cost? On the assumption that reserves could bear part of the increased taxation, or the whole of it, I cannot agree with the hon. Gentleman for one moment that reserves are sufficient for future needs. Companies have put money away, as reserves, in gilt-edged securities, and that reflects itself when there is need to purchase plant or the assets they require to start a new venture or maintain their business.

I do not know whether it is the intention of the Government that this extra tax—I admit it is small, but I think it will have far-reaching effects—should actually fall on the receivers of dividends or the companies themselves in paying out more taxes. If it is intended that it should fall on those receiving dividends we find ourselves in this difficulty. For many years, and particularly of late, people have been asked to save. In so doing surely we are not against them putting their money into such investments as they would wish. I cannot understand why the Government seem to think that all shareholders are moneyed people. Today, very many shareholders are the workers in the business.

Mr. Diamond indicated dissent.

Mr. Harris

I say categorically that that is so. There are thousands of working people who own shares in the factories in which they work and others who are anxious to have a stake in the business. Why should people who have saved a little and put it into the industry in which they work suffer a reduction of dividends? I do not see why that should apply unless people accept reductions in salaries and wages. If we are to have a reduction all round, it is natural that everybody should suffer in the same way.

It is argued by Members supporting the Government that the extra tax need not come out of dividends, but that it should come out of taxation of the company. I disagree with the hon. Member for Blackley that companies can stand any further taxation. I admit that there are many industries which are consistently doing well, and will do so for a long time—the hon. Member quoted a number of them—but a vast number are suffering very badly indeed, and cannot stand any further taxation. They are having the hardest job to "keep their end up" today. The hon. Member for Blackley referred to "The Times," but he did not mention the business of his colleague, the hon. Member for Bolton (Mr. J. Lewis), who could, no doubt, tell him a thing or two. The hon. Member for Bolton has had the greatest difficulty in keeping up-to the mark he anticipated; he has dropped to as low as half of what he anticipated.

I think it is wrong to mislead the House into believing that everything in the industrial garden today is lovely. That is very far from being the case. Many hon. Members opposite have talked about the trading which took place up to the end of 1948. But we are now in 1949, and I believe that when the trading accounts of many companies are produced for this year there will be a different story to tell. I believe that companies will have difficulty in maintaining the dividends which have already been paid; indeed, there will be many cuts in dividends. I do not understand why it should be suggested that a tax should be put on dividends, when they cannot bear them. The shareholder who is receiving his dividends is suffering the same cuts as people receiving salaries and wages in this country, because he or she is having to meet the increase in costs which is constantly going on. Therefore, they are having to suffer in the same way as anyone else.

This tax is being linked with devaluation, but there are many companies which will have to suffer increased costs through devaluation. I should like to give one simple example. Flour went up through devaluation, and many companies had to meet an increased cost for that flour. It is not suggested that prices can go up; obviously they cannot. Therefore, the only way in which this increased cost can be met is from the internal resources of the companies, which must reduce their margins. That will constantly happen when the question arises of replacing basic materials by new materials, the price of which has advanced considerably. The companies can only meet that increased cost from within. They have had the burden of increased costs thrust upon them by devaluation, and I maintain that they cannot stand any further charges on top of that. Our businesses are far too over-taxed, and by the action that is being taken today in putting further burdens on business we are putting on one side any hope of new capital coming into our great country from abroad, because investors will not advance it if the policy of the Government is to worsen the position, already difficult enough as it is.

I cannot understand the purpose of this tax. I admit it is small in every way, but its effect is very far-reaching. I can only feel that in some way it has been imposed by the Government to pacify somebody or other. As I see it, it can only pacify those people who believe that we should all possess nothing at all. The only people who really believe that are the Communists. If that is the angle, then the Government might as well run this country entirely as a Communist State. I feel that this Measure is a very serious one and that it will have a very serious effect indeed.

2.23 p.m.

Mr. Braddock (Mitcham)

In my opinion, the speakers both on the front and back benches on this side of the House have won all the arguments hands down. I suppose that is not an unnatural view for me to take because of where I am sitting. However, I do not think that the Government, although they are winning, can find very much satisfaction in what has occured in this House while this matter has been under discussion.

The Chancellor of the Exchequer first of all told us that if this and other countries in the world were to get out of their present difficulties, there must be co-operation inside this country and between this country and nations abroad. We do not quite know what other countries are going to do or how they are going to react. We cannot deny that the Chancellor of the Exchequer was right, when he said that unless we get co-operation from the financial, industrial and capitalistic people in the United States and in Canada, all that we are doing in this country in the way of imposing cuts and taxation will have no effect. The Chancellor pointed out that we in this country are trying to do our duty and the right thing by ourselves and by the world. Having done that, we are just men waiting to see whether other people are going to be equally just.

That is the background of the present situation. If industrialists in the United States are adequately represented by the financial experts and industrialists sitting on the benches opposite, the Government must be getting very worried.

Mr. Osborne

It is the T.U.C. who are worrying the Government.

Mr. Braddock

Since the Government came into power in 1945, they have been trying to put through a plan of reconstruction, reorganisation, re-planning and change in co-operation with privately-owned industry in this country, generally represented by hon. Members opposite. What are we to expect the people of this country to think when they read the speeches made in this Debate by Members of the Opposition? It is not denied that the great majority of the people of this country, as a result of devaluation, will suffer in their standards of living.

In order to create confidence in the country and to show that every section of the community is working together, the Government have put forward this extremely moderate Bill. In my opinion, this is no more than a token tax. Representatives of industry and finance opposite have grumbled at the Government, because they say this is a puny, piffling sort of Bill and is hardly worth bringing before the House. That proves up to the hilt that this is nothing more than a token tax, calculated to make the people who really matter in this country—those who do the work—feel that those who are taking the profits are bearing some sort of a burden.

But when it comes to this point, hon. Gentlemen opposite, with the exception of the hon. Member for Abingdon (Sir R. Glyn), who gave them something to think about and something to which they have not yet replied, rejected this suggestion that they should stand in with the rest of the community in doing something to assist in the great attempt that is being made to pull this country and the world out of its difficulties. If hon. Gentlemen opposite are speaking as the representatives of trade and industry in this country, on whom this Government are relying to increase sales in Canada and the United States of America, it is obvious that they are not going to assist the Government. They are turning our proposals down, and they will do everything to defeat any attempt that the Government and country are making. Is that true?

I believe—and here I differ from most of my colleagues on these benches, and certainly from the Chancellor of the Exchequer—that right hon. and hon. Gentlemen opposite do correctly represent the views of the industrialists and the financial interests in this country. If that is the case there is now a great responsibility on the Government of this country—backed as it is, so far as we can see from by-elections, by the workers of this country, and certainly backed and supported as it is by a great majority in this House—very carefully to consider the position which exists and to ask themselves this question. What are they to do if industrialists in this country are correctly represented by the unpatriotic action of hon. Gentlemen opposite? What action are the Government to take in order to deal with the position that is bound to arise?

Mr. Speaker

I think that the hon. Gentleman had better devote himself to the Bill and not to the general action of the Government. This Debate is on the Motion for the Third Reading.

Mr. Braddock

I am sorry. I may have gone a little wide, but I was trying to deal with the implications of the opposition which has come, without exception, from the benches opposite. I may be wrong. As all hon. Members of this House know, I have never supported certain measures and actions which the Government have taken. I have failed to support the Government in those matters because I have never been able to trust hon. Gentlemen opposite and gentlemen of their type in any part of the world.

A situation has arisen, emphasised as a result of the Debates on this Bill, when I suggest that the Government must consider carefully the position which may arise. In view of the tone of the opposition to this Bill, the people of this country will be expecting to hear from the Government what are their alternative proposals in the event of financial and industrial interests in this country following the advice of hon. Gentlemen opposite and refusing to co-operate with the Government and the people of this country in the difficult situation we are facing at the present time.

