Clause 31.—(CHARGE OF THE EXCESS PROFITS LEVY.)

HC Deb 20 May 1952 vol 501 cc276-402

3.59 p.m.

Mr. Douglas Jay (Battersea, North)

I beg to move, That the Chairman do report Progress, and ask leave to sit again. I move this Motion, first, in order that we may have a chance to protest against the way the Committee has been treated by the Government, who have put down over 70 complicated and important Amendments on the Order Paper this morning. Secondly, I want to propose that, in order that hon. Members on both sides of the Committee may have time to consider these important Amendments, we should adjourn this discussion entirely for today and continue at the appropriate time.

At this moment I do not wish to say a word, one way or the other, as to the merits of the Chancellor's proposals, but simply to point out the impossible position in which my hon. Friends and hon. Gentlemen opposite have been placed. Last night the Chancellor of the Exchequer suddenly made an announcement, at a late hour, in which he told us that he was going to make what I then called very sweeping changes—I do not think he will deny that they are very sweeping changes—both in the Excess Profits Levy and in the Profits Tax.

I said last night that if we had so little idea of the nature of those changes as not even to know the amounts involved, I thought it would be very difficult for the Committee to have a really proper and considered judgment of them today. But this morning we find on the Order Paper, according to my computation, no fewer than 74 new Amendments which we have not previously seen. All of those relate to the Excess Profits Levy. They start on page 1333, and if any hon. Member likes to count the number of starred Amendments in the name of the Government he will find that it comes to over 70.

4.0 p.m.

I submit that it is quite unfair to expect us to consider all those Amendments and to take a decision on them today when it is a matter which the Chancellor of the Exchequer himself has repeatedly agreed is highly complicated as well as being very important for our future taxation arrangements. It is just as if the Government had published a complicated new Bill this morning and were asking the House to take the Second Reading at 4 o'clock in the afternoon. Indeed, this is really worse, because on a Second Reading we should at least be discussing only main issues, whereas today we are expected to take decisions on a large number of very complex details.

It is not even as if this were the Report stage and the Chancellor were putting down Amendments on subjects which had already been discussed in detail on the Committee stage with which hon. Members on both sides were pretty familiar. These Amendments are based on no discussion in the Committee at all, because, apart from the Second Reading, we have not yet reached the question of the Excess Profits Levy or the Profits Tax. Yet the Government now propose what amounts, in effect, to a complete re-casting of the proposals for these two taxes, which the Chancellor introduced in the Budget and again commended to the House on the Second Reading.

I very much regret the fact that the Chancellor has chosen to treat the Committee in this way because I do not think he would suggest that anybody on this side of the Committee has been in any way unreasonable up to date in the conduct of the Bill. I think we have had careful and considered, and one might almost say dispassionate, discussions of the serious questions involved in the various Clauses. It is a great pity, therefore, suddenly to plunge us into what must be a chaotic discussion this afternoon if we continue the debate now.

I may add that the Chancellor of the Exchequer put down four or five successive batches of Amendments on this Clause. He put down some over the weekend, on Friday night or Saturday morning, and we did not protest about that because we were anxious to be reasonable. We did our best to absorb or digest them in the few days available. Today, however, on top of that we have an absolute avalanche of complicated Amendments.

The fact is that the Chancellor of the Exchequer has indulged in a series of vacillations over this question of profits taxation ever since the Budget. He is involved in this proposal, as we know, because somehow or other it got into his election manifesto. Therefore, without due consideration, as is now quite obvious, and without understanding the consequences, he introduced certain proposals in the Budget. He was very soon convinced that they were unworkable and he amended them further. We have done our best to follow the various gyrations through which he has passed, but it is carrying this process of indecision and vacillation too far if there is a complete re-casting of the whole proposals about which we are told only on the very morning of the debate.

I may say that those of my hon. Friends who have been studying this part of the Bill most closely, and who have done their best to examine these new Amendments this morning, have found it quite impossible by the beginning of this debate to understand exactly what it is which is now proposed or to be able to take a reasonable view of the proposals one way or the other. It seems quite wrong that the Committee should be treated in this way, and I should have thought it was just as unfair to hon. Members opposite, many of whom have obviously studied these Clauses with great care and have put down a number of Amendments about them.

We cannot discuss either the Profits Tax or the Excess Profits Levy until we have had time to consider these proposals, because they both hang together, and each batch of Amendments affects the others very intimately. In view of the reasonable progress we have made so far, and the tributes which the right hon. Gentleman has paid to the desire of this side of the Committee to conduct the debates on the Bill in a constructive manner, without any time wasting—and I do not think there has been any time wasting—I hope that the Chancellor of the Exchequer will consider this matter again and see whether he cannot give us at least the rest of today in which to study these very complicated and important matters. I hope he will consider that suggestion in the spirit in which it has been made.

The Chancellor of the Exchequer (Mr. R. A. Butler)

The right hon. Member for Battersea, North (Mr. Jay), moved to report Progress because he says that his hon. and right hon. Friends have not had time to examine and to understand the Amendments put on the Order Paper last night. I have various observations to make on this matter. There has been no question of hesitation or indecision at all. Since the Bill was published, the Government have been watching as carefully as they could the likely effects of the Excess Profits Levy on a great variety of interests.

At the same time, of course, we have been engaged on the many details concerning the complications of this Bill in other respects. We have been engaged in observing the Amendments on the Order Paper, many of which coincided with the purpose of both sides of the Committee, and, also, we have naturally had representations from every sort of interest and particularly from enterprising, developing companies, export companies, companies overseas, and so on. To my mind it would have been most irresponsible for the Government not to pay attention both to the Amendments on the Order Paper in the names of right hon. and hon. Gentlemen on both sides of the Committee and to the many interests involved.

It has not been possible to reach conclusions at a much earlier date on many of these matters owing to their complication, and also owing to the fact that we have been somewhat busily engaged in equally intense complications on the Purchase Tax which have occupied the minds and bodies of hon. Members on both sides almost to exhaustion. We prepared a batch of Amendments which was put down on Friday and which gave a certain amount of homework to hon. Members on both sides of the Committee. Last night I took the opportunity to give a warning to the Committee that I should put down a further batch of Amendments ahead of this portion of the Committee stage.

I want the Committee to be as frank with me as I am trying to be with them. It would have been absolutely normal practice on the Committee stage of a Finance Bill if I had kept back all these matters and announced them orally during the debate in answer to points raised in the debate, seriatim, individually, from either side of the Committee.

Mr. Jay

The Chancellor will agree that in that case the Amendments would have been put down on the Report stage, and presumably we should have had at least a few days in which to consider them.

Mr. Butler

Perhaps the right hon. Gentleman will allow me to make my argument, because I have thought of these matters and I have not been prompted by discourtesy. I have gone out of my way, within the limitations of time, to tell the Committee what I had in mind. It would have been quite in order for me and the Government to allow the debate to start, and to proceed, and to give oral answers on these intensely complicated issues in reply to Amendments moved.

One has to reflect that the Finance Bill is not a Bill which has to go to another place and that the Report stage is the second and last time at which Amendments on intensely detailed and difficult points can be considered. There is no opportunity for amendment and re-amendment and for consideration of detail after the Report stage, and therefore, as this subject was so complicated, I thought it would be in the interests of the Committee to have these Amendments, as far as possible, in advance before we reached the Clauses on the Committee stage, so that hon. Members could compare the Amendments which the Government propose to make with those which are already on the Order Paper.

I realise that there may have been difficulty for hon. Members in following these matters in detail, but the alternative course, of waiting for the debate and then giving oral answers on these intensely complicated points, would have been less considerate to the Committee than the course which I am adopting. I do not deny that in either case there would be difficulties of comprehension, because this subject is exceedingly difficult.

On this difficult subject it is better to try to get our discussion as much as possible on the Committee stage so that the Bill can then be reprinted and so that, on this intensely complicated matter of the Excess Profits Levy, we may have the complete Bill for the Report stage, with the usual long interval between Committee and Report during which hon. and right hon. Members can examine the whole picture as it is then presented.

So, by the procedure which I have adopted in a very complicated matter, I have advanced the consideration of the Committee more than I should have done by following the ordinary method. It is no use the right hon. Gentleman shaking his head. We are in the Committee stage and I have put the Amendments on the Order Paper in good time so that Members can see them.

I come to the point of substance raised by the right hon. Gentleman. If he will examine the Order Paper, he will see that the majority of the starred Amendments relate to matters arising from Clause 33 onwards; and in view of the capacity of hon. and right hon. Gentlemen opposite, which they have shown in formulating their Amendments on a great variety of Clauses, there should, if they keep up their normal standard, be no great intellectual difficulty involved for them in mastering the points of Clauses 31 and 32. In fact, I have even information that many of them felt in a position, after the weekend, to comprehend the situation as it was put before them in the Amendments which were put down on Friday.

The issues on Clauses 31 and 32 are perfectly straightforward, and it would be perfectly possible to take those important Clauses on the Excess Profits Levy without causing the slightest inconvenience to the Committee, and have an opportunity of sincerely debating the issues involved.

Turning to Clause 33, the main Amendments which have been put on the Order Paper are not of great intellectual difficulty; they relate mostly to the question of the standard years. If the right hon. Gentleman listened to me last night, he will realise that there is some method in what I have been doing. I put down before the weekend the complicated new Schedules and the more lengthy of the Amendments, and I said that the major issues which would be coming along, and which are now contained in those Amendments on the Order Paper which are starred, were those which were readily comprehensible.

I do not think it requires much extra effort on the part of the right hon. Gentleman and his friends, who are adept at these subjects, to comprehend the choice of the standard years which is the main issue which arises out of the Amendments to Clause 33. The right hon. Gentleman can understand what is meant if a choice is given of two out of the three standard years. That is a request which has been made from both sides of the Committee, and that is the main issue which arises on the Amendments to Clause 33.

Even if we were to pursue our way and reach Clause 33, I think it is readily within the power of hon. and right hon. Gentlemen opposite to master the arguments. Indeed, they know them already; if they do not know the arguments, why did they put Amendments on the Order Paper dealing with precisely these requests? It will be seen that not only have I treated the Committee with consideration but I have undertaken, on this major issue of the standard years, something which they have fully digested.

I can honestly see no grievance about our making progress and no grievance whatever about making progress with Clauses 31 and 32, and the simple issues which follow. If I find, in the course of the day, that we are entering a sphere in which Amendments are definitely susceptible of further consideration and it would be reasonable for hon. Members, not only on the other side of the Committee but on this side also, to have more time, we can proceed, as we have always undertaken, with our debate on Thursday.

4.15 p.m.

I do not intend to be unreasonable any more than I have been up to date. I hope that the Committee will understand the motives which have prompted my action, which was frankly to put matters before the Committee in order to be helpful. If we do not make progress today, it would be impossible for me to give a further oral explanation of the meaning of some of these proposals, as it would be possible for me to give on the first Clause concerned. If the Committee think I can help them with a further oral explanation, it would fall, according to my investigation, within the rules of order for me to do so on this first Clause.

If hon. Members think I have been able to help them in the past, I should not like them to cut off their noses to spite their faces by depriving me of an opportunity of explaining the issues before the Committee. I propose that we make progress. We shall not be unreasonable if, in the course of today's progress, we see hon. Members failing in their comprehension through being rushed or being treated, as they think, badly in any way.

Mr. Harold Wilson (Huyton)

I do not think that the Chancellor has answered the point put by my right hon. Friend the Member for Battersea, North (Mr. Jay). Surely the position of hon. Members on both sides of the Committee has been that, after seeing the Order Paper this morning, they have, if they have had the time to study it, given up a great deal of time looking at the Amendments in the Chancellor's name. They have had to do so in far less time than is usual; far less, for instance, than we had to study the main text of the Bill on Second Reading; far less than we gave to the Fourth Schedule which we debated last week, and on which we had, I think the Chancellor agrees, a most useful if rather unproductive debate.

There is one other part of the legislative process which the Chancellor seems to have ignored in the procedure he has followed. It is surely usual, after a Bill has been published—and my right hon. Friend quite rightly said that this is almost tantamount to a new Bill—before we come to Second Reading, and still more before the Committee stage, for Members to have an opportunity not only of studying the Bill but of studying public comment on the Bill. In the very nature of things, there has been no public comment on the Amendments which the Chancellor has tabled this morning. If one looks in this morning's Press, one sees that there could only be a brief reference to the right hon. Gentleman's very important statement last night.

So brief was it in certain papers—I think I am right in saying in the case of the "Financial Times"—that there was only a small panel inserted giving the gist of the Chancellor's very important pronouncement. The "Daily Telegraph,"' so far as I have been able to read it, listened to the Chancellor and got him down wrong—I hope I am not doing them an injustice—and misreported him on one of the most important of his pronouncements. There can have been very little informed comment in the City columns, which would have been useful to Members on both sides of the Committee. We are being asked to discuss these very important Amendments without having even the opportunity of taking account of any public comment.

It has been quite impossible, even if one has had none of the intellectual difficulties referred to by the Chancellor, to work out this morning any statistical calculations as to what these things mean for particular industries and trades, particularly for some of those which are badly hit at present by the depression in trade which we were debating last week in a different context.

The Chancellor tried, I think, to recognise the difficulty when he said that he proposed we should debate the rather easier Clauses and the rather easier Amendments and that he should give us an oral explanation; and that if it became clear, when we reached the difficult new Amendments to Clause 33, that there was some intellectual difficulty, then we might perhaps take more time over it. I do not think that that meets the requirements of the Committee at all, because it is not enough merely to comprehend what these Amendments mean, although that will take a day or two. I should have thought that for most hon. Members, however skilful or assiduous they might have been in following this Bill through its stages so far, that is not enough.

The Committee has to do far more than just understand something before it reaches a decision. Members have to consider whether it is right as a matter of principle, and above all—and this is why many of our legal friends want more time to consider the matter—to consider whether, when they have understood a particular Amendment, it is the best form of giving effect to what the Chancellor and the Committee might have in mind. Therefore, I suggest that my right hon. Friend's proposal that we should report Progress is the right one, and that we should have at least 48 hours in which to study the purport of the Amendments which the Chancellor has put down and to investigate their possible effect.

I do not know whether hon. Gentlemen opposite can say what on balance is likely to be the statistical and economic effect of the changes which the Chancellor proposes to make—on the one hand, the change in the basic years, and, on the other, the change in the rate of the Profits Tax itself. It is very difficult indeed for anyone to form an estimate. I doubt whether there are many companies in the country which could have worked it out from the Chancellor's statement last night, and yet the Committee is asked to come to a conclusion on this in this very indecent hurry. I hope the Chancellor will reconsider the proposal of my right hon. Friend.

Mr. Roy Jenkins (Birmingham, Stechford)

I understand that the Chancellor's chief reply to the speech of my right hon. Friend was that. we should not get very far today and that therefore we need not worry about this great mass of Amendments which he has tabled to the Clauses and Schedules. That is really a false argument, because if we are to have a debate on the principle of the Excess Profits Levy we shall surely have it on the Motion that Clause 31 stand part of the Bill rather than anywhere else, and we must know what exactly is involved.

I have no doubt that in discussing the Motion that Clause 31 stand part of the Bill, many hon. Members will want to give examples of how it affects particular companies. I am told that they could have done that this morning, but that now the whole statistical basis has changed completely and that without a great deal of time it would be impossible to bring forward figures showing how particular companies would be affected.

Both yesterday and today the Chancellor seemed to be labouring under the misapprehension that he was doing the Committee a great favour by putting down this vast mass of Amendments, whereas the real position is that if this section of the Bill needs these Amendments, it should have been very differently drafted when the Bill was brought forward in the first place. This great number of Amendments suggests that the original scheme was brought forward in a slap-dash fashion. Therefore, I think it is false for the Chancellor to say that there are two things he could have done—either he could have announced this great mass of Amendments and changes as we went along, which, he said, would have been more confusing, or he could have done what indeed he has done—and that there is no alternative between the two. I suggest that there is nothing normal about our doing it one way or the other. I should have thought that the normal thing to do in a Finance Bill, having brought forward the Excess Profits Levy, was to stick to the broad lines of it throughout the Bill and not to bring forward an enormous number of changes. I think the Chancellor ought to be prepared to give us rather special consideration and some time in which to look at and understand the very complicated Amendments he has put down this morning.

I suggest also that what he has done this morning rather contradicts some of the things he indicated in his speech last night. At one stage in that speech he said that what he was proposing to do was to go out of his way to help the Committee. I really think it is very difficult to regard the putting down of 75 Amendments only five hours before we are expected to debate them as going out of his way to help the Committee.

Having announced changes in the Excess Profits Levy and the Profits Tax, the right hon. Gentleman said it would be unfair to ask the Committee to take the Profits Tax immediately in view of this statement, and that therefore it would be better first to take the Excess Profits Levy and afterwards the Profits Tax. The implication there is, of course, that because last night he announced certain changes which mean only a two-line Amendment in the Bill, we ought to have 48 hours longer in which to consider it, but that in the case of the Excess Profits Levy to which there are 75 Amendments, the Chancellor asks us to consider them on the same day as they are put on the Order Paper, and then says that he is going out of his way to help the Committee.

If, for reasons which perhaps he cannot help, the Chancellor brought forward such a hopeless scheme as the original Excess Profits Levy, he has now to amend it in all sorts of ways, then it is his duty to be especially considerate to the Committee, and, if necessary, to lose a day in order that we may debate the thing in a proper way. The onus is really upon him. He said in his speech that he could not bring the Amendments forward earlier because they were very complicated and because it had taken a long time to consider representations from interested parties. But that is very much a two-edged argument, because if it took him weeks and weeks to consider the arguments, it is absolute nonsense to expect us to consider Amendments resulting from them in four or five hours.

I think the Chancellor was put in a difficult position by the frivolous inclusion of the proposal of a levy by the Prime Minister in the Conservative manifesto. I think that is where the responsibility really lies. The Chancellor is now in full retreat from his original proposal. Provided he maintains the Profits Tax, we do not mind that, but, in view of the fact that he is making so many changes, he ought to be very careful to give the Committee sufficient time in which properly to examine them, and, therefore, should be willing to accept my right hon. Friend's Motion.

Mr. Leslie Hale (Oldham, West)

I hope the Chancellor is under no misapprehension about this matter, because he is looking rather depressed at the moment. I do not think anyone is blaming him for putting down these Amendments. That was not the point of the attack at all. If it is necessary to seek to put this Budget right, then by all means let the right hon. Gentleman put down Amendments. It is a comment, I suggest, that the Budget has failed, and that it is necessary for the Chancellor to put down Amendments not merely at this stage, but on Report, and possibly to introduce a supplementary Budget somewhere about July.

We have no complaint whatever about the putting down of Amendments on the Order Paper. In so far as we have been able to judge in our brief opportunity of studying the proposals, I should not for one moment like to intimate that I propose to criticise them very severely at all; but I should like time to read them again and to find out what they mean, and possibly to consult with people who are much more capable than I am of understanding these complicated Clauses.

The real trouble lies with the Leader of the House. We had some hopes when he was relieved of his duties at the Ministry of Health—which he performed so inadequately—that he would concentrate on the job of being Leader of the House and would have some idea of what his duties were to the House. If the Government were intending to put down 70 or more Amendments on the basis of an intimation given to the House only the night before, it must have been clear to the Leader of the House that no one would see them until this morning when they were delivered to our homes, and that those of us who live more than a mile or two from the House would not see them until we arrived here today.

I should have thought it would have been simple for any Leader of the House who knew his duty to suggest through the usual channels that some other subject should be debated today. There are several subjects which I want to discuss. There is, for instance, the Motion about cheese, a matter of really fundamental importance, which I am very anxious to have an opportunity of discussing, and I am quite sure the party opposite would also welcome such an opportunity because they devoted so much attention to the subject in the last Parliament.

4.30 p.m.

We have to consider the Chancellor's argument today. He said, "You are depriving yourselves of the privilege of hearing me explain to you what these Clauses mean. You should allow this discussion to go on, not merely on Clauses 31 and 32." Speaking personally, without prior consultation with my hon. Friends, I would agree that Clauses 31 and 32 might possibly be discussed today without hardship, except in so far as we might commit ourselves on matters on which we might want to table Amendments in view of Amendments which may be made on Clause 33.

If the Chancellor will turn to his Amendment to Clause 33, page 38, line 1, to leave out subsection (4) and to insert another subsection he will find that that Amendment consists of over 500 words. Most counsel would charge 25 guineas for giving a rough opinion on that subsection. I would also remind the right hon. Gentleman that counsel's opinions do not carry any guarantee, whereas a solicitor is liable for his opinion and can be sued if it is wrong.

This matter deals with the whole basic standard of assessment. It is a matter of great complexity. How are we to put down Amendments to it? If this matter is discussed today, how are we to make our views felt? How are we even to get a discussion of the matters which we want to discuss? Is it to be said that on this exceedingly complex matter the Chair will accept manuscript Amendments as the discussion proceeds, and can there be manuscript Amendments to the manuscript Amendments? In a matter of this kind it would be very normal indeed for my right hon. Friend to put down an Amendment on the Order Paper and for hon. Members, when they have an opportunity, to put down some modest Amendments to that Amendment—correcting or ameliorating or clarifying Amendments. It would be well within the normal procedure.

This is an important matter, and the Chancellor says, "I am going to explain it to you. I shall make a statement and tell you what the Clause means. There cannot be an Amendment. You will say yes or no. You will treat it like a Prayer on each occasion. You can affirm or negate, but you cannot amend, you cannot clarify, you cannot take any steps to put forward your views on any particular matter."

We shall have the Report stage later, and we have no guarantee at all, in terms of the rules of the House, on the right of putting down Amendments on the basis that Amendments had not been put down on the Committee stage. It might be said that this was fully discussed in Committee, that no one put down Amendments, and that although Amendments are tabled on the Report stage it is not proposed to call them. No one could say that that is a practice outside the normal procedure of the House. In those circumstances, I suggest that the only course consonant with the dignity of the Committee in a matter of this great importance is to accept the Motion so ably moved by my right hon. Friend.

Let us have a look at the time-table. No one can say that there has been any undue discussion on this Bill. I think it could be said that never before on a Finance Bill have the Opposition been so accommodating. There have been moments when some of us have thought that the spirit of genteel good nature was spreading over the Opposition Front Bench to the extent that we were not even pursuing opposition with that fire, fervour and desire to oppose which it used to be said by the former Leader of the Opposition was one of the duties of the Opposition. But, of course, I should be the last person to say that. Last night, in the last two hours, we got through eight or nine Clauses. There was no desire to obstruct at all. Had there been, we could not possibly have got through those Clauses. Some of us have imposed upon ourselves a self-denying ordinance which is rare in this Chamber, because we had no desire to lengthen the discussion.

I ask the Chancellor, who I see is thinking carefully over what I am saying, to say that it would be better that this Motion should be accepted now. We may lose a few hours, but I am sure that we can make them up. Indeed, it is well within the normal experience of every one of us that when we are going through a form of mental and intellectual exertion or planning, we get through the business at twice the speed if we have done the preliminary work first. Instead of trying to understand a complicated Clause as we go along, we make better progress if we first consider the Amendments on the Order Paper and read them in conjunction with the Clause.

