HC Deb 02 July 1951 vol 489 cc2101-5
Mr. Molson (The High Peak)

I beg to move, in page 51, line 27, at the end, to insert: or, if the body corporate, society or other body so elects, the average of the total dividends assignable to each of the three immediately preceding accounting periods thereof. One of the main provisions of the Chancellor's Budget was to increase the tax on distributed profits from 30 per cent. to 50 per cent. The Sixth Schedule of the Finance Bill deals with transitional provisions dealing with the increase in the rates of Profits Tax. Whereas, generally speaking, the increase is to take effect in respect of the financial year 1951–52, the increased Profits Tax has retrospective operation in respect of any increase of dividends declared after the date of the Chancellor's Budget speech in respect of earnings made in the financial year, 1950–51.

It is not my purpose to argue against Profits Tax. It is not my purpose to argue against making Profits Tax retrospective in the case of increased distribution of profits What I am asking the Chancellor to agree to is to take as a datum of the previous rate of profit something fairer than the arbitrary year of the last accounting period. Under the Bill as drafted, that year is taken as the datum period and any increase which was announced after the date of the Budget speech results in any increase incurring this retrospective tax at the rate of 50 per cent. I suggest to the Chancellor that, without in any way departing from the general principle he is seeking to maintain, it would be fairer to give to the taxpayer the right, at his choice, to take the average of the distributions made in the three preceding years.

In a case which has been brought to my notice there had been a number of years in which distribution had been about 10 per cent., which was only a moderate proportion of the profits earned, the rest being ploughed back into the business in a way which I am sure would commend itself to the right hon. Gentleman. In 1949, this company suffered a substantial setback, and again in accordance with sound financial principles, they reduced the dividend from 10 per cent. to 2½ per cent. As a result of great efforts on the part of all concerned, the earnings of the company were again restored and, shortly after the right hon. Gentleman made his Budget speech this year, they announced a dividend of 10 per cent., which was still only about one-half of the total earnings of the company. I suggest that it would be far fairer to allow the company the option of taking as a datum period the average of the three preceding years.

We have had a great deal of experience in the selection of a single arbitrary year for various purposes. In the case of agriculture, for example, for a very long time rations for animals and so forth were based on the number of livestock which happened to be maintained in 1939, and the effect of taking a year and treating it as a basic year was to discourage any progress or improvement in the years that follow. I suggest it is most undesirable that this heavy and almost penal taxation is being imposed retrospectively and that it should be imposed on the basis of a single year.

If the Chancellor feels inclined to argue that 1949 was on the whole a prosperous year and does not think that a great many companies were adversely affected in this way, the answer I would give to him is that only a small number of companies would desire this relaxation or the alternative basis of taxation which I have suggested in this Amendment. In that case the cost to the Treasury would be comparatively small. If at small cost to the Treasury he is able to relieve what in some cases is a harsh provision, I hope he will be willing to do so.

In the course of debates on the Finance Bill last year, before the right hon. Gentleman became Chancellor of the Exchequer, I very well remember one argument he advanced when comparing the attempt at freezing wages with the freezing of dividends. He said then, in the case of the wage earner, that if they forwent an increase in wages at no time would they receive retrospectively an additional payment. He pointed out that where dividends were not paid but were ploughed back into the company there was a larger capital on which profits could be earned and the shareholders would in this way obtain a benefit.

What I wanted to say to the Chancellor of the Exchequer then, and it is relevant on this occasion, is that there are no reductions in wages taking place now. In the case of dividends there is no guarantee that dividends in individual companies, over a number of years, may not be reduced, and the effect of penalising any increase in dividends means that it is impossible for the dividend receiver to be compensated in cases where there has been a sudden and undeserved reduction in those dividends.

In the Amendment I am asking that the penal, retrospective operation of the new Profits Tax on profits which were earned at a time when the tax was only 30 per cent. should not be such that an additional burden should be thrown on companies where for some years there has been a sudden reduction in dividends. Because the cost of this concession is not likely to be great and it would relieve the burden on a number of companies, I hope that the Chancellor of the Exchequer will be willing to accept the Amendment.

Lieut.-Commander Braithwaite

I beg to second the Amendment so admirably moved by my hon. Friend.

The Attorney-General

I do not really think that we ought to accept this proposal for the following reason. The dividends about which one is talking are those declared after the ninth day of April, 1951. The provision applies only in the case of dividends declared after that date; that is, after the date of the Chancellor of the Exchequer's Budget speech. What the Chancellor said in his speech was perfectly clear. After stating that he proposed to increase the Profits Tax, the Chancellor said, If increased dividends are declared on or after today… that is, 10th April, for a period before 1st January, the increase will, as on previous occasions, be subject to the increased rate of tax."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 855.] Therefore, any company which declared increased dividends after the date of that statement knew perfectly well what the taxation consequences were bound to be. They did so with their eyes open, and they knew that the dividends they declared would be bound to attract the 50 per cent. rate in respect of those dividends. If one states that they are to have this proposed measure of relief, how far is one to go? One could perfectly well, and consistently with what has been said, ask for other concessions. Why not ask to be allowed to pay dividends equal to the highest of the three years before the relevant date? One could increase claims for substantial reliefs of that sort almost indefinitely.

It was felt that one had to draw a reasonable line somewhere. We felt that if a company, knowing perfectly well what must be the consequences of declaring a dividend in respect of a period after the Budget statement, did so, it was reason- able to take the one chargeable accounting period which lapsed before the date set out in the Schedule.

We feel that the concession suggested has not any logic to justify it. This would be a concession to a person who knows what he is doing, and if it were made it would, in logic, involve making endless other concessions. There is no reason why we should draw the line there.

Mr. Molson

May I say that the Attorney-General is arguing against an unreasonable proposition which I did not put forward. I put forward a suggestion on the basis of a three years' accounting period which seemed to me reasonable and fair to both parties.

Sir J. Mellor

I am surprised that the Attorney-General should say that merely because the Chancellor of the Exchequer said in his Budget speech that dividends declared after that date would be subject to increased tax, that that is an answer to the Amendment. After all, what Ministers say in speeches is not law. What the Chancellor of the Exchequer said in his Budget speech did not commit the House at all, I really think that the Attorney-General made a rather unwarrantable assumption when he said that that was sufficient answer to the Amendment. I consider that he has not given a good answer.

Amendment negatived.

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