2.33 p.m.

Mr. Assheton (City of London)

I cannot allow the hon. Member for Mitcham (Mr. Braddock) to leave the House with the impression that he has given today. I am not trying to wind up this Debate, Mr. Speaker, because there are several hon. Members who I hope will be able to catch your eye. There are one or two observations I wish to make relative to speeches which have been made, and a point in addition to the points which I had the opportunity of making on Second Reading. To begin with, may I tell the hon. Member for Mitcham that he is absolutely wrong in thinking that those of us who speak for industry or finance take the line that those who do not themselves work with their hands should not contribute just as greatly and just as much to the sacrifices which are being asked of this country today.

Mr. Braddock

Not to the extent of 5 per cent.

Mr. Assheton

May I be allowed to pursue my argument on that point? We have taken a line about this Bill, not because we are not prepared to accept sacrifices, but because we do not think the particular sacrifice placed on a particular section of the community—and a particular section only of the capitalistic community—is a useful one. I resent deeply the suggestion made by the hon. Member. We have taken the line for some time in this House that taxation at the level which it has now reached is a definite evil from which the whole of the community is suffering. I am not proposing to debate that point now, but we believe that profoundly. We believe that taxation, raised principally to meet what we consider to be excessive expenditure is so high as already to be inflationary. I hope that the hon. Member for Mitcham will be good enough to pay attention to the argument which I am putting to him. He evidently does not wish to do so.

We believe that taxation is already so high as to be inflationary. I wish to ask the Economic Secretary whether he believes that this tax we are discussing will be disinflationary—which is what the Chancellor of the Exchequer said it would be—if the extra tax is paid without reducing dividends? I do not think it will be, because the money which reaches the Government coffers seems to me very likely to be spent. Some hon. Members opposite seem to have overlooked the point that the dividends of shareholders are cut by devaluation just as much as any other form of income in this country.

They also overlook the fact that there are many small shareholders and there are many people living in retirement on the savings which they have made and put into the shares of limited companies. In many cases those people have not had an increased dividend since before the war. A short time ago I heard of the case of a man who had an income from dividends of companies of £160 a year. He retired before the war, and that is what he lived on. He has not received any increase in his dividends and he is still trying to live on that £160 a year.

I do not know whether hon. Members opposite will agree with me that nearly everyone who is earning his living has received a considerable increase in his wages or salary, an increase which must approximate to double pre-war. Yet there are many people in receipt of dividends who are receiving only the same as before the war. It is no answer to say that there may be some companies which have increased their dividends. The truth is that in many cases they have not; and the shareholders are not only held down by the limitation of the dividends they are receiving, but they are severely cut by this present devaluation.

I wish to say a word about the duty of directors to their shareholders. Directors have a duty to their shareholders by whom they are paid. The shareholders pay their directors to look after their interests for them, and naturally the directors are conscientious about the interests of the shareholders. I am not suggesting that directors do not take the greatest possible account of the national interest, because, apart from anything else, the interests of the shareholders is bound up with the national interest. In the case of companies already held down by dividend limitations who are further increasing their profits and making a considerably larger profit than before the war, and who are already placing substantial amounts to reserve, I do not think it is reasonable to suggest that the additional Profits Tax now to be paid should come out of the dividends, rather than at the expense of placing an extra amount to reserve. I do not know whether all hon. Members opposite really appreciate the importance of building up reserves. Reserves are not only built up in order to meet depreciation and to replace plant and so on, but are also established for the expansion of the business.

All the great businesses of this country have been built up, and their expansions have taken place, by money put to reserve in the past. One has only to look at the history of our industrial companies—I could name a couple of dozen without any hesitation—to see that that is so. Those are the companies which have progressed and done so much for the prosperity of this country, whereas companies which have not had prudent management and not put money back to reserve are the companies which have not done much to help the trade and industry of this country. Just as an individual increases his prosperity by saving and gradually increasing his income, so does a company. That that is not a right or proper thing to do can only be suggested by the hon. Member for West Fife (Mr. Gallacher), who takes a different view of the kind of community in which we should live.

Those are the only points I wanted to make, and I do not want to attempt to resumé the Debate, but before sitting down I wish to say that I take the view put forward in the discussion on financial calculation which we had earlier by the hon. Member for Blackley (Mr. Diamond) rather than the view of the hon. Member for Sowerby (Mr. Houghton) who, although he had the advantage of serving the Board of the Inland Revenue for some time, must have got a little rusty since he left the office. I have checked the figures, and I think I must give the palm of success to the hon. Member for Blackley.

2.42 p.m.

Mr. Solley (Thurrock)

I did not intend to intervene in the Debate, but I think it would be wrong to allow the speech to which we have just listened to go unchallenged from this side of the House, even though the challenge has to be made, by one who is no longer a member of the Labour Party. The right hon. Member for the City of London (Mr. Assheton) attempted to move us to tears at the heartrending sight of the impoverished shareholder who found that dividends were not coming in at an accelerating rate. In point of fact, no one knows better than the right hon. Gentleman, who represents the City of London, that almost every company has had an increased profit record since 1939 and, indeed, since 1945, and that that increased profit record has resulted in a most substantial increment of capital.

Even in the case of companies which are the exception and in respect of which there has been a very conservative policy in relation to the declaration of dividends, even in those few and isolated cases the value of the shares has gone up tremendously. Therefore, if any shareholder is in difficulties, and holding that sort of share, all he need do is to sell that share on the Stock Exchange, at a price which is probably three, four, or five times what he gave for it in 1939 or 1945, and invest in a company which has a less conservative dividend policy. Then I am certain that particular shareholder will find that the dividends are coming in very nicely.

I suggest that the approach to this Bill should not be from the point of view of the City of London, but from the point of view of the ordinary man in the street, upon whom the vast burden of the present crisis is being placed. I am not concerned in the slightest degree with the City of London. It would not matter twopence to me if the Stock Exchange were to disappear overnight. I think it would be a much better thing for the people of this country and for my constituency. What I am interested in is the reactions of railway workers in Thurrock to this Bill, the reactions of the dockers in Grays to this Bill and the reactions of the housewives of Tilbury to this Bill—not what the financial moguls of the City of London think of it. I know that if they understood this Bill—and I am sure that most of my constituents have had an opportunity of learning about the Bill and consequently understand it—they would, and do, say, "We are thankful for small mercies, but this increase in the Profits Tax is only a fraction of what it ought to be." When the railway worker of Thurrock is told that he must not ask for a wage increase and the housewife is told that she must pay for little Tommy's meal at an increased rate, and the homeless are told that the cut in housing will make it impossible to get a house for the next two or three years, it is no consolation to know that the right hon. Member for the City of London thinks this an unfair tax on profiteers and companies.

What does the Bill do? Let us be perfectly frank and plain. It merely provides, in the maximum case, for an increase of 8d. in the £ in the rate of Profits Tax. As we have been told by the Chancellor of the Exchequer, the total amount is about £12 million in a full year.

Mr. Assheton

£13 million.

Mr. Solley

I am much obliged for the correction. As I said, I did not intend to intervene and I have not got the figures before me. The entire sum in a normal year's working will be £13 million, but the housewives of Thurrock and the railwaymen of Thurrock know that the sacrifices they have been asked to make in relation to education and the 1s. on prescriptions amount to £15 million in one year. To say that this is equality of sacrifice is not merely untrue, but is a conspiracy to hide the truth from the working class.