Mr. Austen Albu (Edmonton)

I hope the Chancellor is not under-estimating the contempt which is felt on this side of the Committee for this method of proceeding with the financial business of the country. We are not accusing the Chancellor of discourtesy. What we are accusing him and the Government of is a complete lack of policy. The Chancellor tried to imply that all that was happening on this occasion was that he had put down a series of Amendments dealing with certain minor details of the Bill which, in the normal course of events, would have arisen in any case, and which he could have brought up at the appropriate time without giving us any advance notice.

What he has done is to start a complete reversal of the whole policy in regard to taxation, or the major part of direct taxation, at any rate, on which his Budget was based. The fact that it happens to be a reversal in the direction of the criticisms made almost entirely from this side of the Committee does not seem to me to affect the case. He suggests that it is only a matter of a series of minor Amendments whereas, in fact, he is not only altering the standard year on which taxation is based, but he is providing alternative rates of profits on new money and on profits retained in a business and reducing the maximum amount of the tax; and this, combined with the fact that he is altering the Profits Tax, means that he has made a major change.

As my right hon. Friend the Member for Huyton (Mr. H. Wilson) pointed out, it is quite impossible for us to discuss this on the Question that Clause 31 stand part of the Bill, because we have not had time to make the necessary calculations of the effects of these taxes on individual companies or groups of companies. Those of us who read the financial Press, and particularly the interesting tables got out by "The Economist," know how difficult it is to do this even with plenty of time.

The Chairman

I must remind the hon. Gentleman that under Standing Order No. 25 he can debate only the subject matter of this Motion, and he cannot go into the details of the Bill.

Mr. Albu

I was only pointing out that the reason that my right hon. Friend has moved this Motion is to enable us to have time to make the sort of calculations which have to be made before we can pass Clause 31. We cannot pass Clause 31 without considering the other Clauses, and particularly the Clauses which concern Profits Tax, because the effect of this taxation is very complicated indeed. I do not want to discuss the various details, but anybody who has made a study of it knows that it is not possible to discuss one matter by itself. We must have time in which to make these calculations, and frankly I should like there to be time for somebody else to make the calculations so that they might be published.

The Chancellor, in defending his action in putting down this large number of Amendments, said that he had done so in response to a large number of criticisms made on the Second Reading, after having taken into account the effects of the taxes on different types of companies and industries, and particularly developing companies. These are questions of major policy; they are not just questions of the details of the Bill. If the Chancellor wants us to consider what are the effects of these changes on the different types of companies he must give us time to consider them, because at present this makes a complete farce of the whole thing.

We welcome and accept the Chancellor's congratulations on our intelligence in understanding these extraordinarily complicated Clauses. But that is not good enough, and I do not think we should allow him to get away with a charming and courteous manner when, in fact, what he is doing is completely disrupting the whole proceedings of the Committee stage. The truth of the matter is that this action is typical of the actions of this Government, showing a complete lack of any policy on the major issues facing the country, and in this particular instance of their method of conducting our financial affairs.

These are not just concessions made during debate. On previous occasions when making concessions, when sometimes we have made some criticism, the Chancellor has said, "What is the purpose of debates on a Committee stage if they are not to get concessions? When I give you concessions you jeer at me, and if I do not give them you vote against me." But these are not concessions to debate. These are concessions to pressure upstairs and pressure out of doors, and that is not good enough.

Mr. R. A. Butler

The hon. Gentleman is now making a charge. Does he claim that when his own party put down Amendments on the Order Paper and some consideration is given to them, that is yielding to pressure upstairs? If so, I think he had better revise his language.

Mr. Albu

We have not even reached the Amendments yet. Certainly I have not had time to compare the Chancellor's Amendments with the Amendments we have put down, from many of which they vary considerably in detail, nor to consider the general effect of the Amendments he has put down.

The truth is that the history of this Government is the history of submission to interests and pressures, in an attempt to gain popularity throughout the country, and this is only another example of the extraordinary vacillation of the Government in carrying on the business of the country. As I said at the beginning, the general trend of what the Chancellor proposes to do appears to us to be along the lines of the views we have put forward. Certainly we want to have much more time to consider whether that is really so. The views we hold on the Bill and on these particular taxes are well known.

The Bill is becoming more and more complicated. The Clauses are becoming more and more impossible to understand; they will put more and more money into the pockets, not of solicitors but of chartered accountants and other accountants, and I really think, especially in view of the fact that it may even be possible to simplify some of the Clauses and so avoid some of these effects, that we ought to have time to consider the matter again.

I am not at all sure that the Chancellor himself might not find a way of simplifying some of the Clauses he has put down, apart from the fact that we have no method of knowing what the general effect on the revenue will be. I hope the Chancellor will think again and give us some reasonable time in which to consider this matter.

Mr. Clement Davies (Montgomery)

As I understand it, the Chancellor, in replying to this Motion, said that in his view it is merely premature at this moment, and that he might consider it later. If that is right, I think we should support his request that we proceed. There is no one who dislikes this proposed tax in principle more than I do, but the principle of it is contained in the first Clause we have to consider, Clause 31; the scope of it is in Clause 32. To neither of those have Amendments been put down by the Chancellor.

When we come to Clause 33 we have to consider the detail, and how it is being imposed upon each one of the companies which come within its scope. As I understand it—I hope I am right with regard to this—the Chancellor said, "I quite agree that there may be difficulties when we come to Clause 33." When I saw these Amendments this morning, I, too, was considerably shaken as to whether we could in the very short time available consider them.

The Chancellor is quite right in saying that normally a Chancellor does await until the debate itself to see whether he will accept Amendments or not. But this is an entirely now form of tax, and the Chancellor has had since 20th March, when this Bill was first authorised to be printed, in which to consider the whole matter. It would have been better if he had given us a longer notice.

I hope I am right in saying that we could discuss the principle whether this should be put in as a tax at all on the first two Clauses; then when we come to Clause 33 I hope that the Chancellor will consider whether it would not be possible to postpone consideration of that until a later date. I realise to the full the shortness of time available, but this is a vital tax which affects all the companies concerned.

4.45 p.m.

Mr. Ralph Assheton (Blackburn. West)

I hope the right hon. Member for Battersea, North (Mr. Jay) will not press this Motion, because I think we could perfectly reasonably go forward with an examination of the next Clauses without getting into difficulties. I quite appreciate the difficulties which are caused by a large number of Amendments being put down, but I think the Opposition have been a little ungenerous to my right hon. Friend in commenting on what he has done. The Chancellor told us that he was obviously willing—as hon. Members have seen by studying some of the Amendments—to meet some of the points which had been made by hon. and right hon. Members opposite, but he thought it more convenient and helpful to the Committee to give some indication in advance of what was in his mind.

That is treating the Committee better than a Chancellor of the Exchequer generally treats the Committee, not worse. He might quite easily have waited until the various Amendments were moved and then told us his views. Instead of that he has taken the trouble to let us know in advance what his views are on certain matters and we ought to be grateful to him for doing so. I do not know what hon. Members opposite feel about late sittings, but I do not like sitting very late at night, and it would be a great advantage to us all if we could get on with it now and avoid sitting up late at night.

Sir Richard Acland (Gravesend)

I should like to support the Motion moved by my right hon. Friend the Member for Battersea, North (Mr. Jay), possibly for rather wider reasons than those which he gave. I feel that the Chancellor might well wait a further 24 hours to consider, in the light of the Amendments we have been obliged to put down, whether it would not be better for the Government and the Committee, and above all for the whole profession of company accountants and chartered accountants, to drop the whole of this tax and recoup the revenue by either retaining the rate of Profits Tax under the previous Government or by some other quite simple increase in some other tax to be paid mainly by companies earning profits over £5,000 a year.

A useful period could be spent by the Chancellor, the Leader of the House and all other important Ministers in considering whether that would not be by far the best way out of the position into which the Government have got themselves and the Committee by what was, after all, a pure piece of vote-catching party politics, announced in the first instance hurriedly by the Prime Minister to deal with a particular political situation which was arising in the first weeks of a general election campaign. Everybody knows that that is true. Everybody knows that in that campaign it was beginning to be said by Members of this party—I think quite rightly—

The Chairman

The election campaign cannot be brought into this debate under Standing Order No. 25.

Sir R. Acland

The genesis of this particular tax—where it sprang from and how—is surely a matter that may be taken into account by the Chancellor in the 24 hours' delay for reflection which he would have if the Motion were accepted by him or agreed to by the Committee even if he does not want to accept it. It does seem to me relevant, therefore, to point out that this tax never arose from any consideration of its merits.

The Chairman

That is the point I made—that it would not be relevant. The debate must be confined to the matter of reporting Progress. The hon. Gentleman cannot deal with the details of the tax.

Sir R. Acland

I bow to your Ruling, Sir Charles, but it does seem to me that this tax, which never was going to collect the £100 million as forecast, and which is whittled away by the Amendments now produced, is going to collect far less at an absolutely staggering cost—

The Chairman

If the hon. Gentleman persists in that argument, I shall ask him to resume his seat. I have told him that he may not discuss that.

Sir R. Acland

I feel that the period of 24 hours to consider the points that I have been trying to make would be of inestimable value to the Chancellor, to the Government, to the Committee, to the country, and, above all, to the whole profession of chartered accountants. Therefore, I hope the Chancellor will accept the Motion.

Mr. Anthony Crosland (Gloucestershire, South)

In answer to the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton), I can assure him that there is no disposition on this side of the Committee to accuse the Chancellor himself of discourtesy. Indeed, I think that the general disposition on this side of the Committee is to feel rather sorry for the Chancellor on account of the position in which he is placed so far as this Budget is concerned.

But having said that, I must also say that I do not think that the right hon. Gentleman met any of the arguments put forward by my right hon. Friend the Member for Battersea, North (Mr. Jay). We must be thankful, of course, for small mercies, and it is quite true that we are thankful that he has tabled these new Amendments instead of merely announcing them in the debate today. We are thankful for that; but the criticism that we make of the Chancellor, is to my mind, the very simple one that these Amendments could have been tabled at least some days ago.

After all, it was only on Friday morning that the last batch prior to these very important and complicated Amendments was tabled. If those were able to he tabled on Friday, why could not these have been tabled on Friday as well? The criticism is solely that they are being tabled on the same day as that on which we are being asked to discuss them.

The Chancellor said—and the right hon. and learned Gentleman the Leader of the Liberal Party appeared to agree with the suggestion—that none of this mattered because the new Amendments were not to Clauses 31 and 32, so why should we not concentrate in the early part of the debate today on discussing Clauses 31 and 32 before coming to Clause 33, to which some very difficult Amendments have been tabled? I would suggest to the Chancellor that that is a wholly preposterous suggestion, because if he will look through the Amendments already tabled to Clauses 31 and 32 he will see that there are, for instance, Amendments covering franked investment income, Amendments covering overseas operations of raw materials companies, Amendments covering export profits, Amendments covering undistributed profits—Amendments already tabled to Clauses 31 and 32 covering all sorts of things which are also covered by the Chancellor's new Amendments to Clause 33 and the later Clauses.

I suggest that it is quite impossible for the Committee to make up its mind whether or not to agree to the Amendments we are about to discuss to Clauses 31 and 32 until we have finally digested all of the Chancellor's new Amendments. The Chancellor himself concedes that it would require more than this morning alone to digest the whole of these new Amendments. His suggestion that that does not matter because we are going to discuss now Clauses 31 and 32 is not a satisfactory one.

The Chancellor also said that the first of the new Amendments tabled this morning to Clause 33 affected only the standard years, and that the Committee could be deemed to have considered the problem of the standard years very adequately already in thinking about the Bill in the last few weeks. With great respect to the Chancellor, that is not the case. The Amendments cover not only the question of the standard years, but the question of what was originally called the alternative standard—now the second of three possible standards: the issued share capital.

Mr. R. A. Butler

May I, for the sake of accuracy, interrupt the hon. Gentleman for a moment? I did not say they affected only the standard year. We are clear on that point. As to the question of the alternative standard, I actually announced this several weeks ago, and gave an outline of what it would be, so I did not think that there was anything new there, and I think, therefore, that it was a fairly reasonable argument of mine.

Mr. Crosland

I am afraid that the right hon. Gentleman has misunderstood the point I was making. I am not criticising him for introducing the Amendments that were tabled this morning, but originally, on Friday morning, his Amendments gave what is now the third of three possible standards, namely, capital employed. I was thinking of the Amendments tabled this morning which substitute 12 per cent. for 10 per cent. in respect of one of two things that is now to become the second of three possible standards that may be chosen.

The point about the 12 per cent. and the 10 per cent., I venture to suggest is an extremely complicated one. It is not at all clear at first sight why in one or two cases the figure of 10 per cent. has not been raised to 12 per cent. I spent the greater part of this morning on these Amendments and I am still completely puzzled on this point.

Mr. Assheton

The Chancellor did indicate that he would tell us in broad outline what all these Amendments mean. Would it not be very helpful if we were to proceed and allow the Chancellor to explain them?

Mr. Crosland

I have the greatest possible respect for the lucidity of the Chancellor in his utterances on even the most complicated matters, but I really must insist, after an entire morning spent on these Amendments, that for hon. Members not of the intellectual standard of the right hon. Gentleman opposite, it is not going to be sufficient just to listen to a very complicated 20-minute speech by the Chancellor to be clear about the whole thing. I do not think that most hon. Members—I speak for myself particularly here—can be expected to grasp all this by that means.

The submission which is, I think, crucial is that the Amendments tabled this morning are of a very drastic character, that they affect the whole relationship between E.P.L. and the Profits Tax, and I do not myself believe that we can start discussing Clauses 31 and 32 without considering every new Amendment put down this morning, since the whole of the E.P.L. provisions have really in the last four or five days been changed from their original shape. I suggest most seriously to the Chancellor that we are not trying just to make petty debating points on this side of the Committee, but that we are trying to work out this complicated E.P.L. Clause as seriously as we can.

As the Chancellor knows perfectly well, there have been those on this side of the Committee who have really tried from the start to work out this extremely complicated Clause and to understand it, and to put down Amendments, and it is not fair to ask us suddenly today, after only a little while to study the new Amendments, to embark on discussion of them now, for that discussion, in the circumstances, must be ill informed. I very much hope the Chancellor will accept the Motion.

Mr. Ivor Owen Thomas (The Wrekin)

In the few remarks I wish to make I shall steer clear of discussing the merits of the Amendments as such, and confine myself to the mechanics of the procedure involved in the Motion to report Progress.

I am convinced that, despite what the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton), has said, the Chancellor is not treating the Committee generously by bringing these Amendments forward which, in my opinion, and, I think, in the general opinion of hon. Members on this side of the Committee, to a large extent undermine and displace a large part of the original Bill.

I do not think it is treating the Committee generously for the Chancellor to bring forward this mass of Amendments and suggest that we are able adequately to deal with them now. I think that the position is that the proposals which the Chancellor and the Government have now placed upon the Order Paper are essentially new proposals which should have formed part of the Finance Bill in its original state, and on which there should have been a full opportunity for a Second Reading debate, which is now denied to the Committee.

5.0 p.m.

If the proposals now contained in the right hon. Gentleman's Amendments had been originally set out in the Finance Bill, the House and the Committee would have had an opportunity of submitting Amendments to the Bill. What opportunity have we now to submit and have fully considered Amendments to these further Government Amendments? It may be said that we have such an opportunity on the Report stage. That is not sufficient when considering such fundamentally and vitally important matters as the Profits Tax. Therefore, I think that the Committee is asking no less than it has a perfect right to ask of the Chancellor and the Government, namely, an opportunity for further consideration and full discussion by all Members of this further spate of Amendments.

When we have reached a stage in which we have adequately or attempted adequately to digest them, we might then be in a fit state to be able to discuss them. I doubt whether at this stage even the Chancellor himself—and I have a great regard for his ability in many respects—really comprehends the full implications of the mass of Amendments which he has brought forward.

Even accepting that he fully comprehends their meaning and implications, he has to explain them to the Members of the Committee. Even if he succeeds in making Members on his own side of the Committee as well as Members on this side of the Committee fully cognisant of what is meant by this spate of Amendments, then, in my opinion, and linking up what I have to say now with what I said earlier, it is only at that stage that we shall have completed what should have been a Second Reading debate on the proposals.

I suggest, therefore, that we are only asking for elementary justice in asking the Government to give an adequate opportunity to the Committee fully to consider this body of Amendments, so that we may give adequate consideration to them before going on to the next stage.

Mr. Eric Fletcher (Islington, East)

There is one argument which I want to add to those which have been addressed by my hon. Friends, and I hope that the Chancellor will give it his attention, because I cannot help feeling that, in one respect, the Chancellor has been less than candid with the Committee. I say that more in sorrow than in anger.

Last night, about 11.30, the Chancellor asked us to postpone consideration of Part IV of the Bill until we had taken Part V. I do not believe that any Member of the Committee would have agreed to that proposal if he had known that this bulk of Amendments was to be put down overnight, between midnight and 10 or 11 this morning. Why did the Chancellor ask us at 11.30 last night to postpone consideration of Part IV, which deals with Profits Tax and which consists of Clauses 29 and 30, until after we had come to Part V?

Part IV is comparatively simple. There are relatively few Amendments dealing with Part IV. It would have been quite convenient, in the ordinary course, for the Committee to have proceeded to deal with the Profits Tax. Consideration of the Profits Tax itself would have taken quite a considerable amount of time. It raises matters of considerable importance; so why, at 11.30 last night, did the Chancellor ask us to postpone the normal sequence of the Bill and leave consideration of the Profits Tax until after we had dealt with E.P.L.?

Did the Chancellor then know that he intended to put down this very long and complicated series of Amendments? Does the Chancellor really think that if he had put down these Amendments at the weekend, as one of my hon. Friends suggested he might have done, so that we had an opportunity of considering them, that, if we had known about them, we should have agreed to his Motion last night to postpone consideration of the Profits Tax until after we had considered E.P.L.? Would it not have been fairer and more satisfactory to the Committee for the Chancellor to have postponed his Motion yesterday until today and until these Amendments were put down? Could be then, possibly this afternoon, have invited the Committee to leave over Part IV of the Bill until we had dealt with Part V?

I cannot help thinking that in this matter the Committee has not been treated with the fairness to which it was entitled, by getting it to pass that Motion last night and for the Chancellor shortly afterwards to put down this long series of Amendments. I do not propose to repeat the arguments that have been addressed to him by my right hon. Friends and other hon. Members, but I feel that, in the circumstances, the Committee is fully entitled to ask for adequate time to consider these Amendments before we proceed with further discussion of the Bill.

Mr. Hugh Dalton (Bishop Auckland)

If the right hon. Gentleman is going to accept the Motion—I thought that he was about to rise to reply—it will not be necessary for me to intervene. Apparently he is not. This is an unprecedented procedure of the Chancellor of the Exchequer. He remembers a large number of Budgets—I remember a few more than he does, and we have read about others—and I do not recollect any occasion, nor does he, in which a Chancellor of the Exchequer has put down some 70 Amendments, many of them of the greatest importance and complexity, and given hon. Members of the Committee only literally one or two hours in which to try to grasp their meaning. That is totally unprecedented, and I also submit that it is totally unnecessary.

The Bill which the right hon. Gentleman is now proposing to amend in this elaborate way has been printed for nearly two months. A longer time than that has elapsed since the Chancellor made his Budget speech and put his ideas into circulation for comment and criticism. I cannot believe that it would have been impossible, if the Government's business had been competently conducted, to have given us at least three days' notice instead of three hours' notice of these Amendments.

Late last night, nearly midnight, the Chancellor of the Exchequer made a statement which is not in HANSARD. We cannot read it in HANSARD because the proceedings have not yet been printed up to that point, but, judging by brief accounts in the Press, the Chancellor made a number of important statements of his intentions with regard to the Profits Tax, and, as rightly said by my hon. Friends, to judge this group of Amendments properly we ought also to see the Amendments proposed to be made in the Profits Tax, because evidently the whole thing hangs together as one scheme.

The whole balance of taxation has evidently been substantially altered by these Amendments, and we should, therefore, I suggest, have had the Amendments to the Part IV and Part V Clauses on the Bill before us before beginning to discuss them, so that we could have seen how far they interacted with each other. The very simplest form of interaction is, as the Chancellor appears to have stated last night to the Committee, that he will lose a lot of revenue under one head and will recoup part of it under another. We ought to see the thing as a whole.

Mr. Ian Horobin (Oldham, East)

The Amendments to Part IV dealing with the alteration of Profits Tax are on the Order Paper.

Mr. Dalton

Perhaps the Chancellor will answer this, but I think that a number of the indications which he gave last night about his intentions to amend Part IV are not covered by Amendments on the Order Paper.

Mr. Horobin

They appear on page 1366 of the Order Paper.

Mr. Dalton

There may be some Amendments there, but in any case the notice is far too short. That is the whole argument which is being addressed to the Committee. I am suggesting that certain Amendments which were adumbrated by the Chancellor in his statement last night have not yet appeared on the Order Paper. Even if they are on the Order Paper, we have had too short a time to give proper consideration to them.

The Chancellor may have been taken by surprise at the very rapid progress made by the Committee in dealing with Income Tax. Perhaps that accounts for the lack of a proper interval. It may be that the Chancellor anticipated a very much longer debate on Income Tax and did not expect to get through it at a reasonable hour. But that is no excuse for putting the Committee in this position today. The right hon. Gentleman must not to that extent take advantage of the good nature and pliability of the Opposition. When he rose just now I thought he was about to accept the Motion. If he does not do so, we shall have to carry it to a Division.

This kind of thing would never have occurred under the previous Government. There we had a stream of decisions steadily flowing forth from Whitehall. One may think them good decisions or bad decisions, but there was a stream which never dried up and never flooded. But now we have a most irregular rainy season. It depends a little as to whether the Prime Minister is in a state of mental activity or not. Sometimes, we are told, the Prime Minister butts in and completely blocks the flow of decisions for a considerable time. At other times they flow like a disordered flood.

In so far as I have been able at short notice to understand the bulk of the new Amendments, they represent a notable victory for the Chancellor over the Prime Minister, who put the Chancellor in a very awkward position even before he was appointed Chancellor of the Ex- chequer by presenting the crude notion of an Excess Profits Levy, perhaps for a purpose which it would be out of order to pursue. I must congratulate the Chancellor on having recovered some ground lost to the Prime Minister, and perhaps, on balance, some financial sanity and wisdom, but if the Chancellor will not accept the Motion which has been moved in such moderate and persuasive language by my right hon. Friend the Member for Battersea, North (Mr. Jay), we shall have to take it to a Division.

5.15 p.m.

Mr. R. A. Butler

I have not very much more to add to what I said before. I have nothing to complain of in the tone of the observations of the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), although I am afraid that I cannot agree with their substance, and this will not be the first time.

The right hon. Gentleman raised a definite point whether the Amendments proposed to Part IV, those referring to Profits Tax, were on the Order Paper. They are on the Order Paper at page 1366. They are the Amendments which I outlined last night. They are the ones which I wish to move on that subject. I have attempted to put on the Order Paper all that is in my mind. If the right hon. Gentleman will read them, he will see what a singularly capacious mind I have.

That enables me to say that the Government and I really have tried to be absolutely frank and clear with the Committee in putting openly before the Committee all that we had in mind with a view to amending or correcting any faults in the tax. If we have erred on the side of frankness, I am only too glad to be indicted, because that is not a bad thing.