I could not allow the speech made by the right hon. Member for the City of London to go without protest. I suggest that the real purpose of the Bill is to induce the working classes to accept the present policy of wage freezing and its further purpose is to induce them to accept the disgraceful slashing of living standards meted out to them. They are being induced to do so on the basis of, "Look, the capitalists are suffering 8d. in the £. That is the extent to which they are suffering." Although I welcome this Bill, and the people on whose behalf I am making this speech welcome it, we do so only as starving people would welcome half a cake. We want the whole cake, but the Opposition say "no cake."

2.49 p.m.

Mr. Drayson (Skipton)

I regard the Bill as a further attack by the Government on saving and thrift. We have had an example from my right hon. Friend the Member for the City of London (Mr. Assheton) of somebody who has an income from savings of £160 a year—about £3 a week—where there has been no increase for several years in any of the dividends paid. The hon. Member for Thurrock (Mr. Solley) has made some thoroughly unsound suggestions as to how that individual should try to overcome his difficulties. He demonstrated by the speech he made his complete lack of knowledge of the City of London, the workings of the Stock Exchange, or investments in general.

Mr. Solley

The hon. Member said that I made suggestions as to how the shareholder should proceed. As that would have been out of Order, I did not do so. Had it been in Order, I would have suggested that we should slash the £400 million cost of the Armed Forces to begin with.

Mr. Drayson

It is the intention of the Government that this unfortunate individual with an income of £3 a week should suffer further as a result of this Measure. In following the Debate it has been very difficult to see exactly what is in the mind Of the Government in connection with this Bill. When moving the Second Reading, the Chancellor of the Exchequer said that this would restrain spending. I do not think we have had any concrete example of how this additional tax will restrain spending, except by preventing the expenditure of money on new equipment for industry. I do not think anybody on either side of the House will suggest that we should stop now in our programme of re-equipping our industries to cope with the difficult world trading conditions that we shall undoubtedly come up against in the future, and which we are already beginning to experience.

Apart from the claim that this tax will restrain spending, it has been called a new contribution by the profit-earning section of the community. We on this side have argued that this section cannot fairly be expected to stand such an additional burden. In this Debate hon. Members have often lost sight of the fact that already there is an additional Profits Tax on industry of 25 per cent. which strain it has borne for some considerable time, and further increased in the last Budget by 20 per cent.—

Mr. Jay

That was in the Budget of November, 1947.

Mr. Drayson

In November, 1947, there was a further increase, and now we have this additional 5 per cent. It demonstrates completely the true attitude of the Government towards industry and towards those people who have invested their money in industrial concerns which are now making an attempt to help the country out of its financial and economic difficulties.

There has been no evidence whatever from the other side of the House to show how companies will benefit as a result of devaluation. This Measure has been introduced because it is suggested that companies will be helped by the increased opportunities which will exist in hard currency markets, yet we have had a number of speeches from this side of the House pointing out that the profits to be made in those markets are extremely slender.

I propose to deal once again with the question of who will pay this additional tax. There has been some confusion in the minds of hon. Members opposite about this item in a company balance sheet, and whether it is money that is actually put to reserve or an increase in the carry-forward that suffers. Apart from putting a certain amount of the residue of net profit to reserve for re-equipment and other purposes, the rest is added to the amount of cash carried forward into the ensuing year. It is that marginal figure which will suffer most, because it will be reduced by the amount of this new tax. While industry have been given an increase to 40 per cent. as an initial allowance for new machinery, many in industrial concerns today are unable to put sufficient money to reserve to replace old machinery which should be replaced.

In this Debate hon. Members opposite have frequently drawn attention to the increases in profits which many companies have experienced over the past 10 years. I would remind them that during the war period these companies were subject to Excess Profits Tax, so that those increased profits were largely swallowed up by the Treasury. Now that there is a possibility of making reasonable profits by taking advantage of the sellers' market, and other factors, they are being taken away by this tax and still we are not able adequately to provide for the writing down of our old machinery and for re-equipment.

Mr. Chamberlain

Is the hon. Member not aware that the free reserves have been running at such unprecedented heights over the past few years that the companies have been investing these reserves because they have not been able to deal with them?

Mr. Drayson

It may well be that the re-equipment which the concerns in question wish to carry out has not been possible because of the limiting factors which the Government have imposed on industry, and especially—I speak here for the textile industry—because the Government have allowed vast quantities of modern machinery to be exported which we could have put into our own mills. Instead of that, the Government have preferred to send it to equip our competitors in markets overseas.

Mr. Chamberlain

There is plenty of money in the reserves.

Mr. Drayson

It is possible that companies, by limiting dividends in response to the Government's request, have over the past few years been able to put money to reserve, and in a number of cases they have also met the request of the Chancellor of the Exchequer by putting it into savings bonds and other Government securities. Now that this additional burden, is placed upon them, they find it necessary to realise some of those securities, and that may be a contributory factor to the present fall in gilt-edge prices.

Another point mentioned by my hon. Friend the Member for North Croydon (Mr. Frederic Harris) was that the figures we now see in the industrial columns of the daily papers deal with profits made a year or more ago, since it takes a company sometimes six or nine months to prepare its annual accounts. However, from those companies which are more up to date with their figures, we are beginning to see almost daily in the Press that the rate of profits throughout the country is falling quickly.

Mr. Chamberlain

I have not noticed it.

Mr. Drayson

Ask the hon. Member for Bolton (Mr. J. Lewis). Ask Mr. Rank—[Laughter]—whether he has felt the effect of the policy of the Government towards industry and his own concern. [An HON. MEMBER: "Private enterprise!"] I consider this to be a serious point. I only ask hon. Members to look at the financial columns of any paper—[An HON. MEMBER:" The 'Daily Worker.'"]—take the "Daily Telegraph." I think hon. Members will find that there are several companies mentioned there today who are recording a lower profit this year than they did the year before. I took the precaution of doing a little research myself—

Captain Field (Paddington, North)

Give him today's "Times"—West London Properties up £7,000!

Mr. Drayson

This country will find itself in difficulties in a year or two when industry will not be able to make that contribution towards the Revenue which we should all like it to be able to make, because of the burdens which have been placed on it. I wish the Government would think again about this Measure. As the £13 million they are to take out of industry in taxation, money that would either have been added to reserves or to carry forward, must be regarded as an inflationary measure, it would be far better for this money to remain in industry than that the Government should take it into Revenue now in order to squander it on some of their wild schemes.

2.54 p.m.

Mr. Lipson (Cheltenham)

I submit that the one important test to apply to this Bill is whether it is likely to help this country in its export trade, and particularly its export trade into the dollar markets. After all, that is the supreme question before everybody at this moment and all other considerations must be given second place to it. It is no answer to say that this tax had to be imposed because certain sections of the workers wanted it to be imposed in order to make up for the cuts which they have been called upon to suffer. Everybody will have to accept their share of the burden of these cuts, and it is also true that the chief interest of the workers is that this country should be able to find a satisfactory solution to her economic difficulties. If we cannot do that, it is quite obvious that the workers of this country will be those who will suffer most, because it will mean the lowering of their standard of living and considerable unemployment.

Mr. Pannell (Leeds, West)

The hon. Gentleman says that everybody will have to bear their share. Does he suggest that some workers are bearing their share, and that others are not?

Mr. Lipson

No, I said that everybody will have to bear their share of the sacrifices that will have to be made, and I understand that that is not in dispute. There is no section of the community that is exempt. But this is a special additional burden placed upon one section of the community.

I oppose this tax because I believe that psychologically, it is a bad tax. It is not really in the interests of the workers of this country that this tax should be imposed, though we are told that it has been done to satisfy them. I consider that this tax is not likely to help our export trade, but may even possibly damage it, is because it is common knowledge that we want as many industries as possible to divert their business into the dollar market. We can all agree upon that, but there are certain industries which at present find it easier to make profits if they go into the soft currency markets.