What we have next to do is to sift from among the arguments which have been put forward those which are reasonable and those which are unreasonable. The reasonable part of the argument which has been put forward is that it is very difficult to master a mass of Amendments of this kind in a short time. I do not think that the hon. Member for Gloucestershire, South (Mr. Crosland), need under-rate his own mental capacity if he is unable to become a complete master of these subjects in a few hours. I frankly acknowledge that his arguments are completely reasonable, but what is unreasonable is to move a Motion that we should not make further progress with the Bill. No arguments have been put to me which alter my view, as I stated it before, that we could perfectly well make progress with certain Clauses.

I am very glad to be supported in this judgment by the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies), the hon. Member for Oldham, West (Mr. Hale), and my right hon. Friend the Member for Blackburn, West (Mr. Assheton). So we are getting a corpus of opinion behind the point of view which I expressed. Some of the most vocal and able Members of the Committee now support my view that we can reasonably make progress.

The new starred Amendments do not come for a page or two, at any rate until after Clause 32. The Committee will realise that there is nothing unreasonable in having debates on the next two Clauses, because the Amendments to them have been put down in time for them to be properly considered. No Amendments to those Clauses are starred.

Mr. Crosland

Will the right hon. Gentleman give his view on the argument which I have put to him, that many of the Amendments to Clauses 31 and 32 cover groups of subjects which are also covered by the Amendments which he has tabled this morning, and that it is very difficult for the Committee to know what attitude to take towards the Amendments which it is about to discuss unless it has completely digested the significance of the Amendments on the same group of subjects which the right hon. Gentleman has tabled this morning?

Mr. Butler

I should not accept that it was impossible to discuss Clauses 31 and 32 because of Amendments put down to Clause 33 and subsequent Clauses. I would say that there is a certain interconnection between the whole of the Excess Profits Clauses, but the hon. Gentleman and other hon. Members have quite enough acumen to enable them to discuss Clauses 31 and 32 without coming across a single Amendment which has been put only recently on the Order Paper and to have a perfectly reasonable discussion, as the right hon. and learned Member for Montgomery, the hon. Member for Oldham, West, and other hon. Members have pointed out.

It only remains for me to deal with the accusation of bad faith made by the hon. Member for Islington, East (Mr. E. Fletcher), about the Profits Tax and the postponing of Part IV. I warned the Committee as long ago as 12th May that it was proposed at various stages in the Bill either to move up Schedules or to move down Clauses.

It so happens—I can let the Committee into this secret—that it was somewhat to my surprise that the Profits Tax was not originally put after the E.P.L. Clauses, because I thought originally in framing the general outline of the Bill that that would have been a better order. I do not mind telling the hon. Member that it has been in my mind throughout the course of the Bill, from the very start, if I got an opportunity to postpone Part IV because it would be more suitable to deal with the Profits Tax after the E.P.L. I thought it would be more reasonable to consider the new levy and then to consider its relationship to the Profits Tax.

So there was nothing new whatever in my mind in postponing Part IV. The idea had been decided upon literally weeks ago, but owing to the procedure of the House we were not able to move it until we reached a certain place on the Order Paper. We reached that place on the Order Paper last night. That was the first opportunity I have had to make the correction. I still think it is more convenient to do it that way. We cannot go back on it because the Motion has been passed, but there was no particular element or design in doing so and certainly nothing sinister or mysterious in my mind. I hope the hon. Member will accept that explanation.

The hon. Member for Edmonton (Mr. Albu) suggested that I had given way to pressure. I should like to follow up what I said on that point. He will see that I have down an Amendment to Clause 33, in page 37, line 41, to leave out "ten," and to insert "twelve," which exactly covers the Amendment which he himself has put on the Order Paper. I only hope that during the course of a morning he has been able to see that, if there has been any pressure, that pressure has been due to all parties and all opinions who have taken good points. If I take a point and put it on the Order Paper as an Amendment, I hope it will be realised that I am actuated by fairness all round and have not submitted to pressure from any quarter whatsoever.

In the circumstances the only course is to make reasonable progress and to review the position later in the evening when we get to the stage when the Amendments put on the Order Paper, in the opinion of hon. Members, cannot be given proper consideration because of the short notice given of them. That does not apply to Clauses 31 and 32.

I say to the Opposition—I do not accuse them of bad faith in this—that if they wanted to alter today's business they surely could have given me adequate notice. I heard nothing about it until after I had moved the Motion concerning the appointment of a Select Committee to consider the Civil List, and it was then that my right hon. Friend the Parliamentary Secretary to the Treasury mentioned the matter to me. There was no chance of arranging some alternative business. No doubt hon. Members opposite were so busy studying the Amendments that they had not time to get in touch with me, but had I received such a request through the ordinary channels, I could have given some earnest consideration to it. The only thing to do now is to make progress, and I believe we can do that without offending the legitimate anxieties of hon. Members.

Mr. Jay

In reply to the right hon. Gentleman, I should like to say that the difficulty arose primarily out of the position in which he has put us. We spent the morning attempting to understand these Amendments. The number of the Amendments was such that if one started at breakfast and did nothing else, giving no more than three minutes to each Amendment, one would not have completed the process until three o'clock. As soon as we reached the conclusion that it was impossible to continue, and having spent a few minutes giving the necessary notice to the Chairman of Ways and Means, as we were bound to do, I took steps to inform hon. Gentlemen opposite. Because we had so little time there was no other course open to us.

However, in the interests of reasonable Parliamentary debate and in order at the same time to rescue the Chancellor from the consequences of his vacillations, may I propose what might be a reasonable compromise on the best way out of the difficulty? In the course of his argument, the right hon. Gentleman made one good point and one only, and it was endorsed by the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton)—that it would certainly be of help to the Committee if we could get the Chancellor's statement today to have before us when we come to consider the Amendments.

That does not alter my view that it would be wrong to ask the Committee to take a decision today on these Amendments when they have only been on the Order Paper for a few hours. Therefore, my suggestion, if it can be brought within the rules of order, is that immediately after hearing the Chancellor's general statement on this tax, which could be done by calling one of the Amendments to Clause 31, we could then adjourn the discussion and continue at an appropriate time.

The Temporary Chairman (Mr. Arthur Colegate)

I understand that the Chancellor is to make his statement on the Motion, "That the Clause stand part of the Bill." Would that be convenient?

Mr. Jay

Yes, if we can have an undertaking from the Chancellor that as soon as the statement is made we should adjourn the debate until another day.

Mr. R. A. Butler

I think that would be going too far. There is nothing which offends if we take Clauses 31 and 32. Right hon. and hon. Gentlemen are perfectly competent to master the issues, and it is perfectly reasonable for us to consider the circumstances when we get into the sphere of the Amendments which have been put down too late. I do not doubt the right hon. Gentleman has made his suggestion in a perfectly good spirit, but it is unreasonable.

I think it would be much better to come to a decision on this and then proceed with Clauses 31 and 32 on the understanding that when we come to the situation when Amendments have to be considered which have not been long enough on the Order Paper, the right hon. Gentleman can move to report Progress and we can discuss the matter. That is perfectly reasonable, and I suggest that we should come to a decision now.

Question put, "That the Chairman do report Progress, and ask leave to sit again."

The Committee divided: Ayes, 241; Noes, 269.

Division No. 140.]	AYES	[5.28 p.m.
Acland, Sir Richard	Grey, C. F.	Peart, T. F.
Adams, Richard	Griffiths, David (Bother Valley)	Plummer, Sir Leslie
Albu, A. H.	Griffiths, Rt. Hon. James (Llanelly)	Poole, C. C.
Allen, Arthur (Bosworth)	Griffiths, William (Exchange)	Porter, G.
Allen, Scholefield (Crewe)	Hale, Leslie (Oldham, W.)	Price, Joseph T. (Westhoughton)
Anderson, Alexander (Motherwell)	Hall, Rt. Hon. Glenvil (Colne Valley)	Price, Philips (Gloucestershire, W.)
Anderson, Frank (Whitehaven)	Hall, John (Gateshead, W.)	Proctor, W. T.
Awbery, S. S.	Hamilton, W. W	Pryde, D. J.
Ayles, W. H.	Hannan, W.	Pursey, Cmdr, H
Bacon, Miss Alice	Hargreaves, A.	Rankin, John
Balfour, A.	Harrison, J. (Nottingham, E.)	Reeves, J.
Barnes, Rt. Hon. A. J	Hastings, S.	Reid, William (Camlachie)
Bartley, P.	Hayman, F. H.	Rhodes, H.
Bellenger, Rt. Hon. F. J	Henderson, Rt. Hon. A. (Rowley Regis)	Richards, R.
Bence, C. R.	Herbison, Miss M.	Robens, Rt. Hon. A.
Benn, Wedgwood	Holman, P	Roberts, Albert (Normanton)
Benson, G.	Holmes, Horace (Hemsworth)	Roberts, Goronwy (Caernarvonshire)
Beswick, F.	Houghton, Douglas	Ross, William
Bing, G. H. C.	Hoy, J. H.	Schofield, S. (Barnsley)
Blackburn, F.	Hubbard, T. F.	Shackleton, E. A. A.
Blenkinsop, A	Hudson, James (Ealing N.)	Shinwell, Rt. Hon. E.
Blyton, W. R.	Hughes, Cledwyn (Anglesey)	Short, E. W.
Boardman, H.	Hughes, Hector (Aberdeen, N.)	Shurmer, P. L. E.
Bottomley, Rt. Hon. A. G.	Hynd, H. (Acorington)	Silverman, Julius (Erdington)
Bowden, H. W.	Hynd, J. B. (Attercliffe)	Silverman, Sydney (Nelson)
Bowles, F. G.	Janner, B.	Simmons, C. J. (Brierley Hill)
Braddock, Mrs. Elizabeth	Jay, Rt. Hon. D. P. T.	Slater, J.
Brockway, A. F.	Jeger, George (Goole)	Smith, Ellis (Stoke, S.)
Brook, Dryden (Halifax)	Jeger, Dr. Santo (St. Pancras, S.)	Smith, Norman (Nottingham, S.)
Brown, Rt. Hon. George (Belper)	Jenkins, R. H. (Stechford)	Sorensen, R. W
Brown, Thomas (Ince)	Johnson, James (Rugby)	Soskice, Rt. Hon. Sir Frank
Burke, W. A.	Johnston, Douglas (Paisley)	Sparks, J. A
Burton, Miss F. E.	Jones, David (Hartlepool)	Steele, T.
Butler, Herbert (Hackney, S.)	Jones, T. W. (Merioneth)	Stewart, Michael (Fulham, E.)
Callaghan, L. J.	Keenan, W.	Stokes, Rt. Hon. R. R.
Carmichael, J.	Key, Rt. Hon. C. W.	Strachey, Rt. Hon. J.
Champion, A. J.	King, Dr. H. M.	Strauss, Rt. Hon George (Vauxhall)
Chapman, W. D.	Kinley, J.	Summerskill, Rt Hon E.
Chetwynd, G. R.	Lee, Frederick (Newton)	Swingler, S. T.
Clunie, J.	Lee, Miss Jennie (Cannock)	Sylvester, G. O
Coldrick, W.	Lever, Leslie (Ardwick)	Taylor, John (West Lothian)
Coldlick, P. H.	Lindgren, G. S.	Taylor, Rt. Hon. Robert (Morpeth)
Cook, T. F.	Lipton, Lt.-Col. M.	Thomas, lorwerth (Rhondda, W.)
Cove, W. G.	Logan, D. G.	Thomas, Ivor Owen (Wrekin)
Crosland, C. A. R.	MacColl, J. E.	Thorneycroft, Harry (Clayton)
Cullen, Mrs, A.	McGhee, H. G.	Thurtle, Ernest
Daines, P.	McInnes, J.	Timmons, J.
Dalton. Rt. Hon. H.	McKay, John (Wallsend)	Tomney, F.
Darling, George (Hillsborough)	MacMillan, M. K. (Western Isles)	Turner-Samuels, M.
Davies, A Edward (Stoke, N.)	MacPherson, Malcolm (Stirling)	Ungoed-Thomas, Sir Lynn
Davies, Ernest (Enfield, E.)	Mellalieu, E L. (Brigg)	Usborne, H. C.
Davies, Harold (Leek)	Mallalieu, J. P. W. (Huddersfield, E.)	Viant, S. P.
Davies, Stephen (Merthyr)	Mann, Mrs. Jean	Wallace, H. W.
de Freitas, Geoffrey	Manuel, A. C.	Watkins, T. E.
Deer, G.	Marquand, Rt. Hon. H. A.	Webb, Rt. Hon. M. (Bradford, C.)
Dodds, N. N.	Mayhew, C. P.	Wells, Percy (Faversham)
Donnelly, D. L.	Mellish, R. J.	Wells, William (Walsall)
Driberg, T. E. N.	Mikardo, Ian	West, D. G.
Ede, Rt. Hon. J. C	Mitchison, G. R.	Wheatley, Rt. Hon. John
Edwards, John (Brighouse)	Monslow, W.	White, Mrs. Eirene (E. Flint)
Edwards, Rt. Hon. Ness (Caerphilly)	Moody, A. S.	White, Henry (Derbyshire, N.E.)
Edwards, W. J. (Stepney)	Morgan, Dr. H. B. W.	Whiteley, Rt. Hon. W.
Evans, Albert (Islington, S.W.)	Morley, R.	Wigg, George
Evans, Stanley (Wednesbury)	Morris, Percy (Swansea, W.)	Wilkins, W. A.
Ewart, R.	Morrison, Rt. Hon. H. (Lewisham, S.)	Willey, Frederick (Sunderland, N.)
Fernyhough, E.	Mart, D. L.	Williams, David (Neath)
Field, W. J.	Moyle, A.	Williams, Rev. Llywelyn (Abertillery)
Fienburgh, W	Mulley, F. W.	Williams, Ronald (Wigan)
Finch, H. J.	Murray, J. D.	Williams, Rt. Hon. Thomas (Don V'll'y)
Fletcher, Eric (Islington, E.)	Neal, Harold (Bolsover)	Williams, W. R. (Droylsden)
Follick, M.	Noel-Baker, Rt. Hon. P. J.	Williams, W. T. (Hammersmith, S.)
Foot, M. M	Oldfield, W. H.	Wilson, Rt. Hon Harold (Huylon)
Forman, J. C.	Oliver, G. H.	Winterbottom, Ian (Nottingham, C.)
Fraser, Thomas (Hamilton)	Oswald, T	Winterbottom, Richard (Brightside)
Freeman, John (Watford)	Padley, W. E.	Woodburn, Rt. Hon. A.
Freeman, Peter (Newport)	Paling, Rt. Hon. W. (Dearne Valley)	Wyatt, W. L.
Gaitskell, Rt. Hon. H. T. N.	Paling, Will T. (Dewsbury)	Yates, V. F.
Gibson, C. W.	Pannell, Charles
Glanville, James	Pargiter, G. A.	TELLERS FOR THE NOES:
Gooch, E. G.	Parker, J.	Mr. Royle and
Gordon Walker, Rt. Hon. P. C.	Paton, J.	Mr. Kenneth Robinson.
Grenfell, Rt. Hon. D. R.	Pearson, A

NOES
Aitken, W. T.	Galbraith, T. G. D. (Hillhead)	Marshall, Sidney (Sutton)
Allan, R. A. (Paddington, S.)	Gammans, L. D.	Maude, Angus
Alport, C. J. M.	Garner-Evans, E. H.	Maudling, R.
Amery, Julian (Preston, N.)	Glyn, Sir Ralph	Maydon, Lt.-Comdr. S. L. C
Amory, Heathcoat (Tiverton)	Godber, J. B.	Mellor, Sir John
Anstruther-Gray, Major W. J.	Gomme-Duncan, Col. A.	Molson, A. H. E.
Arbuthnot, John	Gough, C. F. H.	Monckton, Rt. Hon. Sir Walter
Ashton, H. (Chelmsford)	Gower, H. R.	Moore, Lt.-Col. Sir Thomas
Assheton, Rt. Hon. R. (Blackburn, W.)	Graham, Sir Fergus	Morrison, John (Salisbury)
Astor, Hon. J. J. (Plymouth, Sutton)	Gridley, Sir Arnold	Mott-Radcliffe, C. E.
Astor, Hon. W. W. (Bucks, Wycombe)	Grimond, J	Nabarro, G. D. N
Baker, P. A. D.	Grimston, Hon. John (St. Albans)	Nicholls, Harmar
Baldock, Lt.-Cmdr. J. M.	Grimston, Sir Robert (Westbury)	Nicholson, Godfrey (Farnham)
Baldwin, A. E.	Harden, J. R. E.	Nicolson, Nigel (Bournemouth, E.)
Banks, Col. C.	Hare, Hon. J. H.	Nield, Basil (Chester)
Barber, A. P. L.	Harris, Frederic (Croydon, N.)	Noble, Cmdr. A. H. P.
Barlow, Sir John	Harris, Reader (Heston)	Nugent, G. R. H.
Beach, Maj. Hicks	Harrison, Col. J. H. (Eye)	Nutting, Anthony
Beamish, Maj. Tufton	Harvey, Air Cdre. A. V. (Macclesfield)	Oakshott, H. D.
Bell, Ronald (Bucks, S.)	Harvie-Watt, Sir George	Ormsby-Gore, Hon. W. D.
Bennett, F. M. (Reading, N.)	Heald, Sir Lionel	Orr, Capt. L. P. S.
Bennett, Dr. Reginald (Gosport)	Henderson, John (Cathcart)	Orr-Ewing, Charles Ian (Hendon, N.)
Bennett, William (Woodside)	Higgs, J. M. C.	Orr-Ewing, Ian L (Weston-super-Mare)
Bevins, J. R. (Toxteth)	Hill, Dr. Charles (Luton)	Osborne, C.
Bishop, F. P.	Hill, Mrs. E. (Wythenshawe)	Partridge, E.
Black, C. W.	Hinchingbrooke, Viscount	Perkins, W. R. D.
Boothby, R. J. G.	Hirst, Geoffrey	Peto, Brig. C. H. M.
Bossom, A. C.	Holland-Martin, C. J	Peyton, J. W. W.
Bowen, E. R.	Hollis, M. C.	Pickthorn, K. W. M.
Boyd-Carpenter, J. A.	Hope, Lord John	Pilkington, Capt. R. A.
Boyle, Sir Edward	Hopkinson, Henry	Pitman, I. J.
Braine, B. R.	Hornsby-Smith, Miss M. P.	Powell, J. Enoch
Braithwaite, Sir Albert (Harrow, W.)	Horobin, I. M.	Price, Henry (Lewisham, W.)
Braithwaite, Lt.-Cdr. G. (Bristol, N.W.)	Howard, Grenville (St. Ives)	Prior-Palmer, Brig. O. L.
Brooman-White, R. C.	Hudson, Sir Austin (Lewisham, N.)	Profumo, J. D.
Browne, Jack (Govan)	Hudson, W. R. A. (Hull, N.)	Raikes, H. V.
Buchan-Hepburn, Rt. Hon. P. G. T.	Hulbert, Wing Cmdr. N. J.	Rayner, Brig. R.
Bullard, D. G.	Hurd, A. R.	Redmayne, E.
Bullock, Capt. M.	Hutchinson, Sir Geoffrey (Ilford, N.)	Remnant, Hon. P.
Bullus, Wing Commander E. E.	Hutchison, Lt.-Cdm. Clark (E'b'grh W.)	Renton, D. L. M
Butcher, H. W.	Hyde, Lt.-Col. H. M.	Roberts, Peter (Healey)
Butler, Rt. Hon. R. A. (Saffron Walden)	Hylton-Foster, H. B. H.	Robinson, Roland (Blackpool, S.)
Carr, Robert (Mitcham)	Jenkins, R. C. D. (Dulwich)	Robson-Brown, W.
Carson, Hon. E.	Jennings, R.	Roper, Sir Harold
Cary, Sir Robert	Johnson, Eric (Blackley)	Ropner, Col. Sir Leonard
Channon, H.	Jones, A. (Hall Green)	Russell, R. S.
Clarke, Col. Ralph (East Grinstead)	Kaberry, D.	Ryder, Capt. R. E. D.
Clyde, Rt. Hon. J. L.	Kerr, H. W. (Cambridge)	Salter, Rt. Hon. Sir Arthur
Cole, Norman	Lambert, Hon, G.	Sandys, Rt. Hon. D.
Conant, Maj. R. J. E.	Lambton, Viscount	Savory, Prof. Sir Douglas
Cooper-Key, E. M.	Lancaster, Col. C. G.	Schofield, Lt.-Col. W. (Rochdale)
Craddock, Beresford (Spelthorne)	Langford-Holt, J. A.	Scott, R. Donald
Crookshank, Capt. Rt. Hon. H. F. C.	Law, Rt. Hon. R. K.	Scott-Miller, Cmdr. R
Crosthwaite-Eyre, Col. O. E.	Leather, E. H. C.	Smithers, Peter (Winchester)
Crouch, R. F.	Legge-Bourke, Maj. E. A. H.	Smithers, Sir Waldron (Orpington)
Crowder, John E. (Finchley)	Legh, P. R. (Petersfield)	Smyth, Brig. J. G. (Norwood)
Crowder, Petre (Ruislip—Northwood)	Lindsay, Martin	Snadden, W. McN
Cuthbert, W. N.	Lloyd, Maj. Guy (Renfrew, E.)	Soames, Capt. C.
Darling, Sir William (Edinburgh, S.)	Lloyd, Rt. Hon Selwyn (Wirral)	Spearman, A. C. M.
Davidson, Viscountess	Lockwood, Lt.-Col. J C.	Speir R. M.
Davies, Rt. Hn. Clement (Montgomery)	Longden, Gilbert (Herts, S.W.)	Spence, H. R. (Aberdeenshire, W.)
De la Bère, R.	Low, A. R. W.	Spens, Sir Patrick (Kensington, S.)
Deedes, W. F.	Lucas, Sir Jocelyn (Portsmouth, S.)	Stanley, Capt. Hon. Richard
Digby, S. Wingfield	Lyttelton, Rt. Hon. O.	Stevens, G. P.
Dodds-Parker, A. D.	McAdden, S. J.	Steward, W. A. (Woolwich, W.)
Donaldson, Cmdr. C. E. McA.	McCallum, Major D	Stewart, Henderson (Fife, E.)
Donner, P. W.	McCorquodale, Rt. Hon. M. S	Steddart-Scott, Col, M.
Douglas-Hamilton, Lord Malcolm	Macdonald, Sir Peter (I of Wight)	Storey, S.
Drewe, G.	Mackeson, Brig. H R	Strauss, Henry (Norwich, S.)
Dugdale, Maj. Rt. Hn. Sir T. (Richmond)	McKibbin, A. J.	Stuart, Rt. Hon. James (Moray)
Duncan, Capt. J. A. L.	McKie, J. H. (Galloway)	Studholme, H. G.
Duthie, W. S.	Maclean, Fitzroy	Summers, G. S.
Elliot, Rt. Hon. W. E	MacLeod, Rt. Hon. Iain (Enfield, W.)	Sutcliffe, H.
Fell, A.	MacLeod, John (Ross and Cromarty)	Thomas, Rt. Hon. J. P. L. (Hereford)
Finlay, Graeme	Macmillan, Rt. Hon. Harold (Bromley)	Thomas, P. J. M. (Conway)
Fisher, Nigel	Macpherson, Maj. Niall (Dumfries)	Thompson, Kenneth (Walton)
Fleetwood-Hesketh, R F	Maitland, Comdr. J. F. W. (Horncastle)	Thompson, Lt.-Cdr. R. (Croydon, W.)
Fletcher-Cooke, C.	Maitland, Patrick (Lanark)	Thorneycrott, Rt. Hn. Peter (Monmouth)
Fort, R.	Manningham-Buller, Sir R. E.	Thornton-Kemsley, Col. C. N.
Fraser, Hon. Hugh (Stone)	Markham, Major S. F.	Tilney, John
Fraser, Sir Ian (Morecambe & Lonsdale)	Marlowe, A. A. H.	Turner, H. F. L.
Gage, C. H.	Marples, A. E.	Turton, R. H.
Galbraith, Cmdr. T. D (Pollok)	Marshall, Douglas (Bodmin)	Tweesdmuir, Lady

Vane, W. M. F.	Waterhouse, Capt Rt. Hon. C.	Wills, G.
Vaughan-Morgan, J. K.	Watkinson, H. A.	Wilson, Geoffrey (Truro)
Wade, D. W.	Webbe, Sir H. (London & Westminster)	Wood, Hon. R.
Wakefield, Edward (Derbyshire, W.)	Wellwood, W.	York, C.
Wakefield, Sir Wavell (Marylebone)	White, Baker (Canterbury)
Walker-Smith, D. C.	Williams, Rt. Hon. Charles (Torquay)	TELLERS FOR THE NOES:
Ward, Hon. George (Worcester)	Williams, Gerald (Tonbridge)	Mr. Vosper and Mr. Head.
Ward, Miss I (Tynemouth)	Williams, Sir Herbert (Croydon, E.)

Mr. Horobin

I beg to move, in page 35, line 9, to leave out "the excess," and to insert: such sum as bears the same proportion to the excess as the distributed profits bear to the total profits. I understand, Mr. Colegate, that you desire this Amendment to be moved as it stands on the Order Paper, strictly within its terms, and that the arrangement is that the Chancellor will make his statement when we come to discuss the Clause and when a debate on the matters relating to Excess Profits Levy will be in order.

The Amendment deals with a vital point, with the exemption from Excess Profits Levy of money ploughed back and put to use by industry. The first two points I have in mind can be made almost in one sentence. There was a definite pledge on which this tax was founded and which said that such allowance would be made. It may be argued whether that pledge referred to E.P.L. or to the general effect of the Finance Bill. In either case, unless something of this sort is done, the pledge will not be kept. It is evident that in the E.P.L. provisions as they stand there is no relief for money ploughed back and the net effect of the Finance Bill as it stands will be to increase the charge made on industry out of money so available. In either case, the pledge will not be kept.

The second point is that there is a good precedent for this proposal, in the Profits Tax as proposed to be amended by the Chancellor, by which money ploughed back into a business will be taxed at only one-tenth of the rate of money which is distributed. It seems too difficult to justify any Finance Bill which, in one part, allows money ploughed back into a business to be favourably treated to the extent of nine-tenths of the tax which it would attract if it was distributed, but does not apply the same principle in another part to the taxation of excess profits.

Those who take a special interest in this tax admit at once that the Chancellor has made substantial improvements in allowances for money that has been ploughed back. The percentage allowed is fairly substantial and I do not think any serious criticism can be made against it. On those parts of a company's profits not taken in any one year by the tax gatherer, but successfully put to reserve, a very substantial percentage will be added to their standard profit. To that extent the Chancellor cannot be accused of dealing unfairly. But, of course, money in any one year has to be saved from the tax gatherer before it can be ploughed back, and in that respect his percentage allowance gives no assistance at all.

The submission I am putting before the Committee is of such substance that I must take up a few moments to explain it. I ask hon. Members to bear in mind that there can be no serious dispute that the level of taxation upon profits at present is such that a substantial proportion of it has to be taken out of moneys which would be available for building up the business. I shall give one or two facts and figures to support that submission.

A recent responsible survey showed that to keep intact the capital of British industry, between £270 million and £290 million of extra money is required; that is to say, to keep that capital intact as it was in real terms before the war. However, the profits retained in British industry have fallen short of that amount by between £70 million and £80 million. In other words, British industry is not keeping its capital intact.

Mr. Ellis Smith (Stoke-on-Trent)

Could we be told—

Mr. Horobin

I will give way later, but it will be impossible to give the Committee anything to follow if I give way now.

To support my point I now turn to the latest White Paper on National Income and Expenditure which shows that in the last year available corporation profits were of the order of £770 million gross. From that, however, has to be deducted the bulk of no less than £1,200 million due to inventory writing-up which, of course, does not represent anything more than a pure book-keeping transaction. The same quantity of real goods are in the inventories of the firms. That supports my point that, so far from there being any moneys available for general expenditure, British industry is already being overtaxed on money which would otherwise be used for the building up of industry and not for the benefit of the proprietors.

Further, I have figures recently published by the United Nations showing that, so far from British profits rising last year, when allowance is made for these changes in inventories, there was something like a 7 per cent. fall due to the enormous book-keeping entry which does not represent any substantial addition.

My next point is that it is vital to preserve the power of British industry to make these additions to its capital because alternative sources of saving have practically been eliminated. Lord Brand gave figures only the other day which showed that, making allowances for Death Duties, private saving last year was a negative quantity.

Those are general figures and it may be useful to the Committee if I give one or two specific cases. I have information in my hand with regard to one or two well-known British companies which shows beyond doubt that they are having to keep their capital intact and carry out urgently needed developments out of taxed profits. One of the best companies in the cycle export trade has had to find out of the moneys available for existing taxation a figure of £2,700,000 simply to make good known inadequacies in their depreciation allowances, and so on.

5.45 p.m.

In his annual report the chairman of another company says this: Due to the inadequacy of the depreciation allowed by the Inland Revenue and high commercial taxation, the whole of the reserves resulting from five years good trading have had to be put back into the business. The result has been that it was not possible throughout this long period to retain any reserves for a rainy day, a recession in trade, or for embarking upon new industrial developments which are badly needed. That is at the level of taxation before the proposed Excess Profits Levy which is being made not only upon moneys distributed to the proprietors in dividends, but even on those larger sums which are put aside for building up the business.

In addition to the depreciation in the standard rate allowed by the Inland Revenue, in this instance a sum of £660,000 has been charged against the profits of 1951 as a first provision for special depreciation to cover replacements. Also, in view of the possibility of a fall in the market value of the stocks of raw materials and finished components, a provision of £290,000 has been made for a contingencies reserve, bringing it up to £1 million.

In face of those figures I submit that at this moment the level of taxation upon moneys put to reserve is too high, for the development of the business, for protection against falling stocks and for pure working capital. Provision can only be made out of taxed profits. I am astonished that a Conservative Chancellor should take another large whack—£200 million it was to have been—out of moneys which would not have been distributed in dividends. Incidentally I cannot see why the proprietors of an industry should not have something for their labour, and their dividends have gone up far less than wages, salaries or prices. However, I am not arguing that point. I am trying to establish my point, not on generalities but on actual figures, that the bulk of the money which the Chancellor is getting out of the Excess Profits Levy, unless he makes a further allowance, will be at the expense of the life blood of the reserves of British industry.

Now I want to deal specifically with increases in profits. It might be argued that there is a terrible inheritance from past profligacy. The Chancellor might say, "Much as I would like to reverse all that, I cannot do it now," though I should not think much of that argument. I asked the Chancellor not long ago to give me figures showing the approximate increase in prices for capital equipment—plant, machinery, vehicles, and so on—between the standard years 1947, 1948, 1949 and today. Here again I find myself in partial agreement with some right hon. and hon. Gentlemen opposite. Those figures are no longer completely adequate because the standard years were changed last night, but that does not alter my point essentially.

The Chancellor replied that there was an increase of about 30 per cent. over that period. It will be seen, therefore, that an increase of 30 per cent. in the amounts put aside for reserves would, on the figures of the Chancellor mean no actual addition to the real reserves of a company. It merely means that what they would have to buy with it has gone up 30 per cent. in price they have 30 per cent. extra in money and so they can buy the same amount of capital equipment for carrying on the business. How, then, can the Chancellor of the Exchequer say, "You have got excess profits of 30 per cent. over these standard years, and I will proceed to tax that to the extent of 30 per cent."? It is a purely bookkeeping increase. It does not mean that the industry has improved its position at all.

I should like to take that argument a step further. I have, as is available to all who follow these things, an analysis of nearly 4,000 public companies who have recently declared their results for last year. I do not need to go back to 1947, 1948 and 1949; we can take just the last 12 months. For these industrial companies there has been an increase in their gross profits of something like £280 million. Where has that money gone? Only £11 million of it has gone to proprietors in dividends. The whole of the rest—something like £270 out of £280 million—has either gone in existing taxation or has been ploughed back into reserves of one kind or another.

Is it not, therefore, quite obvious that the conception that the Chancellor of the Exchequer is faced with huge excess profits, which can legitimately be taxed for current Government expenditure, is a complete misconception? The bulk of this money will come out of money which would otherwise be used, and which is urgently needed, for preserving or building up the industry, upon which not only the proprietors, but every working man and woman, depend for their livelihood. It is an extraordinary thing that it should be left to a Conservative Chancellor of the Exchequer to take such a dangerous step at this time.

I am sorry to keep the Committee for a few minutes on this, but it is of such vital importance to British industry, and moreover it is, I contend, a vital matter of principle for the Conservative Party. Do we or do we not believe that private enterprise should be encouraged to provide an increasing livelihood to the people of the country? It is ridiculous to think that the Conservative Party can come into power every now and again simply by shouting "red meat" and "groundnuts."

Do we, or do we not, believe that private enterprise is the best hope of a decent livelihood for the workpeople? [HON. MEMBERS: "No."] Some of us do, and I am entitled to say so, because I took this point during the General Election. This is an absurd, lunatic nightmare of a tax.

Mr. Jay

Just to be sure that we have got him right, was the hon. Member describing the proposal for an excess profits tax which the Prime Minister put in the Conservative Party's official manifesto as a lunatic nightmare, or was that phrase directed to something else?

Mr. Horobin

It was directed to what the Committee are now considering: what we are trying to improve, and what I am glad the Chancellor of the Exchequer has decided urgently needed improvement, even though he sat up all night to put down 70 new Amendments.

I quote now from established and responsible people concerning the consumption industries, industries which are already in grave difficulties and which need most anxious consideration on both sides of the Committee if they are to survive. In the last 12 months, they have had, apparently, an increase in their income of approximately £150 million, which looks very nice and comfortable. Of that, the ordinary shareholder has got £1,300,000, the tax gatherer got £68 million, and £53 million went into reserves. I repeat: Is it not absolutely obvious that an Excess Profits Levy, without some such provision as the Amendment gives for protecting moneys ploughed back, is a direct and serious attack on the livelihood of the ordinary workpeople?

I now come to another example from my own county of Lancashire. I am sorry that the President of the Board of Trade is not here, but he has other things to do and, no doubt, will take note of this. We are earnestly occupied in endeavouring to fulfil a very proper pledge which we gave to re-open, as far and as fast as possible, the Liverpool Cotton Market. I have some figures to show how this process which I have been describing, of eating into the resources of industry, will affect that.

Mr. R. A. Butler

If my hon. Friend considers that we should fulfil one pledge in our Election programme, does he apply the same principle to the pledge that we gave to bring in an Excess Profits Levy?

Mr. Horobin

Certainly. The pledge was to tax fortuitous profits, and the Clause taxes profits whether they are fortuitous or not. The pledge was to attack armaments profits, and this attacks profits whether they are from armaments or not. The pledge was to give relief to moneys ploughed back, and the whole point of the Amendment is to see that that pledge is implemented.

Mr. Albu

I hope that in view of what he has said, the hon. Member will support the Amendment in those very terms which some of my hon. Friends and I have on the Order Paper.

Mr. Horobin

If my hon. Friends appoint tellers on this Amendment, they will not have much difficulty in seeing which way I go.

Turning to Lancashire, I deal now with one of the greatest and most progressive combines in the world. Obviously, I must not give exact details, and for obvious reasons I shall not give names. That combine, it might have been said, is "sitting pretty." It had a bank balance recently of well over £2 million and tax reserve certificates of between £1 and £2 million. I am informed, however, that if the textile industry returns to 70 per cent, working, as we all hope and believe, the whole of that money, except £160,000, will be needed in the industry to keep Lancashire's spinners and weavers at work.

It was estimated that in its original form E.P.L. would cost the combine about £500,000, but £500,000, of course, cannot be taken from £160,000. Where is the money to come from to enable them to start buying their own cotton and financing the stocks which will be necessary if the Hopkins Committee Report is to be implemented?

I do not want to detain the Committee further. [HON. MEMBERS: "Carry on."] I have given a reasoned argument. which has given some amount of pleasure on both sides of the Committee, and I should like to finish, because I know that the Chancellor of the Exchequer has, in view of the very many representations which have been made to him, honestly endeavoured to see whether this tax can be made reasonably fair and reasonably workable.

We must all accept, on this side of the Committee—although I took the precaution, knowing what would come, of keeping my hands free—that the Conservative Party are clearly pledged and that those of us who are loyal Conservatives must support the Chancellor in something which calls itself a tax on armaments profits. But the Chancellor is not pledged, and the Conservative Party are not pledged, to ruin industry by taking away from it moneys which are put to reserve. The Chancellor has a free hand in this, and if he cannot see—I hope he can—his way to accept something along the lines of the Amendment, I would in all sincerity put a proposition to him.

Would it not be very wise, to strengthen his hands in dealing with those courageous trade union leaders who are endeavouring to keep restraint in wages, for him to consider between now and Report stage, if necessary, if he cannot do what I ask in the Amendment, to increase the Excess Profits Levy from 30 per cent. to, perhaps, 40 per cent. and to give complete relief to moneys ploughed back into the industry? He will then have a cast-iron case for dealing with the whole country and will, in fact, be saying to managements, to workers and to spending Departments that all the big paper profits recently made must be kept in the "kitty" during the re-armament programme and not taken out either to be spent by the Government or by shareholders or in wages. They must be kept in the industry to strengthen it in the bitter fight it will have in the next year or so.

6.0 p.m.

I earnestly recommend such a proposal to the Chancellor. He is pledged to some kind of tax on profits to be made during the re-armament programme. He is not pledged to take from industry what might be the only safeguard against complete disaster. If Lancashire today, for instance, had had this E.P.L. over the last few years, mills would have been going bankrupt left, right and centre, as in the terrible days of the 1930's. The only reason why, in spite of the recession, they have not done so now is because they have still a good deal of wool on their backs which the right hon. Member for Bishop Auckland (Mr. Dalton) did not take off.

It is terrible to think that, apparently, if then we had had a Conservative Chancellor the situation would have been very much worse. I leave that thought with the Chancellor. If he must have this wretched tax let him take it from the unfortunate shareholders, but not out of the moneys put into reserve in the interests of the industry and of the country as a whole.

Mr. J. Grimond (Orkney and Shetland)

I think that nearly everyone in this Committee will have listened with enjoyment, although not always perhaps with agreement, to the most skilful, enthusiastic and fighting speech made by the hon. Member for Oldham, East (Mr. Horobin). I must say that I thought he came to the core of the matter in his concluding sentences when he pointed out that however necessary it might be at this time to assure the trade unions that other members of the community were not to gain very large sums of money from inflation—that being the cause of high profits and high wages—nevertheless, that was no argument against taxing profits put to reserve.

I think we have to look at the reasons why we are discussing the matter at all when we consider this Amendment. Of course, we know that the principal reason is that the Conservative Party made a pledge. But even if they had not done so, most of us would not like to embarrass the Chancellor in the attempt he has made, at any rate, to contain wage increases at this time and we might feel that if it were necessary to strengthen his hand by putting a brake on profit increases at the same time that would be a reasonable thing to do.

This, in fact, is a Conservative alternative to the dividend freeze suggested last summer by the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell). I personally thought that proposal had certain disadvantages and would have fallen unfairly on some companies. Nevertheless, I am bound to say that in many ways it is better designed for its purpose than this tax. It did strike directly at the thing which matters. Quite clearly, what matters to a working man is not the amount of money a company puts to reserve, but the amount it distributes to its shareholders. At least we could say of the proposal made by the right hon. Member for Leeds, South, that it was designed to hold back dividends in just the same way as he was trying to hold back wages.

It ought to be said here that many of us feel we cannot put this country on a really firm economic footing merely by appealing to trade unions or employers or shareholders to forgo their wages and profits. The real crux of the matter is that we must have stability of money and an expanding economy with goods more readily traded. But in this present crisis no doubt an attempt to create a partial freeze is something which no one would like to sabotage.

But as the mover of the Amendment pointed out, this tax will prevent companies building up reserves and prevent them improving their techniques. It will, in fact, strike at a weak joint in the economic armoury of this country, which is our capital equipment. If we are to keep up the standard of living of 50 million people in Great Britain we must have a very high standard of capital equipment per worker. Personal saving is falling off, as is well known, and if firms are to place an adequate amount of money to reserve for the maintenance of their plant they must save much of it themselves.

We all agree that in the next five or 10 years we shall have a mixed economy in this country and the major part of it will be run by private enterprise; and no one, even on this side of the Committee, can doubt that whichever kind of economy we have, whether Socialist or private enterprise, it has to have capital equipment. If we fall behind in the matter of equipping our industries those who suffer will be the workers. Our workers' standard of life has been on a high level compared with the rest of the world because of their skill and because they were given the tools with which to do the job. Today, we are in a very vulnerable position and only by making use of our inherited skill to the utmost extent can we maintain and improve the standard of life of our people.

It may be argued that this Amendment would greatly reduce the amount of money that will come from this levy, and, secondly, that the Chancellor has made some concessions on this point by his later Amendments on Excess Profits Levy and the raising of the tax on distributed profits. But I do not think that his concessions so far are adequate to meet the point. I cannot help thinking that the Treasury must be aware that in many ways this is a fundamental problem for British industry.

I do not know whether the Chancellor can accept this Amendment, but it would seem that these are the essential considerations. He is not going to persuade the trade unions to hold off wage increases by taxing profits put to reserve. The trade unions will know that, so far from assisting them, that might be harming their interests. Further, the hon. Member who moved the Amendment suggested one way in which the Chancellor could recoup himself—that is, by taking a larger sum of money from distributed profits. There are many other ways of doing it.

We as a Liberal Party do not object to the taxation of distributed profits if it is necessary in the short run, but we do say that to tax money put to reserve for maintenance is, at present, folly. There seemed to be a considerable support on the benches opposite for that point of view. In fact, when I listened to the mover of the Amendment I was tempted to think that the wheel had come full circle and that we are the only party where the last vestige of unity is preserved. I would press on the Treasury Bench that if they do not accept this Amendment they should show themselves well aware of the importance of the point made by its mover.

Mr. Roy Jenkins

One can have a certain amount of sympathy with some of the points put forward so vehemently by the hon. Member for Oldham, East (Mr. Horobin). We are in a difficulty in considering the changes in the Budget and the new E.P.L. coupled with the lower Profits Tax. The effect is to decrease the differential between taxation of undistributed profits and taxation of distributed profits.

Hon. Members will no doubt recollect that, after the Bill first came out, "The Economist" gave very striking examples showing how the differential would be decreased by virtue of this change. One can see how this is happening. We are pushing down a differential tax, the Profits Tax, in order to make room above it for a non-differential tax, the Excess Profits Levy. This position has been countered a bit by the changes which the Chancellor has introduced recently; but it still prevails. As a result of the whole of these budgetary arrangements, we are moving away from a differential rate of tax towards a rather less differential tax. To that extent, we can feel a certain amount of sympathy with the principle behind the Amendment and with some of the arguments put forward by the hon. Member for Oldham, East.

Mr. Gerald Nabarro (Kidderminster)

Is the hon. Member suggesting that the differential is now adversely changed as a result of this Amendment? After all, on the Profits Tax before the distributed rate was 50 per cent. and the non-distributed rate 10 per cent. Now the distributed rate is 22½ per cent. and the non-distributed rate is 21 per cent. Surely the differential is increased?

Mr. Jenkins

I am afraid the hon. Member has not followed my argument. Certainly, if we take the Profits Tax alone, the result of the changes are to increase the differential. But, of course, we cannot take the Profits Tax alone. We must take the Profits Tax in conjunction with the Excess Profits Levy.

What is happening here is that we are reducing the Profits Tax in order to make room for the levy above it. But we are squeezing down the Profits Tax, which is a differential tax, and we are putting in the space above it a non-differential tax. Therefore, the net effect, so far as profits taxation as a whole is concerned, is that we are decreasing the differential; we are having a smaller differential, a smaller incentive to plough back, than we had previously. If the hon. Member does not believe me, I would suggest that he looks at those very striking examples which were given by "The Economist" immediately after the Bill came out, which illustrate the practical way in which that works.

Mr. Nabarro

The hon. Member may be correct in certain circumstances where a company is assessed under the new arrangement. But there are thousands of companies which may not so be assessed because their rate of profits has not necessarily increased to any marked degree since the period of the standard years. In those circumstances, the argument advanced by the hon. Gentleman must collapse.

Mr. Jenkins

Yes, it is perfectly true, in the case of companies which have not extended and their profits have not extended, that the reverse may be so. But I should have thought that we were most concerned with encouraging the ploughing back in the case of companies which had expanded and which were working in industries which needed the companies to expand. Therefore, I think the argument is a valid one.

Having said that, which is more or less in support of the Amendment, I would say that there are some reasons why I should not feel happy in supporting it. First of all, the Amendment as drafted would give relief even in cases where companies distributed the whole of their excess profits. This arises because, when we are dealing with an excess and with a proportion distributed, it is very difficult indeed to decide whether what one is distributing has any relation at all to the excess.

I will give an example, which may be rather an extreme example, to illustrate what I mean. Supposing we have a company earning a profit of £50,000 a year and, allowing for taxation, distributing about half of that profit. Then its profits go up from the standard period to the chargeable period from £50,000 to £100,000, so that we have an increase of £50,000. I admit that this is an extreme case, but supposing the company decides that the amount which it was ploughing back was sufficient for its purposes; and it decides, subject to taxation, to distribute everything it has available as the result of the increase in its profits. It distributes every penny of the excess by which its profits have increased over and above the standard period to the chargeable period.

6.15 p.m.

Under this Amendment that company would be given a concession, because it would not be distributing the whole of its profits. How is the concession measured? The proportion of its profits which are being distributed is taken and set off against the proportion of its excess. So even while we have a company distributing every penny of its excess, by means of this Amendment that company is given a certain relief, which I should have thought would be rather undesirable.

Mr. Horobin

indicated dissent.

Mr. Jenkins

The hon. Member for Oldham, East, shakes his head, but I think I am right—

Mr. Horobin

I do not wish to interrupt the hon. Member, but I do not think that would be the effect of it.

Mr. Jenkins

After all, the Amendment is to leave out, "the excess." and to insert: such a sum as bears the same proportion to the excess as the distributed profits bear to the total profits. That would be giving relief to every company which has earned excess profits and is not distributing 100 per cent. of its total. I think that the hon. Member will agree.

Mr. Horobin

I do not think that would be the effect, and it certainly was not the intention. What, in effect, this Amendment says is that we take that proportion which is distributed and we apply the Excess Profits tax of 30 per cent. to that. There is complete relief for all those moneys which are not distributed in that proportion. So that though the company which the hon. Member suggests distributes a very much larger proportion, it will have a larger proportion of its profits taxed through the Excess Profits Levy. I think it works exactly the other way round.