Mr. Turner-Samuels (Gloucester)

; Will the hon. Gentleman allow me? The effect of devaluation in certain directions is going to be that firms will make more profits, and this Bill is merely an attempt to impose tax upon those profits.

Mr. Lipson

There might be something in that argument if the tax was limited only to profits made in the dollar market, but this is a tax on all industry, and the point I am making is that the highest considerations of the national interest should prevail over the arguments which have been advanced from the other side of the House in favour of the tax and that they ought to be taken into account in an objective view of its merits.

I believe there are industries which find it easier to carry on their business and make bigger profits in the soft currency markets, and I fear that the effect of this tax on industrialists will be to make them say, "If we have to pay a bigger tax on our profits as a result of this Bill, we also have our obligations to our shareholders, and we shall therefore continue to do our business in the soft currency market instead of in the dollar markets." Therefore, I say that this Bill cannot possibly help the export trade, but may quite possibly hinder it, and, for that reason, I do not believe that it is really wise for the Government to have introduced it. We are told that the revenue to be raised is in the nature of £13 million, but, actually, the issues involved in the efforts to overcome the economic crisis, which efforts may be seriously endangered by this Bill, are far more important than a matter of £13 million.

The hon. Gentleman the Member for Mitcham (Mr. Braddock) appealed for co-operation, but I must say that his speech was a strange way of trying to secure it. I wish that hon. Members opposite—

Mr. Braddock (Mitcham)

I thought I made it clear that I believed that the Government thought co-operation was possible, but that I myself had never had any faith in hon. Members opposite, and that I do not think it is possible.

Mr. Lipson

If I might relate what the hon. Gentleman has said to this Debate. I would say that I wish hon. Members would realise that it is possible to hold two views about this Bill. I am quite prepared to recognise that there are hon. Members opposite who honestly believe that this is a good Bill and one that is desirable at the present juncture, but I do ask hon. Members opposite also to acknowledge that it is quite possible for the critics of the Bill, quite honestly and sincerely, in the interests of the country, to believe that this is a bad Bill. Because I believe that psychologically it is a bad Bill, and that it would not help what I consider ought to be our supreme purpose at this moment, I shall vote against it.

3.5 p.m.

Mr. Selwyn Lloyd (Wirral)

The Second Reading Debate on this Bill, the Committee stage and the Third Reading have all taken place within such a short space of time that the arguments are very well within the recollection of the House, and therefore it is all the more difficult to say anything that is either new or interesting or diverting. I was sorry that the hon. Member for Blackley (Mr. Diamond) thought that the general level of the Debate today had been quite shocking. I see that he is not here now, but had he been present I would have tried not to shock him further.

Mr. Daines

I do not think that is quite fair. What my hon. Friend the Member for Blackley (Mr. Diamond) said was said about the contribution from the benches opposite.

Mr. Selwyn Lloyd

I quite agree that that is what he said, and I was dealing with what I regarded as the effective portion of the Debate today. I agree with the hon. Member for Mitcham (Mr. Braddock) in this, if in nothing else, that I am well satisfied with the contributions made from my side of the House, just as he said that he was satisfied with the contributions made from his side. The objections which we have to this Bill are that it is a bad Bill because it increases taxation in a country already overburdened, it weakens incentive, and it is a grave psychological blunder, as the hon. Member for Cheltenham (Mr. Lipson) has just said.

The first argument, and one constantly put forward by hon. Members opposite, is that only £13 million are involved. The hon. Member for Blackley said that it is nothing more than a mere token, and the Financial Secretary said that it was such a small proposal that he was surprised that there should be any opposition to it. When an example was given by my right hon. Friend, and it was suggested by an hon. Member opposite that the extra burden on the company concerned would only be a few thousand pounds there was ecstatic laughter from the benches opposite at the smallness of the burden placed on that particular company. Incidentally if £13 million is such a paltry sum it throws rather a curious light on the economy programme of the Government in other connections. The validity of that argument surely depends on the existing level at which the extra burden is imposed.

The Financial Secretary, talking of the taxation borne by companies, pointed out that in 1938 they were paying £87 million out of £763 million and that in 1948 they were paying £670 million out of £1,945 million. In other words, the contribution by way of taxes in the 10 years has enormously increased. The hon. Member for Blackley said that this Bill involves an extra 7d. in the £. I accept his figure, and I think I am right in saying that it will raise the tax on distributed profits from 11s. 9d. to 12s. 4d. in the £. That, I think, is approximately correct.

As I say, the whole validity of this argument that it is only a very small increase depends on the level at which we start. I have no doubt that when the gentleman who placed the last straw that broke the camel's back was called to account, he argued, no doubt with conviction to a jury consisting of hon. Members opposite, that it was a relatively small increase which he was placing upon the unfortunate beast of burden. We say that the existing level of taxation is so high that any increase is highly objectionable.

The second argument put forward on behalf of the Bill was really contained in the Chancellor's words—referred to many times before—when he first introduced the proposal and said that the average profit earner would benefit by devaluation, especially in the case of exports. I submit to the House that that contention has not been proved. It has been reiterated, sometimes rather halfheartedly, but it has not been proved. The only specific case which has been given is the Financial Secretary's case of whisky exporters. He knows that that is a very special case. He suggested that their profits would go up by 800 per cent., I think, which is a fantastic figure to give, because he disregarded any of the extra expenses which they would have to bear by way of dollar disbursements. I do not think he meant it as a serious mathematical calculation.

Much more weighty evidence on this point was given by my hon. Friend the Member for Edgbaston (Sir P. Bennett), and if anybody really wants to examine the effect on profits of tackling this dollar market I suggest that they should read the OFFICIAL REPORT, 3rd November, cols. 697–8, and see what my hon. Friend had to say so far as motorcar manufacturers are concerned.

Mr. Emrys Hughes (South Ayrshire)

The hon. and learned Member has challenged the Chancellor's statement that whisky profits were going up by a certain amount. Could the hon. and learned Gentleman tell us his estimate of the increase in whisky exports to the dollar markets?

Mr. Selwyn Lloyd

No; I do not know, and I have taken no steps to find out, because I think it is a special case. Why any treatment which might be appropriate for that industry should be appropriate for all the rest of industry, I fail to see. A much more average case is the case of the motorcar manufacturers to which my hon. Friend has referred. I think the Chancellor's argument on that point has been abandoned. At any rate, the soft pedal was certainly given to it in the Second Reading speeches of the Financial Secretary and the Economic Secretary.

I think the main reason for the Bill which is now being put forward by the other side is that it involves fair shares in sacrifice. That is the argument which appeals to them and which they have put forward with most force. It is a very specious argument. I think most people will agree that sacrifies should be as fairly and equitably borne as possible, but one relative factor is: What sacrifices have the parties already borne?

On this point I am in some difficulty by reason of Socialist propaganda. I thought the poorer sections of the community, the wage earners, were in a very much better position than they had ever been before, that they were flourishing as they have never flourished before and that they could look forward to prospects infinitely greater, while the rich were having their goods and chattels retrospectively and retributably redistri- buted. As the Chancellor himself said on 6th April, the limit of redistribution of national income by way of taxation has been reached. I thought the limit had been reached, while the poorer sections of the community under this munificent Socialist Government were infinitely better off than they had ever been before.

Mr. Chamberlain

I want to get the matter put fairly. Surely the hon. and learned Gentleman understands that the general average of the standard of living has risen tremendously, but there are still some old-age pensioners and others on lower wage levels who come near the borderline. The only difference is that they are not starving as they were under the old régime.

Mr. Selwyn Lloyd

I agree that it is unfair to remind hon. Members opposite of their own propaganda. I think it is wholly misleading because I believe that all classes are very much worse off in real purchasing power and real wealth under this Government than they were before.