Mr. Jenkins

I do not want to be too hard on the hon. Member so far as this Amendment is concerned, because I think it is immensely difficult—when one is dealing with an excess and trying to relate it to that proportion of the total profits which are or are not distributed—to get the thing right. But I cannot see how the Amendment as it stands can bear any other meaning than the one which I have given, and that is that we give relief to that proportion of the excess profits which bears the same proportion to the total profits as the undistributed profits to the total profits. That means that we give some relief to every company which does not make a maximum distribution. I do not think that any other interpretation can be placed on the Amendment, and I think that is objectionable.

Perhaps the Financial Secretary will tell us about this, but I think there is no doubt that the Amendment would cost a great deal. I think it would take at least half of the sum total of the revenue of the Excess Profits Levy. Here is a difficulty in which the Government have put us in the whole of the dealings with this levy. I do not like this levy, I think it is a thoroughly bad tax, and I agree with a great deal of what was said by the hon. Member for Oldham, East in that connection.

We can say that much more strongly because we did not fight the Election on the Conservative Election Manifesto. But the Chancellor has put us into this position because he is giving away a lot of revenue in another tax, and as we believe in taxation from profits we want to see it come back. Therefore, I think it would be difficult to support an Amendment, given the fact that we have to have this levy, which would drive such a big hole in the yield as this Amendment would appear to do.

Mr. Godfrey Nicholson (Farnham)

I hope the Committee will not suffer itself to be led away too much over the details of this Amendment. I did not put my name to this Amendment because I thought there was the remotest chance of the Chancellor accepting it, for I think the Treasury will have no difficulty in shooting it down. Granted the Excess Profits Levy, this attempt to save an already lost battle is doomed to failure, since this sort of differentiation does not fit in with the idea of an Excess Profits Levy. I hope rather that the Committee will direct its attention to the principle which underlies this Amendment. That principle, as I see it, is a strong protest against the taxation of money ploughed back into businesses.

There seems to be a curious conspiracy of silence about our fiscal system in this country. People seem to think that £1 which the Chancellor takes by one tax has the same effect as £1 taken by, another tax. But it is not the same at all. After all, if a farmer is known to be eating his seed corn or feeding it to his beasts, that is considered to presage a disaster, because in consuming his seed corn he destroys the reproductive power of his farm. In the same way, if a country is living on its capital, it is doomed to disaster, although it may take more tortuous and devious paths.

Do not let us be under any illusion; by the taxation of reserves we are living on capital. It is a slippery slope which will have its inevitable result. We have put down this Amendment because we believe any national economy must be in a very bad way indeed if it is reduced to living on capital; and if it goes on doing that it will be in a much worse way. The economists try to persuade us that we can eat our cake and have it too. We cannot. The natural law steps in when a country lives on its capital, and the result is inflation.

It is a long-term problem which will not be solved in this Budget or in this Parliament, or even, perhaps, in this decade. This country and indeed all civilisation has to face the question of how right is it to tax industry, and how wise is it to tax reserves or, to use the agricultural analogy, how wise is it to take a part of the farmer's seed corn. Incidentally, a company whose reserves are taken by the Chancellor has to replace them by making still higher profits and by raising prices, so causing inflation.

I was very much interested in what the hon. Member for Orkney and Shetland (Mr. Grimond) said, and I am sure that is the right way to approach the problem. I cannot imitate the picturesque language of my hon. Friend the Member for Oldham, East (Mr. Horobin), but, in my opinion, it is madness for any Chancellor to take the money needed for the re-creation of industry's reproductive powers. If ever British industry needed re-equipment, it needs it now. The same is true of capital. Sources of capital are gradually being damned and dried up, yet here we have a Conservative Chancellor going on in the same bad old way and hitting industry with the taxation of reserves when it is struggling to expand. He may not knock it down for a count of 10, but he is damaging the reproductive powers of the country all the same.

A committee has been appointed under Lord Radcliffe to reconsider the basis of taxation. It is devoutly to be hoped that it will point out in no uncertain terms the folly of taxing money ploughed back into a business. That theme, I understand, underlies this Amendment, and we are using this as our battleground because it is the first one to present itself. I suppose the whole Committee would fall dead with shock if the Chancellor were to accept it, but it seems to me that it is our duty to seize every opportunity to point out the folly of the course which Chancellor after Chancellor follows.

My right hon. Friend the present Chancellor says he is more virtuous because he has cut down by half the Profits Tax on money ploughed back and put to reserve. That is like somebody who is living a life of sin saying that he is only sinning once a week instead of twice. All virtue is going out of the Treasury because of the iniquitous system of taxation which prevails.

Mr. Albu

It is obvious that on both sides of the Committee there is some sympathy with the view that there should be considerable relief given to profits ploughed back. But before we accept either the very rumbustious speech of the hon. Member for Oldham, East (Mr. Horobin), or the calmer speech of the hon. Member for Farnham (Mr. Nicholson), we must look at the facts and at the policy which in general the Government are pursuing. The argument that what has held back British industry from investing more in plant and machinery in the last few years has been the absence of sufficient money is, of course, complete and absolute nonsense. The truth is that investment in plant and machinery in the last few years has been at a higher rate than ever before, at any rate in recent times.

Mr. Nicholson

Nobody is saying that what has held back industry at the moment is lack of money; it is lack of equipment. Surely the hon. Gentleman does not deny that the time is fast approaching when, as soon as the material situation is relieved, there will be need for sweeping expansion. Is he really saying that it can be denied that the maximum put to reserve represents the economic resilience of industry?

Mr. Horobin

The hon. Gentleman gave a somewhat rumbustious description of my speech. He said that it was complete nonsense. Surely he will agree that it is not only a question of capital re-equipment. Anybody who knows about British business knows that firm after firm, even though they may have been making enormous paper profits, is running into debt to the banks. The mere carrying of stocks and the payment of wages means more and more money. If the hon. Gentleman could show me that I have a million or two in the bank which I did not know I had I should be most grateful.

Mr. Albu

That is, of course, a different argument from the one I was coming to. I was discussing whether there had been any holding down of investment, or, for that matter, a shortage of working capital which had prevented industry from getting going in the last few years. There may have been a shortage in the hands of individual companies, but, from the point of view of our economy as a whole, it has been running in the last few months at what hon. Members opposite have been saying is an inflationary level.

I understand that the Chancellor has, more or less, accepted the view that the purpose of the Budget, in addition to raising revenue in the old fashioned sense, is also to correct the inflationary or deflationary tendency in the economy and to try to direct the economy in the proportions of home consumption and exports. After all, he has told us that this year we are going to have a very substantial cut in home investment.

I want to suggest even on this question of the taxation of retained profits, that had it not been for the high level of taxation on profits, including retained profits, during the last few years, the Chancellor would not have been able to put into operation his new tight money policy and his even tighter credit policy, because if the companies had very large free reserves at the present time they could snap their fingers at the Chancellor when, as he is doing at the present time, he tries to restrict them in their policies.

6.30 p.m.

Sir Herbert Williams (Croydon, East)

Do I understand that the companies are hard up?

Mr. Albu

I am coming to the figures in a moment. It may be that the companies have not as much money as they would like, but, if we are to accept the view that is put to us so frequently from the benches opposite, and especially the views they expressed when hon. Members opposite were sitting on this side, what we would want from our financial policy would be that it should make it easier for the fiscal controls of the Government to operate and to work with the physical controls, and not against them. This is not the moment to relieve taxation on company profits, even the taxation on retained profits.

The hon. Member for Orkney and Shetland (Mr. Grimond) said that the trade unions would not be very interested in taxation on retained profits. I do not intend to develop this argument, but we must not forget that retained profits belong to individuals. [HON. MEMBURS: "No."] Really, that is so. To whom do they then belong? The profits belong to the companies, but any profits that are retained, of course, belong to individuals.

Hon. Members

No.

Mr. Geoffrey Hirst (Shipley)

Will the hon. Gentleman allow me? How on earth does he really imagine that the businesses which we now have and which have been employing people so well for so many years could ever have been built up unless the money had been ploughed back? If that process is stopped now by over-taxation, the businesses cannot go on. Depreciation allowances today are a bad joke; they have no value whatever.

Mr. Albu

The extraordinary thing is that these businesses have been going on, and it is therefore very difficult to accept this argument. The hon. Gentleman based some of his support for this Amendment on some figures published by the Federation of British Industries showing the extraordinary stringency under which companies are operating. First of all, the sample of industries on which he based his figures, in spite of the fact of the very large circulation of that particular questionnaire, represented a total of only 80 companies. No doubt, they were some of the largest companies in the country, but, of course, there are others, and, in the evidence given to the Royal Commission on Taxation by the Trades Union Congress, another sample was taken of 80 companies to produce a substantially different result.

The figures which the Trades Union Congress examined showed that these companies were not, in fact, in the same situation as those companies which the Federation of British Industries quoted. If we take the arguments put forward by the Federation of British Industries, we find that they are not entirely honest arguments, because, if we take the whole period from 1938 to 1949, we are all very well aware that, from 1938 to 1945, it was not possible for companies to spend their reserves, which were allowed to accumulate during a period in which the value of those reserves was falling because of the fall in the value of money.

If we look at the figures of what happened since 1945, we find a very different picture indeed. In fact, we find that the very substantial loss of fixed assets that took place during the war, because of physical inability to replace them, had been more than made up by 1949, as is shown by the increase in the book value of £85 million, equivalent to an increase at 1949 prices of either 20 or 40 per cent., according to which method of accounting we adopt, because these statisticians employed different methods. The total value of fixed and current assets had also increased by a substantial figure, and, if we come to examine the figures, we find that the amount necessary to restore the fixed assets to the 1938 level was exceeded by the profits by 56 per cent., and that the balance of the profits was available to finance current assets.

Mr. Horobin

The hon. Gentleman should quote the whole thing. It was pointed out that it was not sufficient to take account only of the writing-up of industries.

Mr. Alba

I will give the hon. Gentleman the figures. The Federation of British Industries' figures did not cover the whole period between 1938 and 1949, and that is a dishonest way of examining the matter. To take a fair way of doing it, we must take the period from the end of the war, when advances for capital equipment became available again. If we do that for the period from 1925 to 1949, we shall find that the retained profits were ample for the purpose.

I am not saying that companies did not have to raise some fresh capital, either by way of loan or overdraft, or by raising capital on the market. I am sure they did, but why should they not do so? If they did not do it, it would only mean that the value of the shares would rise, and that the ordinary shareholders would have had a hedge against inflation which no other savers would have. There is absolutely no reason why these companies should not have to raise more fresh money to cover increased prices of raw materials during this period, and, as the prices of raw materials fall again, they will get the advantage later on.

Really, I cannot accept the view either that the situation is bad or as gloomy as hon. Gentlemen opposite have painted it, or that, in no circumstances, should companies, and especially public companies, with shareholders who buy and sell their shares on the Stock Exchange and to whom profits are no incentive, should never have to raise fresh money to deal with an inflationary situation which affects the savings of every other individual.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)

My hon. Friend the Member for Oldham, East (Mr. Horobin), in a speech which I think was enjoyed by hon. Members on both sides of the Committee, made it clear, as did a number of other hon. Members on both sides, that this Amendment afforded a very useful peg on which to hang a somewhat generalised discussion on the general level of taxation, with, perhaps, particular reference to the maintenance of company reserves.

On the general proposition which was put forward, I find myself much more in sympathy with what was said by hon. Members on this side of the Committee than what was said in his very interesting speech by the hon. Member for Edmonton (Mr. Albu), but I do not propose to detain the Committee for very long on the generalised issues, on which this Amendment was a very useful peg for the discussion, but will proceed quickly to the Amendment itself.

Before I do so, may I say at once that with a great deal of what was said on the general question by my hon. Friends I find myself in a very considerable measure of agreement. And, indeed, my hon. Friends can be reassured as to our general attitude on this question both by reason of the fact that, in my right hon. Friend's proposals, we are providing for a reduction from 5 to 2½ per cent. in the rate of Profits Tax on undistributed profits, and, as my hon. Friends will no doubt be aware from their study of the Amendments on the Order Paper—and I do not want to go into the discussion of that matter again—that my right hon. Friend is making further and more ample provision so far as the standard of E.P.T. is concerned in respect of money ploughed back in the last two years, and has raised the level to 12 per cent. I hope my hon. Friends will appreciate that a great deal of their general argument was on the lines of various provisions actually embodied in this Finance Bill.

Therefore, when I say—and my hon. Friend the Member for Farnham (Mr. Nicholson) has indicated that there would be a lot of bye-elections if I said anything else—that we do not find ourselves able to accept the terms of this Amendment, that attitude is based upon the effect and the terms of the particular Amendment, and not upon any degree of dissent from the general propositions, which we have to some considerable extent embodied in other parts of the Bill.

As the hon. Member for Stechford (Mr. Roy Jenkins) has pointed out, this Amendment cuts right across the whole structure of this tax. My hon. Friend the Member for Oldham, East, will no doubt say "So much the better," because he used a very agreeable expression with which to describe the measure as a whole. Equally, I think it important that hon. Members should appreciate that to that extent the matter becomes a debate upon the whole subject of this tax and not upon the particular method by which this Amendment would undoubtedly emasculate it.

The effect is very considerable when we consider what it actually does. I take first of all one aspect. My right hon. Friend has already made it clear that this is a tax which, it is hoped, it will be necessary to impose for a brief and limited period. I think the expression my right hon. Friend used was "The period of re-armament," and I think all hon. Members on both sides of the Committee hope that that period may not be unduly prolonged. But against that background of a tax of a temporary and, let us hope, brief duration, let us see how my hon. Friend's proposal would work.

It would be perfectly possible for a company, by temporarily retaining its profits during the short duration of this tax and distributing them on a large scale subsequently, completely to avoid any liability to the tax at all. Now, that is not a consequence which, if there is to be a tax of this sort, it would be reasonable to allow. It would mean that those companies which, for one reason or another—perhaps because of their disregard for their shareholders, or perhaps because of the peculiar circumstances of their ownership—took the step of holding back all distribution for the remaining duration of the tax and then making a large-scale distribution immediately the tax had come to an end, would be able to avoid all liability to this tax. I submit that that is a very serious defect in my hon. Friend's proposal.

But it goes even further. Let us assume that nobody takes any such step as is offered to him under this Amendment to avoid the payment of the tax. Let us assume that people maintain their present arrangements. In general, about 25 per cent. of the profits of industry are distributed. It is clear that the effect of this Amendment would be to reduce the yield of the Excess Profits Levy by 75 per cent.—to one-quarter of the yield contemplated. This makes it clear that this Amendment would have the effect, I will not say of reducing this tax to derisory proportions, but certainly of fundamentally altering its character. That is a very important consideration.

My hon. Friend was good enough to suggest that in order to meet that difficulty, which he plainly anticipated, what we should do would be, while waiving the Excess Profits Levy on undistributed profits, to raise the rate of tax to 40 per cent. on those that were distributed. I think my hon. Friend has not closely considered the figures. To get a comparable yield it would be necessary to raise the rate on distributed profits, not, as he suggests, to 40 per cent., but to something in the nature of 120 per cent., which on top of Income Tax and Profits Tax on the companies is clearly in the realm of the absurd. I am afraid, therefore, that there is no such easy way round as that which my hon. Friend no doubt had in mind.

6.45 p.m.

That, apart from anything else, is the fatal objection to this Amendment. It would reduce the yield of the tax and change its character fundamentally on such a scale as to reduce the yield to one-quarter of what is at present contemplated because the calculation is based upon the fact that approximately 25 per cent. and no more of the profits are at present distributed. Though this debate has, as I venture to suggest, provided a very good opportunity for a discussion of the effects of the present level of taxation and of the great importance of maintaining adequate reserves for companies, the Amendment is one which, as my hon. Friends have indicated they already appreciate, it would not be possible for my right hon. Friend to accept because it would fundamentally and on a very large scale alter the whole nature of the tax.

Mr. Hugh Gaitskell (Leeds, South)

I feel that the hon. Member for Oldham, East (Mr. Horobin) did himself less than justice when he described his speech as a reasoned appeal, because there was clearly a great deal of emotion behind his speech as well. He spoke with fire; indeed, with passion; and he spoke, as the whole Committee appreciated, with the utmost frankness. Some years ago I suppose it was very common for Conservative Members of Parliament to abuse the present Prime Minister, but I think it is some time now since anybody has described one of his pet schemes as a "lunatic nightmare," and I think we must acknowledge the spirit behind the hon. Gentleman's excellent speech.

As he appreciated, and as has been pointed out by other speakers, in certain ways we have a great deal of sympathy with what he said in that his Amendment is clearly aimed at distributed profits instead of undistributed profits. As my hon. Friend the Member for Stechford (Mr. Roy Jenkins), pointed out, it is still one of our complaints against this Bill that when the Excess Profits Levy is taken into account as well as the Profits Tax it still narrows the differential between distributed and undistributed profits. The Amendment also approaches in certain ways the conception of dividend limitation which we ourselves favoured.

On the other hand, I am bound to admit that there are objections to this—objections which, however, are not very powerful if one accepts, as the Financial Secretary appears to do, all the arguments of the hon. Member for Oldham, East. It really is not very good to say "I entirely agree with you. We really are draining away capital from industry and there is going to be the most terrible collapse before long" and then to say "I am awfully sorry, but we can do nothing about it." I happen not to agree with the hon. Gentleman. I agree with my hon. Friends the Members for Stechford and Edmonton (Mr. Albu) that that picture of shortage of capital in industry is not sustained by the facts. I do not propose to go over the arguments again. They have been admirably put this afternoon, and also in earlier debates in earlier years.

It is evident that, at the moment, the great difficulty—as I think the Treasury Bench would agree—is to restrain investment rather than find the funds to finance it. Nor would we accept the argument which is put forward in industrial quarters that businesses and, in particular, equity shareholders, should be automatically protected against a fall in the value of money by exempting any increase in the value of stocks from taxation as profits. We do not accept that view. I think that that makes it a good deal easier for us than for the Financial Secretary to criticise the hon. Member.

There are other difficulties which we feel about this question. We certainly cannot accept the view that one can exempt all undistributed profits from taxation and allow the value of the company and the shares to rise continuously so that indirectly, in capital gains, the shareholders get away with it. If one seriously considers some major change, such as is involved in this Amendment, to exempt undistributive profits, one has to couple with that some other means of dealing with the problem of capital gains and the appreciation in the value of the shares. We clearly cannot consider that now.

Mr. Nicholson

It is a common illusion among hon. Members opposite that the value of shares directly reflects the breakup value of the balance sheet. Shares, on the whole, are valued on a dividend basis and the mere fact that assets appreciate on the balance sheet does not necessarily affect the value of shares.

Mr. Gaitskell

I am afraid the hon. Member cannot be following the facts. Obviously, where a company has been pursuing a very conservative policy over a period of years and has been putting money to reserve, the shareholders expect that the dividends will eventually be increased and that—no doubt following a bonus issue—in some cases there will be an appreciation in the value of the shares. I do not think that that argument can be contested

If one takes the line that undistributed profits should not be taxed, one has to solve the problem whether one should allow the accumulation of capital to go on intact in this way without attaching it. Although on other occasions, in public speeches, when I was Chancellor of the Exchequer, I have said that from the point of view of the immediate inflation the taxation of undistributed profits did not have so much to commend it provided there was no increase in dividends, nevertheless I have always coupled with that statement a warning that something else would have to be done about the accumulation of capital.

I thought that the Financial Secretary put his finger on one serious weakness in the Amendment, when he said that it would be perfectly possible, under this arrangement—because it was, or is, believed to be a short period tax—for companies to evade payment altogether during the period of tax and then pay out large dividends immediately the tax period was over. I think that that illustrates the weakness of the whole conception of the Excess Profits Levy and that it confirms our view—if, indeed, any confirmation were necessary—that it is a thoroughly bad tax. I would hope, even at this late stage, that the Government would reconsider the position, withdraw the tax and, at the same time, increase the tax on profits as such.

Mr. Horobin

In view of what has been said, although if the right hon. Gentleman opposite wished to go into the Division Lobby I should go with him—I do not want to waste the time of the Committee—I beg to ask leave to withdraw the Amendment.

Amendment, by leave withdrawn.

Mr. Assheton

I beg to move, in page 35, line 9, at the end, to insert: after deducting therefrom an amount which hears to the excess the same proportion as the franked investment income for the chargeable accounting period bears to the profits for that period. The Committee have taken some little time to reach this point in our discussion, and, as this deals with a specific though important point, I hope that it will not be necessary for me to take up very much time. I should like to start by declaring an interest and I should like all hon. Members to know that anyone who owns shares in investment trust companies, insurance companies or certain other public companies, is bound to have an interest in this particular Amendment.

The Amendment seeks to deal with what I think is a fault in this Bill—that is, the blemish of double taxation. We have gone to a good deal of trouble to enter into arrangements with foreign countries and various parts of the Commonwealth to avoid double taxation, and I think it is rather a pity, therefore, that we should introduce into our financial legislation, in this Excess Profits Levy, a proposal which involves double taxation.

I do not know whether hon. Members are familiar with the ordinary structure of investment trust companies and insurance companies. They are large holders of shares in other companies. I do not expect the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) to be particularly interested in this Amendment, but there is a matter of justice which might interest him. I suggest that it is unjust, if no more, that income which has already once been subjected to taxation should be subjected to taxation again, merely because it passes through the channel of an investment trust company, an insurance company or some other public company.

It may well happen that an investment trust company holds a block of shares in a company which is subject to the Excess Profits Levy. As the Bill is drafted at present, when that income goes to the investment trust company it will pay tax again and if, as often happens, the shares in the investment trust company are held by an insurance company, it may be that the tax will be paid a third time on the same income. All that this proposed Amendment seeks to do is to ask the Chancellor to agree to avoid this measure of double taxation and do justice among the taxpayers of the country.

Mr. G. P. Stevens (Portsmouth, Langstone)

I should like to emphasise the point which was made by my right hon. Friend, that the Amendment deals with the fundamental principle that profits should not be subjected twice to the same tax. To see that point perfectly clearly I think we should look for a moment at the method which is used for dealing with dividends in connection with other forms of tax to which we are subjected—for example Income Tax and Profits Tax. In doing that, I think we should be perfectly clear that in neither case is it the dividends themselves which are subject either to Income Tax or Profits Tax. It is the profit out of which those dividends are paid which is subject to tax.

When one considers the Income Tax computations of a limited company one finds that the taxed dividends are deducted. When one considers the income of an individual, so far as Income Tax is concerned, again the taxed dividends are deducted. They are not subjected to Income Tax a second time though, of course, in the case of an individual they are subjected to Surtax. The reason for that is that the profits out of which the dividends have been paid have already been subjected to Income Tax.

So far as the Profits Tax is concerned, the position is a little different, though the principle is the same. The profits out of which the dividends are paid have been subjected to the test of Profits Tax liability—although, in many instances, for one reason or another the profits will not have been subjected to Profits Tax—and the consequence is that those dividends are not again subjected to that test. Since that principle holds good both for Income Tax and for Profits Tax I believe that it should apply with regard to the Excess Profits Levy.

7.0 p.m.

There are at the moment on the Order Paper Motions by my right hon. Friend the Chancellor of the Exchequer dealing with no fewer than seven double taxation agreements negotiated with other countries. My right hon. Friend and his predecessor have spent a considerable time in negotiating double taxation agreements with other countries to ensure that the same income is not subjected to tax at a higher rate than the higher rate of the two countries concerned. It seems to me uttterly illogical that the Chancellor should spend so much time making sure that income is not subject to tax in two different countries and then to go out of his way to tax it twice in this country.

Surely, in. view of the circumstances, there should not be any great difficulty in the right hon. Gentleman coming to a double taxation agreement with himself. As my right hon. Friend has said, unless this Amendment is accepted, it is possible for the same profits to be charged to Excess Profits Levy not merely twice but possibly three or four times. For that reason, and because it offends against the principle which is accepted for all other taxation purposes in the United Kingdom, I hope the Chancellor will see if he can accept this Amendment.

Mr. Crosland

I want to intervene more to ask questions either of hon. Members who are speaking on behalf of the Amendments or of the Financial Secretary, than because I want to put forward a very strong and definite view. It seems to me that this is one of the rather puzzling issues in this Finance Bill. It is true that at first sight the case seems irresistible. One uses a phrase like "double taxation" and points to the Profits Tax provision, and one can apparently build up from that a very strong prima facie case.

It is also true that one could argue that the Chancellor himself has conceded this case in principle in one of the new Clauses which he tabled last Friday, relating to a company owning 25 per cent. or more of the shares of another company. In that case he makes provision to exempt one or other of those companies from the Excess Profits Levy and appears to safeguard against any double taxation being levied. Therefore, all the prima facie arguments seem to be strongly in favour of doing something about the position of investment trusts and similar corporate bodies. Nevertheless, I personally would like a good deal more information on this subject before I finally make up my mind.

It is hard to decide how investment companies will be affected by the Excess Profits Levy if we take into account the various factors which will determine their E.P.L. liability. We on this side of the Committee have put down an Amendment to cover one aspect of the position of investment trusts, namely, what should be taken as their standard year. It would be illogical that investment trusts should have the same set of standard years as ordinary companies. Clearly, they ought always to have one year in advance since they derive their profits from industrial companies which obtain their profits in the previous year.

But will investment trust companies be badly affected by the fact that provision is not made for the franked income? I understand that an hon. Member opposite will be able to give us some information on this. Before they are badly affected, it is necessary that the companies from which they derive their investment income should be making substantial excess profits, and also that the trust company itself, in consequence of these higher dividends, should be making higher profits. Two lots of people have to be making substantial excess profits before investment trust companies and similar corporate bodies are badly affected.

It will be interesting to know whether this will apply in the majority of cases, particularly as it appears that a considerable number of these investment trusts will not choose the profits standard at all but will use the capital standard. This, again, is a point on which information will be welcome. I understand that a great number of investment trusts will find it much more to their advantage to choose one or other of the two capital standards which are now possible, and I believe it is also the case that owing to their very high gearing they will be much more favourably placed if they choose one or other of these two capital standards than most ordinary industrial companies. If that is the case, it does not seem to me that this franked investment income point so far as investment trusts are concerned is quite so urgent and serious a point as it has been painted in some of the financial papers.

I do not think it is possible to make an exact analogy with double taxation agreements of the ordinary kind, because in the case of an ordinary inter-country double taxation agreement that covers some sources of income the whole of which is normally subject to tax, whereas in the case that we are discussing an excess has to be made over the standard year before any question of double taxation arises; so that they are not in the same position.

Mr. Stevens

Can the hon. Gentleman give an example of any income in this country which is subjected to the same tax twice, other than this particular example?

Mr. Crosland

Under E.P.L. there are certain cases of that. One cannot give an exact analogy. The whole point of the argument that I was making was that we could not draw an analogy with ordinary double taxation agreements precisely because this is a form of taxation which does not fall on the entire income of profits of the objects concerned but only falls on those profits in so far as they exceed a certain standard. There is no exact analogy with double taxation of the ordinary kind.

Mr. Stevens

Is that not exactly the same with regard to Profits Tax, where profits are not subject to Profits Tax if a certain standard is not exceeded?

Mr. Crosland

I was carrying on a conversation with my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), which I am sorry to say was not of much help to me, and I was unable to hear what the hon. Gentleman said. Nevertheless, the case cannot be argued by taking an analogy with one of these ordinary international agreements which cover double taxation, because two conditions have to be fulfilled—both the investment trust companies and the other companies have to make excess profits.

My concluding point is this. It seems to me that there is quite a strong prima facie case for taking the view which the right hon. Member for Blackburn, West (Mr. Assheton), took, but it would be desirable and of great help to a number of hon. Members on both sides of the Committee who have not any particularly detailed or specialised knowledge of the position of these investment trusts, if a little more information could be given either from the Government Front Bench or from the Government back benches as to how badly many companies will be affected.

Sir Patrick Spens (Kensington, South)

I should like to intervene for the first time in these debates and confess an interest in that I am a director of an insurance company. My excuse for intervening is that I have an Amendment on the next Clause which is intended to have exactly the same effect as this Amendment moved by my right hon. Friend the Member for Blackburn, West (Mr. Assheton). In those circumstances, it is probably more convenient that I should say what I have to say now.

The hon. Member for Gloucestershire, South (Mr. Crosland) has asked for facts and figures dealing with the extent to which investment trust companies will be affected. I do not believe that it is possible to say at present to what extent any individual investment trust company will be affected. That must depend on the dividends which they receive from ordinary shares in the industrial companies, and it is quite impossible to foretell the extent to which they will be affected if the Bill is left as it stands.

The point is that this objection is taken on principle, that the investment trust companies are, in fact, a medium by which a great number of comparatively small people hand over their savings to skilled people for investment. It is a movement which, in my view, is one of the most valuable forms of saving in the country. I have no direct interest in any investment trust company, although as some hon. Members know, I was brought up in the atmosphere of investment trust companies during my earlier life. At present, I have no direct interest.

There is no doubt that this threatened double taxation of investment trust companies is likely to undermine a great deal of the confidence of persons who would otherwise hand over their money to those investment trust companies to be managed and invested by those skilled persons. If it gets around that the one form of savings which will quite clearly suffer a form of double taxation is the savings of those who have handed over their money to investment trust companies it must, in the view of those associated with them, affect to some extent the future of those companies.

As my hon. Friend has said, we know that there is no other form of double taxation of investments in this country such as is indicated in the Bill as now drafted. The enacting part of Clause 32 (2) makes it clear that the mere holding of investments is to be regarded as a business in itself which is to be taxed. My Amendment seeks to except the business of investment held by such companies in companies which have already been subjected to tax. I hope that the Chancellor will be able to realise that this is an anxiety which is generally felt by the investment trust companies as a matter of principle, and that he will be able to relieve it to a very substantial extent.

Mr. Wilfred Fienburgh (Islington, North)

I had not intended to intervene in this discussion, but there are one or two things about which, in my simple and naive way, I should like to seek some clarification. Any argument which suggests that we should not be taxed twice is charged with emotional content, particularly as most of us have a rooted objection to being taxed once.

I think we are in danger, in this matter, of using the phrase about double taxation as a sort of fiscal cliche because I can see no real difference in this respect between the industrial concern and the investing company. The industrial concern uses raw materials and physical capital, taking advantage of the terms of the market and the general situation either in relation to full employment or re-armament. It increases its products, and by so doing increases its earnings and profits. Because of that it is to be subjected to the Excess Profits Levy.

The investment concern has, as its raw material, money which it places here, there and everywhere so that it shall fructify and increase. But if it places it so intelligently and cleverly as to increase it above the figure for the base year it will not, if this Amendment is accepted, be subject to any penalisation in respect of that increase, whereas the industrial concern, which is at least producing something of tangible value, will be subjected to the Excess Profits Levy.

The argument advanced is that the Excess Profits Levy will have been paid by the original industrial concerns in which the investment company places its money. But if the Excess Profits Levy were to be regarded, taken in conjunction with the profits tax, as adequate, and if all the excess had, as it were, been creamed off at that primary stage, there would be no excess to fall within the scope of the Excess Profits Levy at the secondary stage of the investment trust.

I am putting this forward—[InterrupHon.] The hon. Member will have an opportunity of saying later whether I was right in saying when I began that I was naive. Mine is a simple way of looking at the matter, and no doubt I shall be educated as I go along. The point I wish to make is that, taking Profits Tax and the Excess Profits Levy together, many concerns will be paying less tax under the new dispensation than they paid previously.

7.15 p.m.

I think that will still be the case in connection with many firms, even taking into account the Amendments recently tabled for an increase in the Profits Tax. There are breweries, distilleries and small firms which have not expanded considerably, which will be able, under the new taxation system, to make increased profits and still pay less total Profits Tax than they were previously paying. Therefore, if an investment trust is lucky enough to have a higher proportion of its funds invested in that type of concern it will be able to make an increased profit and thereby pay increased dividends, while being exempted, under the terms of this Amendment, from paying any Excess Profits Levy which would otherwise have to be paid.

There is, therefore, the possibility that there might be an interesting switch of investments by the investing trust, from those firms paying a higher rate of taxation, taking Profits Tax plus Excess Profits Levy, to those firms which will come off relatively well under the new form of taxation. From the figures I have been able to look at those firms which will do better are not the most socially productive and socially useful firms. It seems that there may be a tendency for the investments of investment trusts to drift towards firms engaged in the less socially useful purposes.

Therefore, I have doubts about this Amendment. I see no reason why an investment trust should not be regarded in the same way as an ordinary enterprise, and if, by skill of management and force of circumstance, it manages to increase its profits over those of its base year, I see no reason why we should be overcome by the fiscal cliche of double taxation, and why we should not impose on it the same kind of imposition which is being imposed upon ordinary industrial concerns.

Mr. Boyd-Carpenter

This Amendment raises an interesting, important and in many ways rather difficult problem. The purpose of the Amendment of my right hon. Friend the Member for Blackburn, West (Mr. Assheton) is to seek to prevent this tax falling twice on the same money, that is to say, first when it is in the hands of the firm in respect of which the investment is part of the capital, and then in the hands of the company holding the investment. In order to remedy that, the Amendment proposes to introduce the procedure of franked investment income with which we are familiar in connection with the Profits Tax.

The Amendment seeks to deal with the question in a very interesting way. As I understand it, its effect would be to relieve from chargeability to the levy the same proportion of the profits otherwise chargeable as the franked investment income for the chargeable period bears to the profits as a whole. That would work out in a rather complicated way.

I think it would probably be a little clearer to hon. Members if one tested it by means of a hypothetical case. Let us take the simple, fairly straightforward case of a company with a standard of £10,000 and a current profit of £15,000, made up as to £3,000 of franked investment income and as to £12,000 of ordinary trading profits. The effect of my right hon. Friend's proposal would be to relieve that company of the Excess Profits Levy, that is of the tax on £1,000 out of the £5,000.

The complication which that proposal introduces is that for it to work out fairly one would have to assume that the investment income of that company had increased in precisely the same proportion as the trading profits. Otherwise the two would overlap and it would not work out with any precision. In practice, that is most unlikely to happen. Probably, in present circumstances, it would be much more likely that the trading profits would increase in greater proportion than the investment income. After all, the investment income relates only to distributed profits and there is, very properly, a considerable gap between the level of the distribution and the level of the profits actually earned.

Therefore, probably in this case and in most cases, the bigger proportion of increase would be in respect of the trading profits and not of the investment income. That is something of a difficulty in the solution which my right hon. Friend suggests for dealing with this extremely interesting problem. The object is a serious one when one is dealing with companies which both trade and hold investments. But I must concede that the objection is nothing like so strong in the case of an investment company whose sole business is holding investments.

I must concede that in the case of an investment company that argument has much less force. The obvious example, of course, is the investment trust with which we are all familiar. The investment company will have part of its income, no doubt, in franked income—that is to say, arising from investments in other United Kingdom companies which will bear the tax—and also part in Government securities or foreign holdings, which will not.

But there does not seem to be any special reason to expect one category of its investments to have excess profits in proportion greater than the other. Probably in the case of a well managed investment trust with a well distributed portfolio, it would work out pretty evenly. Therefore, the difficulty and the objection which arises with a company which is both a trading and an investment company is not anything like so strong when we come to deal with the investment trust taken by itself.

My right hon. Friend has, therefore, decided that, so far as the investment companies are concerned, it would be right to give some relief and to introduce with respect to them the principle of franked investment income. At the Report stage my right hon. Friend will be tabling an Amendment which will have this effect. I must be perfectly frank with the Committee. That does not deal with anything other than the investment companies. For the reasons which I have given, and for the additional reason that the administration of the franked investment income provisions imposes a very heavy strain on the Department, my right bon. Friend cannot see his way to go further than that.

I suggest to the Committee that by dealing with the case of the investment companies—by dealing with the cases the whole of whose activities are involved in this principle—my right hon. Friend is dealing with those examples which otherwise would have been worst hit under the provisions of the Bill as it stands. He is satisfied that that would be a reasonable Amendment for him to recommend to the House when we come to the Report stage.

Mr. Jay

Can the hon. Gentleman tell us how much revenue will be lost by this concession?

Mr. Boyd-Carpenter

It is difficult to give a precise figure. The figure that I shall give in a moment, I shall give subject to that qualification. It depends, as the right hon. Gentleman knows from his experience, on rather complex calculations. It should be perhaps of the order of something under £1 million.

Mr. Assheton

I am much obliged to the Financial Secretary for the careful way in which he has answered the argument which we put from this side of the Committee. On the question of the cost of this concession, I am not at all sure that it will be even as great as he thinks. Since the Chancellor has introduced the alternative standard, that will mean that many investment companies will not in fact be subject to Excess Profits Levy. None the less, I am very glad that he has decided to accept the principle, which is most desirable, that double taxation should no longer remain as part of this Bill.

I appreciate that a new Amendment will be put down by the Government when we come to the Report stage. I am rather sorry that they do not find it possible to include in that Amendment the case of the industrial company and the insurance company which holds investments in other companies. I ask the hon. Gentleman to look at the matter again to see if it is possible to include such a provision. In view of the reply which the Financial Secretary has been good enough to give, I beg to ask leave to withdraw the Amendment.

Sir R. Acland rose—

The Temporary Chairman (Mr. George Thomas)

Is the hon. Member raising objection to the withdrawal of the Amendment?

Sir R. Acland

I wanted to ask a question. I want to know whether the Financial Secretary can make one other calculation in connection with this concession. I appreciate that it will have to be very nearly as tentative as the answer he gave to my right hon. Friend the Member for Battersea, North (Mr. Jay). I should like to know how many of the Amendments which were asked for from this side of the Committee during the proceedings on the National Health Service Bill could have been accepted at the cost of what has been granted at the request of the hon. Gentlemen behind him.

Mr. Boyd-Carpenter

I am certain that in your wisdom, Mr. Thomas, were I to attempt to answer that question you would very properly rule me out of order.

Amendment negatived.

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

Mr. C. Davies

This Clause proposes to lay down the principle that an Excess Profits Levy amounting to 30 per cent. of certain excess shall in future be levied upon the bodies corporate which are mentioned in Clause 32. Therefore, it is upon this Clause that we can discuss the principle. I wish to say straight away what I said at the outset when this was first mooted in the Budget. This is a thoroughly bad form of tax. I am glad to see that the right hon. Gentleman the Prime Minister is present. I remember one occasion when he rightly said: All taxes are evil, but the revenue has to be found

The Prime Minister (Mr. Winston Churchill)

That was not when I was in the Liberal Party, was it?

Mr. Davies

No. It was on another occasion about which I will remind the right hon. Gentleman in a few moments. One realises how this came to be included in the Budget and in the Finance Bill. 7.30 p.m.

But the right hon. Gentleman the Prime Minister called attention to the fact that now, when we were having to engage upon very serious sacrifices in this country in preparing more and more armaments, it would not be right that anybody should be making more profits out of the country's own agony and the sacrifices which were being made. It is true that the principle was put forward for the first time in the 1914–18 war and that the principle was adopted again during the Second World War. It is not difficult during a period of war to adopt such a principle and to lay it down while the war is in existence.

However, as the Chancellor of the Exchequer has found, when the war is over and when we are actually in a time of peace, even though that time of peace is described as a cold war, it is almost impossible to distinguish between companies engaged in purely armaments work and companies which are actually gaining extra profits from the very circumstance that the country is engaged upon a very big programme of rearmament.

So it was that the Chancellor of the Exchequer very rightly said when he came to deal with the Budget that it was impossible to distinguish in that way between what were purely armaments profits and what were other profits, and that in order to carry out the pledge which had been given by the Prime Minister there was only one thing to be done, and that was to levy this charge upon all companies whatever they might be doing and without any distinction whatsoever.

I do not believe there is a single right hon. or hon. Member opposite who does not think that this is a really thoroughly bad tax, bad in conception and bad in principle, and I have not the slightest doubt what their attitude would be or where they would vote if the tax had been proposed by the previous Government or by any right hon. Gentleman now sitting on the Opposition Front Bench.

There used apparently to be the objection, "Why make a fuss, because the baby is, after all, only a small baby?" The only point which is now being made in favour of the tax is, "It will have only a very short life. It is true that it is an ugly little brute and a dreadful little brat and none of us like it, but we are very glad to be able to tell you that the evidence is that it will not last long." Apparently that is the one justification for it, but, whether it lasts long or not, it is wrong in principle. It is not right for the Committee to lend itself to putting upon the Statute Book a form of tax which is so thoroughly bad that it offends against every canon of taxation.

What is it proposed to do? It is proposed that we shall ascertain the profits which were made by a company over a certain number of years—the number of years has now been varied, but the principle is the same—and if it dares to make a profit over and above that which is taken as a standard the company shall be penalised. It is a penal tax levied not upon all but upon only those people who are sufficiently capable and good in their management as to improve upon their past position.

We are selecting those who are improving production, which everybody has been asking them to do. We say that because they are improving production, because they are doing what everybody has been asking them to do and because they are doing it better than their competitors are doing, we will punish them for it, and punish them severely. That is being put forward by the very party which has been asking for greater freedom for all companies and for all individuals in producing and urging that all shall not be kept at a certain level.

As I reminded the Committee in the Budget debate and again on the Second Reading of the Finance Bill, this is not the first time that this form of tax has been proposed, and proposed from the Tory side. I agree that it was slightly different before, but in the main it was the same form. It was proposed by Mr. Neville Chamberlain when he was Chancellor of the Exchequer in 1937 under Mr. Baldwin's Government. He proposed it in his Budget. Before we came to the Finance Bill Mr. Baldwin had retired and Mr. Neville Chamberlain had become the Prime Minister, but the tax was kept in the Finance Bill.

The idea in that case was that one should take a certain standard over a period of years and find out what the average profit was and then limit the profit, and thereupon anything over and above that figure was taxed. In order to make it a popular tax it was given the delightful name of National Defence Contribution. That was intended to induce everybody to say, "This is really a very patriotic tax."

I objected to it at that time both on the Budget and on the Second Reading of the Finance Bill, and I am glad to say that it never got any further than the Second Reading of the Finance Bill. I then had the assistance of a right hon. Gentleman who was not very popular with the Conservative side at that time, and certainly not very popular with the Government Front Bench of that time. It was the right hon. Gentleman the Member for Woodford (Mr. Churchill), who was then the right hon. Member for Epping.

Inasmuch as it is a statement of the right hon. Gentleman the Member for Woodford which has really brought this about, it is just as well that we should remind ourselves of what was in the mind of the right hon. Gentleman at that time. He had started with a general dissertation upon taxation, beginning with what I have already quoted. He was not a member of my party at that time, for this was in 1937, but he began with the statement to which I have already referred: All taxes are evil, but the revenue must be found. Then he went on to quote the great Adam Smith in laying down certain very clear canons of taxation. Then he came to this, and I would remind the Conservative Party of it: Now I will venture on the somewhat more disputable ground of profits and profiteering, and the position of individual enterprise. I know that it is the Socialist idea that making profits is a vice, and that making large profits is something of which a man ought to be ashamed. I hold the other view. I commend this to the Chancellor of the Exchequer: I consider that the real vice is making losses. … The making of profits apart from the question of who gets them, is a virtue in any land, and no one should regard it as a virtue more than the Chancellor of the Exchequer with his Income Tax, his Super-tax, his Surtax and his Death Duties, which can take, without the Death Duties, 14s. in the £ … Then comes this—and without a doubt this was what was in the right hon. Gentleman's mind during the period of the Election: Let me pass to profiteering. The charge of profiteering is justly odious, but what is the essence of profiteering? It is the exploitation of monopoly or the exploitation of famine, disaster or war. I remember that in the prewar days we used to say that Socialism attacks capital and Liberalism attacks monopoly. Then he goes on, and at that moment there was no war: Today, in the conditions of peace and free competition, the making of large profits cannot be judged apart from the history of any particular firm or person, and I would say that those profits cannot be judged apart from the risk. That is another sound canon. The right hon. Gentleman continued: I submit that the Treasury would make a profound mistake if they mix themselves up in these imponderable transactions … I venture to say that if the capitalist system is to survive,"— And I take it that is the wish of the Conservative Party.

Mr. Nabarro

And of the Liberals.

Mr. Davies

Certainly and the Liberals. That is why I am opposing this tax— it must be continuously refreshed by enterprises produced by the genius, the inventiveness, the calculation, the sacrifice and the audacity of individuals. We must not disparage or hinder new businesses making new work for the old unemployed. I need not quote any more. Those of us who were in the House of Commons at the time have a very clear recollection of the right hon. Gentleman standing below the Gangway and making that tremendous speech, ending with a part which I commend to the right hon. Gentleman the present Chancellor of the Exchequer, because the present Prime Minister was making an appeal to the then Prime Minister who had been Chancellor of the Exchequer to withdraw that very similar tax to the present levy.

Very rightly, he then pointed out that there was such a thing as face-saving and that if the tax were withdrawn, having been brought forward by the Prime Minister himself and incorporated again in the Finance Bill, it might be said that in some way he would lose face. Whereupon the right hon. Gentleman the present Prime Minister gave a whole series of instances where a wrong tax had been introduced, for example the "Black Michael Tax" on cheques, introduced and later withdrawn by the then Chancellor of the Exchequer Sir Michael Hicks-Beach. The right hon. Gentleman recalled how a tax had been withdrawn by Mr. Disraeli and by himself—the Kerosene Tax, which some of us remember, and which he withdrew after proposing it in his Budget of 1927.

The right hon. Gentleman the present Prime Minister then said of that occasion in 1927: Lord Snowden—Mr. Snowden, he was then—was rising, full of pent-up, overwhelming fury, to fall upon me. I got up. I withdrew the tax. Was I humiliated? Was I called weak? Was I accused of running away? Not at all. There were loud and prolonged cheers."—[OFFICIAL REPORT, 1st June, 1937; Vol. 324, c. 882–885, 892.] Might I commend to the present Chancellor of the Exchequer that if he now sees fit to withdraw this levy his action would be greeted with loud and prolonged cheers by all the Members of his party? One realises that there are financial difficulties at the moment, but this is not the way in which the Chancellor should find the money he needs.

He could do it without penalising enterprise, individuality, and better management. That is the purpose of this levy and, what is more, it is punishing once again those undistributed profits which are so necessary if we are to have a proper development of industry and of trade in this country. Therefore, I beg him to follow the example set for him by the Prime Minister when he was speaking in 1937 and to withdraw this tax graciously.