Accepting the principle of equality of sacrifice, the point is: Is this equality? In examining whether it is equality or not, we are entitled to ask the Financial Secretary whether it is the Government's intention or desire that dividends should be reduced in a number of cases. If it is intended that dividends should be reduced, then very many people who are already hard hit will suffer substantially. The Financial Secretary suggested that half the Surtax is contributed from unearned income or income from dividends, and that was an argument for showing that there were not very many holders of small amounts of securities.

I think that view is completely wrong. I think there are very many holders of small amounts of securities. One must have regard in this matter to one's personal experiences and the cases with which one has to deal, and I think it is true that a very great number of people of very limited means, who already will suffer from the rise in the cost of living, will also suffer if dividends are decreased. It is a travesty of the truth to suggest that only rich people are recipients of dividends.

My case on this argument is that this is a poor way of producing equality. If the case for the Government had been that extravagence must be curbed or taxed in some other way, that would have been a different proposition, but, as a means of curbing or checking extravagence, this will involve penalising people who are very ill able to bear the burden. If, on the other hand, the Financial Secretary says that dividends will not be reduced and that this tax will come out of free reserves, then we come back to the argument dealt with so devastatingly by my right hon. Friend—the argument about the amount of free reserves which companies already have. It is quite true that the figure has increased between 1938 and 1948 from £170 million to £545 million. My right hon. Friend pointed to Mr. Chambers' calculation of insufficient depreciation allowances and also the increased cost of financing stocks. In dealing with that point in the Debate in Committee on 9th November, the Economic Secretary said: I do not admit in principle that there can be such a gap"— that is, the gap between the amount necessary for replacements and the amount available— if the matter is regarded from the point of view of the whole life of the plant. Over the whole life of the plant in question the whole amount is written off out of the sums paid in taxation. Therefore, over that period there cannot really be such a gap."—[OFFICIAL REPORT, 9th November, 1949; Vol. 469, c. 1270.] He went on to point out that the £70 million in initial allowances was a contribution to the situation. With all respect, I do not think the Economic Secretary has quite appreciated the facts. If we may take, for example, the case of a ship built in 1925 at £400,000, the cost of replacing that ship in 1950 would be at least £1 million. I quite agree that the initial allowance would be about £400,000 and there would be £400,000 accumulated depreciation, but there would still be a margin of £200,000 which would have to be found from the taxed reserves of the company. That is a common case, for the costs of replacement at the present time are running at between 200 per cent. and 300 per cent., and it is not a fact that free reserves in the majority of cases are yet adequate to enable the capital capacity of the plant to be maintained or stocks to be financed.

The next argument is that this is a counter-inflationary measure, and I quite agree that if dividends are reduced it will diminish some spending power. But if the tax is paid out of free reserves, as has already been pointed out by one of my hon. Friends, it means that these free reserves are being used to buttress state expenditure, which means, surely, that there is no counter-inflationary influence.

There is another aspect of this question of inflation which I do not think has been mentioned previously in the course of these Debates. At the moment taxation is so high that every increase of taxation is in itself inflationary. I entirely agree, if I may say so with respect, with the Prime Minister's exhortation to private economy the other day. He said that it was not right to concentrate the appeal for economy on public expenditure and he said that we also have to seek economies in private expenditure, wherever possible. I entirely agree that in the present state of affairs that most certainly should be done, but when the Chancellor of the Exchequer is taking between 50 per cent. and 60 per cent. in taxation, it is impossible to get real economy in operating expenses. Everybody knows that, whether it is blameworthy or not, the tendency is to say of any item, "Well, the Exchequer is going to bear 50 to 60 per cent. of this expense; let us do it." Everybody knows that in practice that really is what is happening, and that is the inflationary tendency of the high rate of taxation; and that inflationary tendency, I submit, is aggravated by every increase.

There are only two other arguments with which I want to deal. The first of those is that the taxation of profits does not affect costs. The Economic Secretary, in his speech on Second Reading, quoted the Colwyn Report and reminded us that: … the Colwyn Committee on National Debt and Taxation, which is the most eminent group of experts who have ever examined this question, concluded unanimously that taxation on profits does not raise costs or prices."—[OFFICIAL REPORT: 3rd November, 1949; Vol. 469, c. 610.] He went on to say that the conclusions of the committee remained true.

I then had recourse to another book on this subject with which the hon. Gentleman, I have no doubt, will be familiar. It is described as "The Socialist Case" by Douglas Jay. It was written in 1937, and re-published in 1946 with a foreward by the Prime Minister. I think it was described by the hon. Member for East Coventry (Mr. Crossman) as the best-known book on Socialism published since the war. "It is the milk of the gospel," he said. I have the 1937 milk of the gospel which, I assume, is unexpurgated. At all events, in the preface the hon. Gentleman expresses thanks to the Minister of Fuel and Power for reading the typescript and pointing out various errors in the argument. I think it would be very interesting to see that correspondence. However, on this matter—and I am reading from page 256 of the 1937 edition—and in discussing this question of the effect of taxation on profits and on costs, he says: It becomes necessary to ask at this point whether an income-tax on profits can be passed on by an entrepreneur to his customers. If an income-tax is imposed on profits, can the business man raise the price of the commodity as he would if a turnover or excise tax had been imposed? The Colwyn Committee Majority Report decided that he would not, but they rested their case on a theoretical argument which does not seem to be tenable. He went on to say: This argument, it will be noted, rests on the assumption that the traditional popular distinction between costs and profits is a true economic one. It implies that profits, i.e., entrepreneurs' remuneration, are not a payment for any service, and therefore a true cost in the sense of a payment without which the commodity would not have been produced. It regards them simply as a surplus. This view, which is no longer held by economists, was rejected in chapter vi; and it was there argued that profits are in the real economic sense as truly costs as wages or interest. A tax on the entrepreneurs' profit is not, therefore, in principle different from a tax on wages: and we cannot on theoretical grounds deny the possibility of entrepreneurs passing the tax on to the consumers. Here in fact it must be freely admitted that the argument is less favourable to the socialist case then the conservative members of the Colwyn Committee themselves believed. Indeed, the acceptance by the Colwyn Report of the view that income-tax cannot enter into prices seems to be a remarkable example of the governing classes accepting a view contrary to their own interests as a result of a traditional intellectual mistake. The hon. Gentleman, having demolished the Colwyn Committee's theoretical argument, goes on to the point that in practice in many cases he did not consider, owing to competition, that it would be possible to pass on profits in considering prices. Of course, in the present conditions of very high taxation and of short supply and of 1938 quotas, and so on, we have exactly the sort of circumstances in which it is possible to pass on tax in computing prices, and I submit that the author of that book in 1937 was obviously correct, and that in the circumstances of today any industrialist or distributor must calculate what sum he wants to have at the end, after paying all his taxes and other disbursements, and fix prices accordingly.

Mr. Harrison (Nottingham, East)

The hon. and learned Gentleman mentioned the fact that the motorcar industry was the best example in this particular sense. I suggest to him that he should apply the particular deduction he made to the motorcar industry which has sales abroad. Is it possible to pass on taxation? Is there not competition in motorcars in the American market?

Mr. Selwyn Lloyd

I think that I must pray in aid the hon. Member's support on an earlier portion of my argument as to the difficulties which exporters are going to have to get into the dollar market. It does not seem to me that his present argument makes that task any easier. I will not reiterate my argument, but in my submission, in present circumstances, taxation and increasing taxation must come into costs.