7.45 p.m.

Lieut.-Colonel Sir Walter Smiles (Down, North)

I certainly remember the speech of which the right hon. Gentleman the Member for Montgomery (Mr. C. Davies) has reminded the Committee, and I remember that day's debate very well. But I would turn from the generalities about this levy and speak about a particular industry I know very well. It happens that last week-end the managing director of a new firm came to see me in my constituency and he placed certain facts before me. He said that due to the Excess Profits Levy an order for some £150,000 worth of the most modern machinery has been held up and that unless there is some alteration in this levy it will be cancelled completely.

I said to the managing director that it would be of great interest to this Committee if I were able to name the firm concerned and he said he had no objection. It is the Berkshire Knitting Mills, Ulster, registered in 1946, and more than 51 per cent. of the capital is contributed from the United States. No dividend has ever been paid. As we are all aware, when one starts an industry with "green" labour, which one has to teach, one expects losses for the first three years, and for the first three years losses were made.

But the Northern Ireland Government have helped this new industry, as they have helped many other industries in the past and, I think, have always been repaid. They helped Harland and Wolff when they were building the very big liners in the time of the depression in the 1930s. I doubt if this company could have stood up if it had not been for the help given by the Government of Northern Ireland.

I suggest that a very useful adjunct to this levy would be to appoint referees to decide if the levy is justified in the case of any particular industry. The Financial Secretary spoke about the easy way round. In connection with the old Excess Profits Duty in the 1914–18 war there were referees. Why not referees today?

The industry I have mentioned is badly hit indeed because 80 per cent. of the goods are exported. An Amendment on the Order Paper, which was not called, would certainly have made a great difference to a company such as this if it had been accepted. The company makes the finest fully fashioned hosiery and these modern weaving machines require men to work them properly. Northern Ireland is the most depressed part of the whole United Kingdom in the matter of the number of men unemployed and since 80 per cent. of the labour employed in this industry is composed of men the present depression makes a very great difference in the weekly wage packets.

I do not see the hon. Member for Ashton-under-Lyne (Mr. Rhodes) in the Chamber, but he and I visited that factory during the Summer Recess. I know the Chancellor has to find revenue but this levy may mean the end of many industrial companies in the position in which the company I have mentioned is situated. The Chancellor says, in effect, "On with the tax, let progress be confined." I do not know how the poem about the Duchess of Richmond's ball might be further adapted, but I suppose the next line would be, "Treasury officials the money have to find."

I have not even 2s. 6d. invested in this knitting company, but I have a small interest in the Corah and Ballito hosiery companies and I ask the Chancellor to compare the position of those two companies with the position of the Berkshire knitting company. If the Chancellor appointed referees the referees could compare that company with the other companies making exactly the same products on an actuarial basis, and the referees could decide what was fair as between the other companies manufacturing hosiery and the Berkshire Knitting Mills.

The price of machinery has increased. The company has 15 new looms on order now costing £13,500 each. They cost £6,500 a few years ago. That order has to be cancelled. United States capitalists are certainly not going to invest more money in this country if that is the way they are treated by the Excess Profits Levy. I ask the Chancellor of the Exchequer: Does he want the United States to invest dollars here? Second, does he want the most modern machinery installed to make these goods? Third, does he want to see more men out of work in Ulster?

Mr. Nabarro

I hope that I may be permitted to switch straight back to the speech made by the Leader of the Liberal Party, the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies), who seemed to indulge in a little of the nostalgia that his colleagues were indulging in at Hastings a few days ago. Perhaps, on fiscal grounds he could attempt a comparison between the situation in 1937 and that which exists today, but evidently he conveniently omitted from his argument the fact that the Excess Profits Levy is a method and an instrument for reducing capital investment in the United Kingdom, thereby freeing capital equipment for export, notably the capital equipment of the engineering industry.

In 1937 there was no overall unbalance in the United Kingdom's overseas payments.

Mr. William Blyton (Houghton-le-Spring)

There were two million unemployed.

Mr. Nabarro

I am not discussing at present the question of unemployment. I am talking of the balance of overseas payments. Our imports approximately balanced our exports. [Interruption.] If the right hon. and learned Gentleman wants to argue about it let me put it rather this way. There was certainly not an adverse balance of £1,200 million in the visible account of overseas payments—as there was in 1951.

Mr. Roy Jenkins

Is the hon. Gentleman aware that our visible trade has not balanced since 1870?

Mr. Nabarro

If the hon. Gentleman wishes to be very acute and slick about this matter perhaps he would tell us exactly what the adverse balance was in 1937 on visible account? It seems that he cannot tell us. I will tell him. It was £127 million—and that compares with a figure last year of £1,200 million.

But, that aside, does any hon. Member of the Committee deny that an essential feature of the Excess Profits Levy is that it provides an instrument and a method for reducing capital investment in the United Kingdom, and for aiding exports of capital equipment? In that regard—and it has not been mentioned during the discussion today on the Excess Profits Levy—from the economic standpoint the Excess Profits Levy is justified.

As one who is engaged in business and in productive industry, I writhe at the thought of the effects of the tax upon capital reserves and upon the balance sheets of companies with which I am connected, and the difficulties this tax will make in the years immediately ahead in catering for normal replacements of essential plant and equipment. There is no doubt that the Excess Profits Levy, in raising the overall yield or direct industrial taxation to something of the order of 70 per cent., will create all sorts of financial difficulties for those concerned. But, also, it cannot be denied that there are very many companies in the United Kingdom today that are fortuitously making profits as a result of circumstances that are not in any way within their control and not in any way related to their respective efficiency.

Whether the Excess Profits Levy in the particular form that it has been presented is a good thing or not is, I submit, an entirely different consideration. I believe that for this period of re-armament it is a wise measure. If it were not introduced in this form, then it would have had to have been introduced in another form, to reduce capital investment and to make a contribution towards the additional revenue that is required; and I believe that it is wholly wrong in principle to campaign against a form of additional direct taxation and close one's eyes to the overall economic pattern and situation of the country at the present time.

There has also been a good deal of reference to pledges in the Conservative Party's Election manifesto before the last Election, and the reason why the Excess Profits Levy was put into that manifesto with the innuendo that it would apply itself only to companies directly engaged on armament work. An hon. Member opposite—I am not quite certain who it was—said it was impossible to differentiate in many respects between companies directly concerned with armament work and other companies. That is true, of course, because in the complex structure and character of sub-contracting throughout the engineering industry, which is, of course, the basic industry directly concerned with armaments.

That is not the only consideration. The Chancellor's explanation of the reason for this levy, which he included in his Budget speech, was, in my view, the most concise and precise and colourful explanation of why the levy is necessary. He said: We are not prepared to see excessive profits being made as a result of the injection of re-armament into the economy."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1291.] I submit to those who object to the Excess Profits Levy that it is not only a question of removing excess profits from companies engaged in armament production or in sub-contracting for armaments, but also of taking into account the effect of the injection of the vast volume of armaments contracts into the economy as a whole—the creation of fortuitous demand for the products of business and industries that are not themselves, in any way connected with re-armament, and thereby forcing prices upwards, and, very often, creating fortuitous profits.

That may seem a queer argument from this side of the Committee. An hon. Friend of mine says, "Fortuitous losses." Indeed, there are in some circumstances and special cases fortuitous losses, but no form of taxation, particularly a type of taxation of this description, can ever do anything more than rough justice over the field of our industrial economy.

There is one further point that I should like to make in connection with this Excess Profits Levy—and it is a severe criticism of it. Perhaps the worst feature of the levy is its effect on the collecting staffs and the assessing staffs of the Inland Revenue. We have had in the past in this country no worse than a two-tier system of direct industrial taxation—Income Tax and Profits Tax; and Income Tax and Excess Profits Tax during the war years.

The right hon. and learned Gentleman the Member for Montgomery mentioned the National Defence Contribution, but, of course, the National Defence Contribution was an alternative to the Excess Profits Tax, and if a company paid Excess Profits Tax it did not pay National Defence Contribution, and vice versa. Throughout, the fabric of the two-tier structure of direct industrial taxation was maintained. Today, we have erected a three-tier structure of industrial taxation.

I remember at the end of the war, in 1946, seeing the tax computations of companies—very often, of companies with only a relatively small capital of, say, £50,000 or £100,000—and finding that the Excess Profits Tax computation covered six or seven foolscap sheets going back, very often, over many years. The complexities and abstruse character of those computations made it impossible for any industrial concern to have any precise idea of the future liability to Income Tax and Excess Profits Tax.

The creation of this third tier today will load complexity upon complexity. and I shudder to think what will be the future of the Inland Revenue staff and of the chartered accountancy profession in trying to assess this Excess Profits Levy, for the Chancellor, far from simplifying the whole tax has, in fact, by the provisions of this Finance Bill, made it, in my opinion, of even greater complexity than it was in the war-time years.

In conclusion, I support this tax politically; I support it from an economic point of view; but from an operational and practical point of view, that is, the assessment and the collection of the tax, I believe it to be exceedingly difficult if not wholly bad.

8.0 p.m.

Mr. Douglas Houghton (Sowerby)

I am very much obliged to the hon. Gentleman the Member for Kidderminster (Mr. Nabarro) for mentioning some of the problems of the administration of this tax. I rose earlier with some diffidence to catch your eye, Mr. Hopkin Morris, for the purpose of saying something myself on this matter. If the Committee is not too preoccupied with the structure and incidence of this tax, I hope to tell them of some of the problems of administration.

As the hon. Member for Kidderminster has just reminded the Committee, this new tax will construct a three-tier scheme of taxation on industrial and other profits. The complexities of administration are bound to increase. Had the authors of the Conservative Party Election manifesto sought the advice of the Commissioners of Inland Revenue I am quite sure that the pledge to introduce a form of Excess Profits Tax would not have appeared in that manifesto, because the Commissioners and the staff of the Inland Revenue Department have had experience of the Excess Profits Duty in the First World War and the Excess Profits Tax in the Second World War, and they know only too well what additional burdens it threw upon administration.

Sir Edward Boyle (Birmingham, Handsworth)

My right hon. Friend the Chancellor of the Exchequer did say in his Budget speech that he proposed to simplify the levy and to avoid the delay, complications and waste of manhours involved in the Excess Profits Tax. He may not have succeeded, but he did say in his Budget speech that that was a problem to which he had attended.

Mr. Houghton

I am coming to that problem. I seek to show that the worthy intentions of the Chancellor of the Exchequer may be completely destroyed in the course of debates during the Committee stage on this Clause and bid fair to be destroyed already by the concessions which he has already announced that he desires to make.

To return to the special problem of administration, I was about to say that during the war the energies and skill and ability of the tax assessing staff of the Inland Revenue Department could more readily be concentrated on war-time taxation because a lot of their normal work of investigation and inquiry could be set aside. In the last two years, and more especially in the last 12 months, the Inland Revenue Department has been trying to overcome the large arrears of investigation and research into past tax evasion which everyone is anxious they should overtake.

References have been made to the Report of the Select Committee on Accounts on the widespread nature of tax evasion in present conditions; and assurances have been given by the Treasury and by the Inland Revenue Department that every effort will be made to make progress on inquiries into under-assessed and evaded taxes in past years, including the war years, and to bring a lot of this work up to date.

Moreover, my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) in the Finance Act last year introduced a most significant Section—Section 27—with regard to the disclosure on demand by the Inland Revenue of amounts of untaxed interest in bank accounts, including Post Office savings. The first indication of the operation of that Section of the Finance Act last year showed that there will be a considerable volume of work to be done on undisclosed amounts of interest, going back several years, and, in some cases, requiring further investigation as to the source of the capital investment. All this work is now gathering in volume and momentum in the Inland Revenue Department, and now an additional burden is to be thrust upon them.

The hon. Member for Handsworth (Sir E. Boyle) said that his right hon. Friend Chancellor of the Exchequer, in his Budget speech, had promised that he would try to keep this new Excess Profits Levy simple so that its administration could be more easily assimilated into all the other duties which the Inland Revenue Department now have to do. But comparative simplicity has been accompanied by injustices which hon. Members on the other side of the Committee are strongly pressing the right hon. Gentleman to remedy.

I think that Members of the Committee will agree that, invariably, simplicity in taxation is accompanied by injustices of one kind or another When the level of taxation is low, these injustices are tolerated, but when the taxes are high they become intolerable, and constant pressure is put upon the Chancellor of the Exchequer for more and more refinement, and greater and greater flexibility in the administration of taxes which would otherwise bear harshly on special interests or peculiar conditions.

The Chancellor of the Exchequer is now in the process of making this levy more flexible and more adjustable to the conditions of particular companies and interests, and I can assure the hon. Member for Handsworth that the Inland Revenue Department are looking with considerable apprehension to the condition in which this tax will emerge from the House.

Sir E. Boyle

I interrupted the hon. Member just now because I thought that he thought that the Chancellor had not taken that problem into account. He showed in his Budget speech that he had considered it. I entirely agree with the hon. Member that the concessions which the Chancellor is making will obviously lead to greater complexity.

Mr. Houghton

The Chancellor not only took it into account but, in my opinion, the original proposals for an Excess Profits Levy of a utility character were shaped to some extent by the advice he got from the Inland Revenue Department regarding the difficulties of administration. Probably he went further towards meeting the problems of administration than he now finds it possible to sustain in the light of the criticism of his original proposal which we are now hearing.

The Chancellor of the Exchequer, on Friday this week, will be a guest at a dinner of the Association of Her Majesty's Inspectors of Taxes, and he will be accompanied by all the surviving ex-Chancellors of the Exchequer, including the right hon. Gentleman the Prime Minister. I may not comment on the spectacle that half a dozen ex-Chancellors of the Exchequer will present at an annual dinner of inspectors of taxes, but I can assure those right hon. Gentlemen that this Excess Profits Levy will be even more unpopular among their hosts next Friday than it is unpopular in this Committee today.

Anyone who responds on behalf of the guests—and I regret that another engagement prevents me from being a humble guest on that occasion—will certainly be expected to say something to the assembled inspectors of taxes on how they are to tackle this work and discharge their duties to the Revenue without a fresh period of undue strain and arduous labour. I hope that the right hon. Gentleman is bearing in mind the effect of this levy upon the staff of the Inland Revenue; and I hope, too, that if it becomes, eventually, a more complicated tax than he originally proposed, he will have in mind the need the strengthen the resources of the Inland Revenue, difficult though it will be to get the skill, knowledge and ability of the standard necessary.

Mr. Nabarro

For years past—ever since 1946, and even earlier—the Inland Revenue have had the greatest difficulty in recruiting staff of the right type. The E.P.L. is reputed to be a temporary tax, lasting for two or three years. Is it not the case that it would take at least a decade to build up the strength of the Inland Revenue staff to a sufficient level to cope with all the numerous complexities which the Excess Profits Levy is bound to bring forward?

Mr. Houghton

I shall not detain the Committee by going into the difficult question of staffing, recruitment and training and into other problems which are most important.

Undoubtedly, there is a difficulty in recruiting candidates of the right standard and of potential ability for this work in the Inland Revenue, largely because inspectors of taxes are socially undesirable people. They have difficulty in getting in all the best clubs and the conversation dries up when they enter the room. They are regarded as the all-seeing eye and the all-hearing ear of the secrets of their fellow men, and there is no doubt that many Inland Revenue officials lead very lonely lives—but they must like it or they would not stay in it.

I conclude by underlining the point which I was making when the hon. Member for Kidderminster intervened. Whatever skill and resourcefulness is available in the Inland Revenue will have to be harnessed to the administration of this new tax. If I may humbly suggest it, I hope that the Committee will bear in mind that every new complexity in this tax will add to the problems of administration if it is to be made tolerable to the taxpayer.

Mr. Niall Macpherson (Dumfries)

In following the hon. Member for Sowerby (Mr. Houghton), I would only comment that he was speaking rather from the angle of the men who have to work the machine—and, of course, we very much respect that breed of men; we fear them for their firmness and we like them for their courtesy. Nevertheless, in considering the incidence of a tax like this, which has come to us for the first time, we ought primarily to consider its impact upon the taxpayer and only secondarily its impact upon the man who is to work the machine.

Mr. Houghton

May I say that I quite agree with that principle?

8.15 p.m.

Mr. Macpherson

I hope very much that the Chancellor and my hon. Friends will take due note of the point of view expressed by the hon. Gentleman about the increasing difficulty which is being created in working the machine. I hope they will make the right use of the advice which was given.

I was most interested in the speech of my hon. Friend the Member for Kidderminster (Mr. Nabarro). He adduced as an argument in favour of this tax the very argument which seems to me the strongest argument against it—namely, the fact that at the moment we are being encouraged to divert most of our productive efforts in the engineering world to exports. I hope to come to that point a little later in my speech.

At an earlier stage of this Clause, my hon. Friend the Financial Secretary said that if he were to accept a certain Amendment it would change the character of the tax. I am not certain whether the Committee would very much mind the character of the tax being changed, because most of us on this side of the Committee do not recognise in this tax the pledge which we supported during the Election. I would submit to the Financial Secretary that it is rather the Government who have changed the character of the tax and it is for them to change it back. I recognise at once that changes are bound to give rise to a number of complexities in the imposition of the tax and in its working.

My hon. Friend the Financial Secretary referred to the yield from the tax. But the yield from the tax can have virtually no influence upon this year's Budget. That is a matter for the following year's Budget, and if, in its course through the House, the tax is considerably modified, that is a matter which can be counterbalanced in the next Budget, and the Chancellor does not have to have regard to it, very much at any rate, in this Budget.

I was struck by a remark made by the hon. Member for Orkney and Shetland (Mr. Grimond), whose speech at an earlier stage we much enjoyed. He said that whether there had been a pledge given during the last Election or not, some such tax as this would have been inevitable for this reason—that the climate of opinion as a whole was strongly against the idea of excessive profits being made at the present time, and in the present national stringency, out of re-armament. I think that is true, and it is a point of view which I think all of us on this side of the Committee would support.

Mr. Grimond

I said, of course, "made and distributed" that was my point.

Mr. Macpherson

I quite agree, and that was the point I was coming to. It is the fact that some people would be better off in their daily spending as a result of the cold war which affronts opinion in this country. We all most heartily agree that the Government were absolutely right in finding some means not only of implementing their pledge but also, in a democratic way, of carrying out the feeling which is general throughout the country.

I think it is for the House to indicate the sort of things which have to be done, and those which have not to be done, rather than to say exactly what sort of tax has to be imposed. The trouble about the tax is that, as at present designed, it undoubtedly hits industries which are not remotely connected with re-armament, and, as the right hon. and learned Member for Montgomery (Mr. C. Davies) said, it hits particularly hard those industries which have shown initiative and enterprise and have responded in the past few years to the appeal which has been made for expanding industry, for increased exports and for general effort in the national interest. For example, it hits particularly hard industries which have expanded since the war and the expanded production of which only came into operation in 1950 or 1951.

I would add this: it hits particularly hard the export trade, which so far has scarcely been mentioned in this debate. It seems to me quite astonishing that, at the same time as the Chancellor of the Exchequer and the whole Government—and indeed everybody in this House—are urging the need for increased exports, the financial results to companies which succeed in getting increased exports should be subject to an excess profits tax of 30 per cent. I should say that that is a situation which is hardly tolerable at the present time.

Mr. Nabarro rose—

Mr. Macpherson

I know exactly what my hon. Friend is going to say. He is going to say that we need these exports just because we need to go on with the re-armament programme. I feel certain that that will be the purpose of his intervention. If we need them that is all the more reason for giving the necessary incentives.

Mr. Nabarro

My hon. Friend anticipated me quite wrongly. Surely the argument must be this-that the Chancellor has to reduce capital investment in the United Kingdom, and the most important item of capital investment is to reduce expenditure on plant and machinery in order to be able to export that plant and machinery, which is in universal demand, thereby making a direct contribution to the balance of payments.

Mr. Macpherson

That was the argument which my hon. Friend put forward during his speech and to which I was coming. There is only force in that argument if, as a corollary, it is accepted that the means to purchase machinery in this country that would otherwise go for export has to be withdrawn from the companies. Unfortunately, there is another serious corollary to the same argument. The Chancellor of the Exchequer admitted it in his Budget speech, as any sensible Chancellor of the Exchequer would admit it, when he said: In the long run our factories must have the equipment they need for expansion and the improvement of efficiency." — [OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1283.] It is true that, in accordance with his overall Budget plan, we must take decisive steps to reduce home investment substantially, but it follows that, at a later date when we are able to increase home investment and to expand, we should have the financial resources for it. If the Chancellor of the Exchequer now takes away those very financial resources which have been placed to reserve, where is industry going to find the resources in order to invest in plant and machinery and general development? That is the main argument to which my hon. Friend has got to reply when he comes to answer, and we hope he will be able to give a satisfactory reply to that.

I should like to reinforce what was said by my hon. Friend the Member for Oldham, East (Mr. Horobin) at an earlier stage, namely, that this tax would not be so bad if we had a reasonable and moderate method of calculating depreciation for the purposes of the tax. If the Financial Secretary is going to say to us that before this tax actually becomes operative he is going to alter the form of the tax on profits so as to allow depreciation to be based on replacement values and not on historical cost, then, of course. we shall adopt a very different attitude to the tax as a whole.

I am not certain whether the Chancellor of the Exchequer or the Financial Secretary will claim that what is being done in this tax is roughly what has been done already in the United States. But in the United States they have the system to which I have just been referring, and that is a vital difference. They allow the profits to be calculated for taxation purposes in order to take account of replacement costs and to take account of the principle of last in and first out in stock valuations which makes a wealth of difference to the general results of the computations of profit.

My hon. Friend the Member for Oldham, East referred to the terrific figure that is shown in Command Paper 8486 for depreciation, but he might have referred to the higher figure in the Economic Survey, which shows an increase in the value of stocks and work in progress of £1,570 million and all of that subject to taxation. That, to some extent, indicates the scope of the problem. It would be wrong for the Committee to let this go without pointing out that at any rate to some extent, this tax will be working in direct opposition to Government policy. For example, many firms have been hoping in the next year to pay off a large proportion of bank advances. In that way they would be contributing towards disinflation, but this tax is going to prevent them doing so.

Secondly, we all know from the experience we have had in the last few years that we should never lose sight of the fact that what we do today other countries may do tomorrow. A tax running up to nearly 85 per cent. is a clear invitation to other countries to tax in a similar manner. If there are higher replacement costs there must be higher profits in order to cover it, and we are in this position that any additional tax nowadays almost inevitably involves an increase in all round costs.

These are the reasons why it seems to me that there is a very grave case for the Chancellor to answer, and I would conclude by saying that, while we on this side of the Committee agree that it would be quite wrong to allow excessive profits to be made, that is quite a different proposition altogether from saying that all excess profits over a purely arbitrary figure should be taken away. When we advocated this policy on previous occasions such as during the Election, we had in mind quite clearly that it would be a tax that would prevent an additional distribution of profits, but not the building up of financial reserves which will enable companies to replace their real working assets when the time came for them to do so.

The major national interest at the present time is that, when the tempo of re-armament slows down, when it is again possible for industry to re-equip, it should have available the necessary financial resources, and that they should not be taken away in the meantime.