My final point is on the question of incentives. The worst thing about this Bill to my mind is the psychology of it. At the present time, when everyone is being called on to increase savings, we choose to diminish either directly or indirectly the rewards of capital. We get the hon. Member for Gravesend (Sir R. Acland) disputing the moral right to draw an income on the ownership of property apart from the discharge of functions. The hon. Member for Central Southwark (Mr. Jenkins) envisaged the necessity in a few years' time of a capital levy. To choose to say at a time when we are appealing to people to save from their hard-won earnings in order to invest and accumulate capital that we are going directly or indirectly to diminish the rewards for capital is, to my mind, bad salesmanship and bad psychology.

In exactly the same way, when we try to get people to go out into difficult export markets and sell goods and make dollars for this country, it is the psycho- logical quintessence of foolishness to put upon them extra taxes. Against the background of calamity referred to already, I think that this Bill is a psychological blunder, which under present circumstances will do nothing for the good of the people or the good of the country.

3.28 p.m.

The Economic Secretary to the Treasury (Mr. Douglas Jay)

Let me first answer three of the arguments of the hon. and learned Member for Wirral (Mr. Selwyn Lloyd). First he quoted me as saying that as a result of devaluation the whisky industry would make 800 per cent. profit, and he denied that, on the grounds that there would be certain increases in costs. What I actually said was, that that would be the result on certain assumptions in any industry which had been enabled by devaluation to raise its sterling price by 40 per cent,. but I am not to be taken as having suggested that that necessarily applied to the whisky industry.

He also asked why, if the wage earners, as we on this side of the House maintain, are better off today than they were before the war, no such burden should fall on them as we are imposing on the shareholders? It is perfectly possible for the wage earners to be very much better off today than they were under Tory Governments without being as well off as the shareholding classes; and that, I believe, to be the actual fact.

The hon. Gentleman also developed a curious argument that the 60 per cent. tax on profit—55 per cent. or 60 per cent. Income Tax and Profits Tax together—was so high that it was an incentive to firms to spend additional money on improvements, and so on. That argument of the hon. and learned Gentleman is totally contradictory to the argument of the hon. and learned Member for the Combined English Universities (Mr. H. Strauss) that this tax will penalise enterprise and development. Both those arguments cannot possibly be true.

What struck me most about the opening speech of the right hon. Member for Saffron Walden (Mr. R. A. Butler) today was his uncompromising statement about this tax. Not merely did he disapprove of the rise in it, but he said that the whole principle of the tax was entirely wrong. Those were his words as I took them down. He gave as his reason that it fell on the risk taker, and I gather that the Opposition Front Bench says "Hear, hear" to that sentiment.

Mr. Oliver Stanley (Bristol, West)

The Chancellor of the Duchy said it before the war.

Mr. Jay

I was surprised by that, because the right hon. Gentleman himself and his right hon. Friend the Member for West Bristol (Mr. Stanley) were members of the Government in June, 1937, which introduced this tax in the same form, though under another name. I myself at that time applauded and supported this tax, and, unlike right hon. Gentlemen opposite, I have done so consistently ever since. I think it is a good tax for this reason: that it is possible to raise it in inflationary periods, when profits are rising, and to reduce it in deflationary periods when they are falling. I would be just as in favour of reducing this tax in a deflationary period, if we were threatened with serious unemployment, as I am in favour of raising it today.

The remarkable thing about this series of Debates is that none of the basic arguments put forward from this side of the House has been answered by the Opposition. I will mention first, in reply to the hon. and learned Member for Wirral, the argument which I myself put forward, that taxation on profits does not generally enter into costs and prices. The Opposition are so bankrupt of any arguments to answer that that they finally had to go to my own book of 12 years ago to think of an answer. The hon. and learned Gentleman, although he no doubt read out the words correctly, completely misunderstood the argument. What I said on that occasion was that the Colwyn Committee was theoretically wrong, and I believe they were. But I thought then, and I think now, that in the great majority of cases they are in practice correct. The argument which I said was fallacious was, not the argument that taxation does not enter into costs in the ordinary sense but the argument that profits as such, in a fundamental sense, are not "costs" properly so understood. Those are two quite separate arguments, but I have not time to develop the distinction now.

The principal argument which has been put forward by the Opposition, and which I think they have failed to substantiate, is the argument that in this series of Debates we have come to associate with the hon. Member for Farnham (Mr. Nicholson), whose argument is that this tax will not as we think, come mainly out of higher profits, and perhaps to some extent out of lower dividends but will largely be paid out of reserves. I think the reason the hon. Member has been trying to give for that—though, if I may say so, he has put it forward in a somewhat tortuous manner—is that in a pure accountancy sense it is quite true that, whereas Income Tax is recoverable from the shareholder, Profits Tax is, of course not. But though that is true in an accountancy sense, it does not really affect the issue at all.

The real facts of the case are these. There is a certain amount of profit available which may be used in one of three ways: either it may be paid out in dividends, or it may go to the Exchequer in taxation, or it may be placed to reserve. What the hon. Gentleman and same of his supporters have done throughout this Debate is to assume that the nominal dividend remains the same, and thereby to infer that the extra tax must come out of the reserve. That, of course, is a platitude. The right hon. Member for Saffron Walden today gave us some elaborate arithmetic, and I am advised that his arithmetic was correct. But all his arithmetic proved was what we knew already: that if the dividend remains the same, the taxation must come out of reserves. Therefore, his logic was not as good as his arithmetic.

Mr. Nicholson

I would like the hon. Gentleman to represent my argument fairly. A drop in dividends of £x is not reflected in the proportionate increase of what is put to reserve, so we get the ridiculous position that if there is any dividend at all 50½ of the profits of the company are taken by the Government. If the dividend is reduced from, say, three-quarters to a half of the net profit that is in no way nearly reflected in what is put to reserve.

Mr. Jay

However much arithmetic we may go into, if the nominal dividend is the same, the extra tax must come out of reserve. But it is equally true that if the reserve remains the same the extra tax must come out of the dividend. The hon. Gentleman's argument really amounts to no more than this: if there are three variables, A, B and C, coming out of a given total, and it is assumed that A remains the same and B changes, it follows that C must change by the same extent in the opposite sense. But it all depends on which is A and which is B.

We on this side have maintained consistently that as profits themselves in total are rising, and as they are likely to continue to rise—on the argument of the Opposition, that the recent cuts are insufficient and will lead to an inflationary situation—it follows that this tax will be largely paid neither out of reserves nor out of lower dividends, but out of increasing profits.

The right hon. Gentleman the Member for the City of London (Mr. Assheton) specifically asked whether, if the payment of tax came out of reserves, which we deny as a general proposition, that would be, in the Government's view, disinflationary. The answer, which I have given in Committee already, is that it would be neither inflationary nor disinflationary. An equal amount of saving would be done, but by way of a larger Budget surplus, rather than a larger sum placed to reserve by companies.

The other argument which the Opposition have entirely failed to answer is the basic one we have put forward, that at a time when wage earners and old age pensioners are having to bear an increased price of bread and higher cost of living, it is fair that profit makers, who are, by and large, gaining by the situation, should make a corresponding sacrifice.

The only attempt to answer that argument was that made by the hon. and learned Member for the Combined English Universities, that shareholders are also having to bear the increased cost of living in their capacity as consumers. But that argument is completely invalid, because it leaves out of account the fact that shareholders as a class are far better off than wage earners. The right hon. Gentleman the Member for Saffron Walden tried to dispute that by quoting the cases of big companies which found that their shares were held in very small blocks. As I pointed out to him, it establishes nothing to say that there may be so many thousand people who hold perhaps shares in I.C.I. worth £100, because those individuals, although they are holding that amount in I.C.I., may have total property worth £50,000 or £100,000. Figures available to us suggest that that is, in fact, the case. I have quoted the interesting evidence from the Inland Revenue that more than half the Surtax revenue today is derived from investment income; and that merely confirms what is really a matter of common-sense that those living on dividends are generally speaking better-off than those living on wages.

Mr. Spearman (Scarborough and Whitby)

Does the hon. Gentleman really think that any investor outside a lunatic asylum would have 1,000 different investments?

Mr. Jay

No, but the hon. Member surely does not think that because he has only £100 in one company he cannot hold more than £100 in some other company. I should like to give further evidence of this which is available from the Death Duty figures. I quote the figures for immediately before the war, because they are the only ones we have in this form. Those figures show that in pre-war years 10 per cent. of the people dying in the community in any given year held 99 per cent. of the industrial property. If it is the case that 10 per cent. of the community numerically hold 99 per cent. of the property, it is quite clear that individual shareholders must be better off than the mass of wage earners, old-age pensioners and so forth.

It is quite clear that ever since the speech of the hon. Member for Abingdon (Sir R. Glyn) on the Second Reading, the Opposition have realised that they have made a political mistake in opposing this Bill. That was evident in the rather more contrite tone in which the right hon. Gentleman the Member for Saffron Walden spoke today. I should like to welcome warmly, and endorse his statement that it is the patriotic duty of all sections of the community to support the gilt edge market. But what he said was remarkably different in tone from the speech of his leader, the right hon. Gentleman the Member for Woodford (Mr. Churchill) when winding up the devaluation Debate the other day.

I said on Second Reading that such notable effort had been made by industrial management in the interests of national recovery during these last years that I could not really believe that they would object to profit earners making some contribution alongside wage earners and old-age pensioners. The hon. Gentleman the Member for Stockport (Sir A. Gridley) confirmed that sentiment today. I do not believe that the great majority of patriotic industrialists—because I think the majority are patriotic—share the opposition to this tax which the Tory Party are putting forward today. That was confirmed by the speech of the hon. Gentleman the Member for Abingdon. If the Opposition had known what he was going to say beforehand they might have taken up a different attitude. He said: The time has come when everybody must show his willingness to do something to help the country out of a situation which, I believe, some hon. Members of the House do not realise to be so serious. He also said: Therefore this Profits Tax has to be explained to the workers to show that the investors are making a sacrifice. I believe that the Tax can be justified at the present time. I should not like to go to the workers and ask them to do something more unless we were also doing something more. That is the way I look at it. And, of course, that is the right and fair way to look at it. The hon. Member for Abingdon further said: I do not believe that the great body of shareholders of operating companies will resent this"— that is to say the rise in the tax— in the very least if the companies are wellmanaged."—[OFFICIAL REPORT, 3rd November, 1949; Vol. 469, c. 648.] I believe that if the Opposition had themselves taken that attitude they would have obtained more credit in the country as a whole. The fact is that this Bill quite simply seeks to ensure that the sacrifices following on devaluation are fairly and widely spread. In my view if we had not introduced this additional Profits Tax, then the burden resulting from the increase in the price of bread could not have been defended on the grounds of social justice. There was therefore an imperative need for some action of this kind. It has been said by some hon. Members that the purpose of this Measure was to "placate" or "pacify," or some such word, organised labour—

Mr. Osborne

No, the Minister of Health.

Mr. Jay

I believe there is something even more important than appearing to be fair and that is actually to be fair, and that is why I think we have achieved a great national gain by this Bill. Surely it is clear that there is nothing more desirable and necessary for our economic recovery than the continuance of the industrial peace which we have enjoyed these last five years. The fact is that during these years we have had barely one-fifteenth of the number of man-hours lost through industrial dispute as in the corresponding period after the last war.

Mr. Osborne

There were not the same people organising them.

Mr. Jay

This improvement is not an accident. It is due to the fact that organised labour and wage earners generally have had confidence in the fashion in which the rewards of industry and the income of the community were being distributed. It is because they have had that confidence, which they did not have before the war, that we have had better industrial relations and very much higher production in the last few years.

In the last two years, since the White Paper on personal incomes was published a great deal of restraint has been exercised both by organised labour and also by managements in the matter of dividend limitation. I agree with the hon. Member for Edgbaston (Sir P. Bennett), who, as he told us, had very much to do with the original dividend limitation agreement, that the great majority of the industrial companies have shown themselves public spirited and have maintained that agreement. I often doubt if people realise how difficult it has been for the organised trade union movement to show the restraint which they have shown. They have faced great difficulties and they are facing very difficult decisions at this moment.

It is correct to say, as indeed the hon. Baronet the Member for Abingdon did say, that in those circumstances it should be made perfectly plain that these additional sacrifices are being fairly borne. I think one can say that since the White Paper was issued, industrial managements generally have shown themselves to be public spirited in this matter. The trade union movement has also shown itself to be public spirited and I think the hon. Member for Abingdon spoke in a thoroughly public spirited manner on Second Reading and, in doing so, gave his support to this Bill. My only regret is that the only group who will not also support this public spirited attitude is the official Opposition at this moment. I said just now that the right hon. Member for Saffron Walden seemed to be speaking in a rather more sorrowful and contrite spirit, and not to be nearly so bitterly opposed to the Bill as he was before he heard the speech of his hon. Friend the Member for Abingdon.

Mr. R. A. Butler

May I explain that the reason for my acerbity on the first occasion was because I followed the hon. Gentleman, who had quite unnecessarily imported a political argument into his speech. On this occasion, as the hon. Gentleman is following me, may I con-

gratulate him on the moderation of his remarks?

Mr. Jay

I am afraid that my speech on Second Reading can hardly be held to explain the greater moderation of the right hon. Gentleman's speech today. However, I wonder whether, in those circumstances, and bearing in mind the speech the hon. Member for Abingdon and, indeed, the hon. Member for Stockport (Sir A. Gridley) made today, whether the Opposition could not perhaps at this stage think better of their opposition to this Bill and join in the purpose of the Bill, which has the support of almost everybody else, and refrain from voting against this increase in tax in the Division Lobby today.

Question put, "That the Bill be now read the Third time."

The House divided: Ayes, 192; Noes, 94.

Division No. 279.] AYES [3.53 p.m.
Acland, Sir Richard Evans, Albert (Islington, W.) Lewis, A. W. J. (Upton)
Adams, Richard (Balham) Evans, John (Ogmore) Lewis, T. (Southampton)
Albu, A. H. Evans, S. N. (Wednesbury) Lindgren, G. S.
Allen, A. C. (Bosworth) Ewart, R. Lipton, Lt.-Col. M.
Alpass, J. H. Fairhurst, F. Longden, F.
Attewell, H. C. Farthing, W. J. McAdam, W.
Ayles, W. H. Fernyhough, E. McAllister, G.
Ayrton Gould, Mrs. B. Field, Capt. W. J. McGhee, H. G.
Barstow, P. G. Fletcher, E. G. M. (Islington, E.) Mack, J. D.
Barton, C. Follick, M. McKay, J. (Wallsend)
Battley, J. R. Ganley, Mrs. C. S. Mackay, R. W. G. (Hull, N. W.)
Bechervaise, A. E. Gibson, C. W. Maclean, N. (Govan)
Berry, H. Greenwood, A. W. J. (Heywood) McLeavy, F.
Beswick, F. Grey, C. F. Macpherson, T. (Romford)
Bing, G. H. C. Griffiths, Rt. Hon. J. (Llanelly) Mallalieu, J. P. W. (Huddersfield)
Binns, J. Guest, Dr. L. Haden Manning, C. (Camberwell, N.)
Blackburn, A. R. Gunter, R. J. Mellish, R. J.
Blenkinsop, A. Guy, W. H. Messer, F.
Blyton, W. R. Hall, Rt. Hon. Glenvil Middleton, Mrs. L.
Bottomley, A. G. Hamilton, Lieut.-Col. R. Mikardo, Ian
Bowden, H. W. Hannan, W. (Maryhill) Mitchison, G. R.
Braddock, T. (Mitcham) Hardman, D. R. Monslow, W.
Bramall, E. A. Harrison, J. Morgan, Dr. H. B.
Broughton, Dr. A. D. D. Hastings, Dr. Somerville. Morley, R.
Bruce, Maj. D. W. T. Haworth, J. Morris, P. (Swansea, W.)
Burden, T. W. Henderson, Rt. Hon. A. (Kingswinford) Nally, W.
Butler, H. W. (Hackney, S.) Henderson, Joseph (Ardwick) Naylor, T. E.
Chamberlain, R. A. Herbison, Miss M. Nichol, Mrs. M. E. (Bradford, N.)
Champion, A. J. Hewitson, Capt. M. Nicholls, H. R. (Stratford)
Chater, D. Holman, P. Noel-Buxton, Lady
Chetwynd, G. R. Horabin, T. L. Oliver, G. H.
Cocks, F. S. Houghton, Douglas Orbach, M.
Collick, P. Hudson, J. H. (Ealing, W.) Palmer, A. M. F.
Collindridge, F Hughes, Emrys (S. Ayr) Pannell, T. C.
Colman, Miss G. M. Hughes, Hector (Aberdeen, N.) Pargiter, G. A.
Corbet, Mrs. F. K. (Camb'well, N. W.) Hutchinson, H. L. (Rusholme) Parker, J.
Cove, W. G. Hynd, J. B. (Attercliffe) Parkin, B. T.
Daines, P. Irving, W. J. (Tottenham, N.) Paton, J. (Norwich)
Dalton, Rt. Hon. H. Janner, B. Pearson, A.
Davies, Edward (Burslem) Jay, D. P. T. Poole, Cecil (Lichfield)
Davies, Harold (Leek) Jeger, G. (Winchester) Popplewell, E.
Davies, Haydn (St. Pancras, S. W.) Jenkins, R. H. Price, M. Philips
de Freitas, Geoffrey Jones, Rt. Hon. A. C. (Shipley) Pursey, Comdr. H.
Delargy, H J Jones, D. T. (Hartlepool) Ranger, J.
Dodds, N. N. Jones, P. Asterley (Hitchin) Reeves, J.
Driberg, T. E. N. Kenyon, C. Reid, T. (Swindon)
Dugdale, J. (W. Bromwich) Key, Rt. Hon. C. W. Ridealgh, Mrs. M.
Dumpleton, C. W. Kinley, J. Robens, A.
Ede, Rt. Hon. J. C. Lee, Miss J. (Cannock) Robertson, J. J. (Berwick)
Edwards, W. J. (Whitechapel) Leslie, J. R. Robinson, Kenneth (St. Pancras, N.)
Rogers, G. H. R. Symonds, A. L. Wilcock, Group-Capt. C. A. B
Segal, Dr. S. Taylor, R. J. (Morpeth) Wilkes, L
Silverman, S. S. (Nelson) Thomas, D. E. (Aberdare) Wilkins, W. A.
Simmons, C. J. Thomas, Ivor Owen (Wrekin) Willey, F. T. (Sunderland)
Skeffington-Lodge, T. C. Thomas, John R. (Dover) Willey, O. G. (Cleveland)
Skinnard, F. W. Tomlinson, Rt. Hon. G. Williams, D. J. (Neath)
Smith, C. (Colchester) Turner-Samuels, M Williams, J. L. (Kelvingrove)
Smith, H. N. (Nottingham, S.) Vernon, Maj. W. F. Williams, Ronald (Wigan)
Smith, S. H. (Hull, S. W.) Viant, S. P. Williams, W. T. (Hammersmith, S.)
Solley, L. J. Wallace, H. W. (Walthamstow, E.) Williams, W. R. (Heston)
Sorensen, R. W. Weitzman, D. Young, Sir R. (Newton)
Sparks, J. A. Wells, P. L. (Faversham) Younger, Hon. Kenneth
Stewart, Michael (Fulham, E.) Wells, W. T. (Walsall)
Strachey, Rt. Hon. J. Whiteley, Rt. Hon. W. TELLERS FOR THE AYES:
Swingler, S. Wigg, George Mr. Snow and Mr. George Wallace.
Agnew, Cmdr. P. G. Gridley, Sir A. O'Neill, Rt. Hon. Sir H.
Assheton, Rt. Hon. R. Hannon, Sir P. (Moseley) Osborne, C.
Baldwin, A. E. Hare, Hon. J. H. (Woodbridge) Pickthorn, K.
Beamish, Maj. T. V. H. Harris, F. W. (Croydon, N.) Ponsonby, Col. C. E.
Bennett, Sir P. Hogg, Hon. Q. Poole, O. B. S. (Oswestry)
Boles, Lt.-Col. D. C. (Wells) Holmes, Sir J. Stanley (Harwich) Prior-Palmer, Brig. O.
Boyd-Carpenter, J. A. Hulbert, Wing-Cdr. N. J. Raikes, H. V.
Braithwaite, Lt.-Cmdr. J. G. Hutchison, Col. J. R. (Glasgow, C.) Roberts, Emrys (Merioneth)
Brown, W. J. (Rugby) Jeffreys, General Sir G. Robertson, Sir D. (Streatham)
Buchan-Hepburn, P. G. T. Jennings, R. Robinson, Roland (Blackpool, S.)
Bullock, Capt. M. Lancaster, Col. C. G. Ross, Sir R. D. (Londonderry)
Butler, Rt. Hn. R. A. (S'ffr'n W'ld'n) Legge-Bourke, Maj. E. A. H. Sanderson, Sir F.
Challen, C Linstead, H. N. Savory, Prof. D. L.
Channon, H. Lipson, D. L. Smith, E. P. (Ashford)
Clarke, Col. R. S. Lloyd, Selwyn (Wirral) Spearman, A. C. M.
Conant, Maj. R. J. E. Low, A. R. W. Stanley, Rt. Hon. O.
Cooper-Key, E. M. Lucas, Major Sir J. Strauss, Henry (English Universities)
Crookshank, Capt. Rt. Hon. H. F. C. Lucas-Tooth, Sir H. Stuart, Rt. Hon. J. (Moray)
Crosthwaite-Eyre, Col. O. E. MacAndrew, Col. Sir C. Teeling, William
Crowder, Capt. John E. Macdonald, Sir P. (I. of Wight) Thomas, J. P. L. (Hereford)
De la Bère, R. Mackeson, Brig. H. R. Thornton-Kemsley, C. N.
Dodds-Parker, A. D. McKie, J. H. (Galloway) Touche, G. C.
Donner, P. W. Maclay, Hon. J. S. Turton, R. H.
Dower, Col. A. V. G. (Penrith) Maclean, F. H. R. (Lancaster) Vane, W. M. F.
Drayson, G. B. Macmillan, Rt. Hon. Harold (Bromley) Wakefield, Sir W. W.
Drewe, C. Manningham-Buller, R. E. Williams, Gerald (Tonbridge)
Fleming, Sqn.-Ldr. E. L. Marlowe, A. A. H. Winterton, Rt. Hon. Earl
Fox, Sir G. Marshall, S. H. (Sutton) Young, Sir A. S. L. (Partick)
Fraser, Sir I. (Lonsdale) Mellor, Sir J.
Fyfe, Rt. Hon. Sir D. P. M. Morrison, Maj. J. G. (Salisbury) TELLERS FOR THE NOES:
Galbraith, Cmdr. T. D. (Pollok) Neven-Spence, Sir B. Colonel Wheatley and
Galbraith, T. G. D. (Hillhead) Nicholson, G. Lieut.-Colonel Bromley-Davenport.
Gammans, L. D. Noble, Comdr. A. H. P.

Question put, and agreed to.

Bill accordingly read the Third time, and passed.