Sir R. Acland

I am glad, Mr. Hopkin Morris, that I am now enabled to renew a suggestion which I made prematurely on the Motion to report Progress. I am sorry that I had to strain the generosity of your predecessor in the Chair to breaking point. If, however, I had not made my suggestion then, perhaps the right hon. Gentleman would have accepted the Motion to report Progress and, in the 24 hours which that would have given him for consideration, he might have decided to drop the tax, and then I should not have had a chance of making my point.

It must be clear to anyone who will think honestly about this that we are in a mess because this tax has arisen out of what was a General Election manœuvre. I remember the electoral situation very well, because the news happened to come at a moment when I was taking refreshment with some citizens in the Trades and Labour Hall at Gravesend. In those early weeks of the Election, we who had been sitting on the benches opposite were in the habit of referring to certain action which hon. Members on the other side had taken by way of Amendments they had moved to the Finance Bill last year to reduce the rate of Surtax from 19s. 6d. to 15s. in the £. We used such instances to fortify the case, in which we sincerely believed, that by and large the party opposite is the party of the rich. Propaganda of that kind was going down fairly well. The truth of it was transparent, and not many words were needed to persuade the electorate that it was right.

8.30 p.m.

In discussing that situation on the day in question, there came through on the wireless the news that the Leader of the Conservative Party had promised that there would be an Excess Profits Levy so that nobody should make profits out of armaments. From that time, when we used those arguments which we believed to be true, we were countered by citizens at our meetings who espoused the Conservative cause getting up and saying: "You are talking nonsense cause the Leader of the Conservative Party has promised an Excess Profits Levy." That was what it was done for, and that was the one and only reason for it.

I well remember that when the news came through on that occasion there was amongst those taking refreshment with me a discussion as to where the thing would end. One of those citizens—I think he works in a cement factory—hazarded the guess that the tax when introduced would be so complicated that no one would be able to understand it and that, in the course of the provision going through this Committee, it would be whittled away until nothing would remain of it. That guess is turning out to be remarkably near the truth.

I was discussing this tax this morning with two gentlemen who are skilled in the business of chartering the accounts of trading companies—[Laughter.] I meant, in drawing up the accounts of trading companies. They told me three things. One was that when this Bill was first published neither of them had thought it worth while to spend any time on mastering the details of the Clauses dealing with this matter because they saw, confidently and at one glance, that it would be altered out of all recognition before the Bill became law, and they would not try to master anything which would not survive in anything like its original form.

They also said that nobody with any knowledge of the accountancy profession would imagine that this Clause had any relation to the profits coming directly or indirectly out of the armaments industry. It is a purely fortuitous tax distributing its blows to some, missing others, on no principle that anybody can ascertain. The third point they made was that it would be impossible to find anybody connected with the accountancy profession who would not say that the original estimate of the Chancellor of a net £100 million gained from this tax was not a wild exaggeration as the Clause stood.

Now we are getting the concessions that were foreseen. One was thrown in just now—nearly £1 million. I know I was out of order in asking, but I did ask, how many of the Amendments which we proposed to the National Health Service Bill could have been granted, and how many hours of Parliamentary debate could have been saved, for the total cost represented by that one little concession which the right hon. Gentleman tossed over his shoulder to the people behind him. And that is not the last that will be made.

What shall we be left with at the end? We shall have spent many hours of Parliamentary work which could have been much better spent in discussing many other problems and in helping the Leader of the House to get through the difficulty facing his entire legislative programme. At the end, we shall be left with something which will be an appalling headache to company accountants and chartered accountants all over the country and to many inspectors of taxes, as my hon. Friend the Member for Sowerby (Mr. Houghton) said. The point made by my hon. Friend is relevant, that if the Inland Revenue officials have to give time to the problems raised by this tax, they will not be able to give the time to the other calls made upon them.

The question of tax evasion is at the moment quite a serious social problem. Nobody would suggest that we are anywhere near the sort of state of affairs that our neighbours just across the Channel get into in respect of tax evasion. On the other hand, however, I do not think anybody could doubt that there is a very great deal more tax evasion today than there was 10, 20 or 30 years ago.

Dealing with tax evasion is very largely a question of finding man hours of time amongst the servants of the Inland Revenue Department. Although an estimate on imponderable factors is, perhaps, a rash one to make, I do not think anybody could with certainty say that I was wrong if I suggested that the servants of the Inland Revenue Department, in the time which they will have to give to working out the problems posed by this tax, could collect a larger sum by checking evasions from existing taxation and that, therefore, the Exchequer might actually be financially better off by dropping this tax and putting nothing in its place, and just leaving the Inland Revenue officials more free to work the job of checking up tax evasion.

Mr. Nabarro

Does the hon. Baronet seriously suggest that £100 million per annum is being lost to the Inland Revenue by tax evasion and, as a concomitant of that, that since 1945 his party, when in office, went by default in not collecting £700 million of taxation?

Sir R. Acland

Oh, no. I was suggesting that the yield of this tax, as it finally comes out from the House, will be very much less than £100 million.

Mr. Nabarro

How does the hon. Baronet know?

Sir R. Acland

It is anybody's guess, but at the end of it we shall see whether I am right. At the level of yield of this tax I think it will be very much less than that figure when we are finished with it, and that the proposition I have made about the alternative sum that might be raised for the Revenue, by using the time of inspectors on checking tax evasions, may be perfectly accurate.

For all these reasons, I suggest most seriously to the Chancellor of the Exchequer that he should drop this tax and have a little private consultation with my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), who, I feel sure, would be very happy to oblige with a large number of alternative suggestions as to ways in which a comparable sum of money could be raised, mainly from companies whose profits exceed £5,000 per annum, without anything like the complications that this tax will impose

Sir Albert Braithwaite (Harrow, West)

I am very glad that I have been able to catch your eye, Mr. Hopkin Morris, because I take a serious view of the imposition of this tax upon the country at this time. My right hon. Friend, who has presented an admirable Budget, will do his whole scheme of tax collection a very great deal of harm in persisting with this Excess Profits Levy.

We have had a good deal of experience in connection with this kind of tax during the war years, and if I remember rightly it was one of the first jobs of the Labour Government to remove it as a tax which was extravagant, wasteful and unfair in its incidence in almost every case. Those who have had any experience of dealing with the large volume of tax in this direction know how difficult it is and how discouraging it is to developing businesses.

If there is one thing which is very necessary at this time it is to increase our productivity. In opening his Budget, the Chancellor made great reference to the productivity of this country and to the desire to help and expand the country's export trade. This tax will act contrary to those two views which the Chancellor expressed at that time.

I can only quote from things I know, I happen to be the chairman of a fairly large factory which is now turning over completely to armaments. It employs well over 1,000 people in the London district and practically the whole of our production, three-quarters of which was going to export, is now to be swung over into making armaments. We are very glad to do it; we want to play our part in the re-armament programme. But if our undertaking, when it is only just recovering from the war years, is to be stripped of all its reserves—as it would be by this tax—we shall be slow in getting back when re-armament is over and in keeping those people employed. We have to watch very carefully the problem of employment. We are not so safe with full employment that we can afford any sort of scheme designed to operate against the reserves which industry must normally carry.

I turn to the building industry. The Government want to see great blocks of houses built for the workers. They laid down a programme of 300,000 houses.

150,000 of which are to be built by private enterprise. Private enterprise owns, in the main, the land on which those houses are to be built. Are we to collect all the cost of this land in excess profits? Is it not seen that that would act as a deterrent to the building of homes? With all these dangerous points in mind, I cannot help but feel that if the Chancellor needs £100 million there might be some other way to collect it than by imposing a cumbersome, burdensome tax in this way. I am sure that instead of increasing production it will slow it down, and in the end will do serious harm to industry.

The tax has not passed without comment in many papers. I have before me an article which appeared in the "Economist" of 5th April which says that the Excess Profits Levy marks the end of any hope that industry might have entertained of fair treatment for profits by either political party. The fiscal enormities permitted against profits that passed muster during the war, and were speedily removed by the first Labour Chancellor after the war, are here repeated and enlarged by a Conservative Chancellor. He did not draw up the original formula in his party's manifesto, but he has chosen to interpret it in a manner that treats profits, whether earned by enterprise or generated by the deceptive process of inflation, as a social sin—with absolution at the extortionate rate of 84½ per cent. All this damage to the economy, all these ulcers for accountants, will produce next year a spurious benefit of £100 million.

Mr. R. A. Butler

Perhaps my hon. Friend will pay some attention to the series of Amendments to the proposal since adumbrated and put down on the Order Paper.

Sir A. Braithwaite

I only wish to draw the attention of the Chancellor and of the Committee to what industry regards as a very serious matter. Industry has to play its part in every way, both in the re-armament plan and in the export drive and it needs as much encouragement and help as can reasonable be given at this time.

The serious situation of the country as a whole is probably known in industry as well as it is known in Parliament. I am sure that if the Chancellor gives British industry a real chance he will find that it will respond magnificently and that we shall be able to overcome the great financial difficulties he is facing so courageously and so be able to make our country a really sounder and more prosperous place, with prspects open to everyone.

8.45 p.m.

Sir Wave11 Wakefield (St. Marylebone)

The Leader of the Liberal Party and other hon. Members have given as the reason for the imposition of the Excess Profits Levy the implementation of an Election pledge. I would draw the attention of the Committee to the fact that the amount of the money involved in implementing that Election pledge is very small indeed. I suggest that the Election pledge could be implemented much more easily by the Chancellor imposing some other tax. It would be to the advantage of the whole economy that this tax, which is a thoroughly bad tax, should be withdrawn.

The other day I asked the Chancellor, in a Question, the amount of expenditure on production and research in connection with the re-armament programme. He told me that in the years 1949–50 the expenditure on defence production and research was £196 million. In 1950–51 it rose to £260 million. In 1951–52 it was £400 million and it was estimated that it would be £652 million in 1952–53.

The point, which is quite simple, is that in the ordinary requirements for the Services without re-armament it might be estimated that the expenditure on production and research is running at £200 million a year. We are just beginning to feel the effect of the re-armament programme in the increased amount above that £200 million a year. What, then, is the effect on profits throughout the country of the injection of this rearmament programme? In the actual profits from re-armament production it is very small indeed. The profit percentages run from about 3 per cent. to 7 per cent.

Therefore, even next year the total amount of profit obtained out of production on re-armament cannot be more than about £15 million or £20 million altogether. I am suggesting to the Chancellor that to put on this Excess Profits Levy with all the difficulty and trouble which it entails is not worth while for that comparatively small sum of money.

The hon. Member for Sowerby (Mr. Houghton) drew attention to the grave difficulties which the Inland Revenue will experience in computing this tax.

Only yesterday I saw the file of a company of a group of 60 companies where they have been working on this tax. The whole lot has to be torn up and a new start made. I do not think that people realised the immense amount of work which will be involved over this Excess Profits Levy, even after the Chancellor bas made the various concessions contained in his Amendments.

It will mean an immense amount of work, and I suggest it would be far simpler for the Chancellor to do what the Leader of the Liberal Party suggests, and scrap this tax; and have some quite simple provision of a further Profits Tax, if hon. Members wish, to implement the Election promise, and to prevent the waste of labour which could be better devoted to the export drive and to making our industry more effective.

Mr. Crosland

As hon. Members on this side of the Committee are getting rather sick of these trenchant denunciations from the back benches opposite of a tax which no one on the other side of the Committee has the courage to vote against, will the hon. Member promise—in view of the views he is now putting forward, which are exactly the same as have been expressed by other hon. Members from that side of the Committee—that if we go into the Lobby against this tax he will have the courage of his convictions and vote with us?

Sir W. Wakefield

I am telling the Chancellor about some of the difficulties with which industry is faced by an Excess Profits Levy in this form. I thought that this Committee was a place where matters like this should be discussed. I thought that the House of Commons, especially during the Committee stage of the Finance Bill, was the place where the grievances of the country should be discussed.

The Chancellor has gone a long way towards meeting many of the grievances by the Amendments which he has put down. He has to raise a substantial revenue which is far greater than need be because of six years of Socialist mismanagement. In the interests of the country I suggest that this tax should be abolished and that some other form of taxation should be introduced to raise the revenue which is necessary for re-armament and for our social services.

I can quote an example from personal experience which shows that the Excess Profits Levy will do exactly the opposite of what was originally intended. I am connected with a company which, in the standard years, had very good years because of the shortage of a certain commodity. That shortage has now been overcome. This company is now engaged, and it will be increasingly engaged in future, on re-armament work. It will not pay any Excess Profits Levy. It ought to pay.

Another company, because of shortage of materials during the war and the need to re-equip and modernise itself, had very small profits in the late 'forties. That company is engaged almost entirely in developing our export trade. It handles a most valuable export. Substantial profits are being made in other parts of the world to the great advantage of this country. But that company will be almost taxed out of existence. It will not be able to expand and develop its overseas trade as it ought to.

Mr. R. A. Butler

Has my hon. Friend examined the effect on that company of the many Amendments which have been put on the Order Paper?

Mr. Jay

Before the hon. Gentleman replies to that question may I ask him whether he has yet read the Amendments put on the Order Paper today to which the Chancellor referred?

Sir W. Wakefield

I have not read them all. I very much doubt whether the right hon. Gentleman opposite has either.

Mr. Roy Jenkins

On a point of order. We are now being put into a most difficult position. Earlier, when we moved to report Progress because of the 75 Amendments, the Chancellor several times put forcibly to us the argument that we could go on with Clauses 31 and 32, because the Amendments which he had tabled did not affect those two Clauses. Now, on two occasions, he has referred hon. Gentlemen to his Amendments.

The Deputy-Chairman (Mr. Hopkin Morris)

We cannot revert to that. That matter has already been argued.

Sir W. Wakefield

I was dealing with the effect of this levy on the export trade. It is true that the Amendments put down by the Chancellor will be of some assistance to the company I mentioned. The point I was making was that this tax, to which I am opposed, will hurt companies engaged in the export trade and that it will not assist by obtaining extra taxation from certain companies engaged in re-armament. For that reason, I suggest that it ought to be scrapped.

I suggest, for the reasons given by the hon. Member for Sowerby and others, and because of the immense amount of extra work and the extremely complicated nature of the tax, that it would be far better to scrap it altogether and to substitute a more simple tax, using the existing methods of taxation to obtain the revenue which we all agree and understand is so necessary in these days.

Mr. Roy Jenkins

We have had a slightly unsatisfactory and slightly dull debate. First of all, to revert to the point which I ventured to put to you, Mr. Hopkin Morris, as a point of order, it really is a very extraordinary position in that the Chancellor has twice interrupted his hon. Friends to say that they were not debating the case properly because they had not read his Amendments. Having assured the Committee that we could go along with the next two Clauses without bothering about his Amendments, I think he ought to apologise for misleading the Committee.

Sir W. Wakefield

May I intervene on that point? I think that the Chancellor has done more than right by the Committee in putting down these Amendments, for this reason. Perhaps I may bring in here the analogy of cricket. What has happened is—

The Deputy-Chairman

This discussion is out of order on the Question, "That the Clause stand part of the Bill."

Mr. Jenkins

We were interested to hear the hon. Member for St. Marylebone (Sir W. Wakefield) talking about the Chancellor having put down these Amendments, which, he told us, he had not even red.

If I might come back to the point, the debate has also been rather dull because it has been so unanimous. I think that, with the solitary exception of the hon. Member for Kidderminster (Mr. Nabarro), no hon. Member of the party opposite has been prepared to say a single word in support of this Excess Profits Levy. It really is a rather extraordinary thing that, when we are debating whether the Clause shall be included in the Bill or not, and we are debating the whole question of this Excess Profits Levy, which was the one part of the Budget which was specifically mentioned in the Tory Election Manifesto, only one Conservative back bencher is prepared to come along and say a word in its support, and that every other Conservative back bencher has done nothing but make smashing attacks upon the whole principle of the tax.

Mr. Peter Roberts (Sheffield, Heeley)

The hon. Member is not being quite fair. A number of my hon. Friends have said that they accept the principle in regard to re-armament, and I think it is quite untrue to say that all their speeches have been smashing attacks upon the whole principle of this tax.

Mr. Jenkins

I am aware that some hon. Members, in their speeches, while attacking any levy which would produce any revenue, were prepared to say that, if a formula could be found that would not do anybody any harm, they would be happy to support it.

I am very interested in the intervention of the hon. Member for Heeley (Mr. P. Roberts), because my hon. Friend the Member for Islington, East (Mr. E. Fletcher) and others have an Amendment on the Order Paper dealing precisely with this point, which we shall come to in connection with Clause 32, and in connection with which it is suggested that the levy should apply only to profits which are directly or indirectly attributable to re-armament. I hope very much that the point which he has just been putting forward represents his view, and that he and the other hon. Members who have spoken in the way which he says they have will support us in the Division Lobby when we come to that particular Amendment.

I do not know whether, when the Chancellor comes to speak on this Clause, he will give us a statement of his reasons for continuing this tax at the present time. What we are much more likely to hear from him is a number of reasons why he is, in a substantial number of ways, running away from the principle of the tax and introducing all these concessions, which, while we do not like this tax and would prefer to see the revenue raised by means of the Profits Tax, we welcome as a departure from the Budget proposal.

9.0 p.m.

Indeed, if one reads the passage in his Budget speech in which he developed his arguments for the Excess Profits Levy, and developed the way in which the levy would be worked, hardly any of the sentences of that speech still stand, because almost everything he put before the Committee at the time of the Budget has now been changed by the subsequent Amendments he has tabled. Therefore, if, as I take it. he still has faith in the principle of the levy he ought to deploy his general case for it later on this evening and not merely describe the way in which he is retreating from the manner in which he put it forward in the Budget.

It is very difficult to discover exactly what was the genesis of this levy, which was rather carelessly predicted by the Prime Minister in the Conservative General Election manifesto. The party opposite are in the position of having to bring forward this thoroughly unsatisfactory levy because, from 1945 to 1951, they attacked taxation on profits operated by successive Labour Governments and, therefore, had to make a change. But when they came to make the change they made the worst possible change they could make. It seems to me that there is extraordinary fiscal clumsiness on the benches opposite.

Hon. Members opposite said yesterday they wanted to encourage spending, yet they supported an Amendment for the tax reduction which would most encourage saving. Now, because hon. Members opposite have been consistently attacking the corporate taxation policy of the Labour Government on the ground that it discouraged risk capital and made it difficult for expanding companies to plough back money and thus expand from their own resources, we are in a position where the Government come along with a levy that could not be better designed to discourage risk capital and to penalise expanding companies as against companies which do not expand.

This is a thoroughly bad tax. It amounts to a redistribution of the burden of taxation on profits away from companies which are static or contracting and therefore, one would assume, comparatively unimportant in the national economy, and towards companies which are expanding. It is a thoroughly bad business. We have heard that from so many hon. Members that we are tired of it.

I hope the Chancellor will scrap this levy, but if we are to go on with it I hope we shall hear from him not only a description of the way he has run away from the original proposals but why he still regards this levy as a good tax and a contribution to the economy of the country.

Mr. R. A. Butler

I do not think any of us would say time has been wasted in this debate. It has been usually our practice on these very complex Finance Bills to spend some time on general discussion and then to proceed to details. Today we have not only accomplished certain detailed work, including an important agreement about certain matters raised by my right hon. Friend the Member for Blackburn, West (Mr. Assheton) in relation to investment trusts, but we have also considered a whole Clause and had a rather general debate on the Excess Profits Levy. I have no doubt that these matters will come up again, and nothing I shall say will preclude discussion. But I certainly think we have not wasted our time.

I will certainly take up the challenge of the hon. Member for Stechford (Mr. Roy Jenkins) and give reasons for the Excess Profits Levy in a later stage of my remarks, which I will try to keep short, but in the course of which—and I have to apologise in advance to the Committee—I shall have to be somewhat technical. I did undertake earlier to give some general picture of what our general intentions are. I thought that would be of value to the Committee, and I hope it may be of value to people outside.

I thought my hon. Friend the Member for St. Marylebone (Sir W. Wakefield) improved as he went on. At the end of his speech he positively launched into an assault on the benches opposite—a procedure which is as rare nowadays as it is welcome to Her Majesty's Government. My hon. Friend has had a gay time on the Budget, and my picture of him now is of his going to an entirely free cricket match this summer, there being no taxation on entry, in a taxi which does not pay Petrol Duty, and employed by some organisation which does not in any way pay the Excess Profits Levy. [An HON. MEMBER: "And in a fur coat."] I think if he wears a fur coat in this weather he will get his fat down a bit.

The right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies) launched an onslaught on the tax from the other side in a quite consistent manner—as he has expressed his beliefs before. He said something about the development of enterprising companies. about which I shall have something to say. The hon. Member for Stechford also mentioned these types of companies, and I am only surprised that he has not studied the Amendments because, acute. as his intelligence is—judging from the welcome given him by hon. and right hon. Members opposite when he rises, second only to that given to the hon. and learned Member for Hornchurch (Mr. Bing); and I congratulate the hon. Member for Stechford because he does not look around for applause so much as does the hon. and learned Member for Hornchurch, because his intellectual gifts expect and get that applause—if he could have applied those gifts to studying some of these matters this morning, he would have seen that the case of enterprising companies is very largely met by the Amendments I have put down.

The right hon. and learned Member for Montgomery raised a very important issue. He said that the Conservative Party had a past in this matter. I quite agree with him—and we are proud of it. What is this tradition of the Conservative Party? It is that if we see—as we said in our Election programme—fortuitous profits made out of re-armament, we consider that they should be taxed, and that all taxation should be in the general interest of the body politic.

I would ask right hon. and hon. Gentlemen opposite—who have been enjoying themselves so much in regard to this matter—whether they disagree with this moral principle. I have heard hon. and right hon. Members opposite referring in scathing terms to the "merchants of death," in reference to the re-armament programme before the last war and the one before that—they were even more scathing before the First World War. Will not they today give some expression of opinion which indicates that the moral principle upon which this tax is based is perfectly right in the national interest.

That leads me to the next issue which was raised in the debate, namely, that we should have limited this tax only to re-armament. Surely this issue has been fought out before? The right hon. and learned Member for Montgomery has been through previous debates, and he knows perfectly well that an attempt has been made in the past to de-limit, isolate or insulate the re-armament portion of production and tax only the profits arising from that; but surely the meanest student of economics—one not rising to the heights of the hon. Member for Gloucestershire, South (Mr. Crosland), but one such as myself, not trained in the school of economics—can understand that it is not possible to insulate or isolate one portion of the economy from another in relation to a vast re-armament programme?

One cannot insulate those who produce certain parts of the re-armament programme, or say that the profits of a certain enterprise are not reflected in the rearmament picture. It has not been attempted in America, and it has never been attempted in this country, and when the two hon. Members for Stetchford and Gloucestershire, South attempt to beguile the simple Member for St. Marylebone (Sir W. Wakefield) on this matter, and try to get him to support them on some miserable Amendment which tries to insulate the re-armament drive from the rest of productive enterprise. they must know that they are talking nonsense and betraying the trust which they received in their training in the School of Economics.

Sir R. Acland

Do not the two points which have just been made by the Chancellor come to this—that his moral principles are excellent but have nothing to do with the proposals he has made?

Mr. Butler

Not at all. Either one has to acknowledge that the State can ignore the profits made out of the injection into the economy of re-armament—due to causes outside the private individual and private enterprise—or one has to recognise the economic fact of life which, no doubt, the hon. Member for Gravesend (Sir R. Acland) is incapable of recognizing—that it is impossible to isolate the rearmament issue from general production. Once we have accepted the latter, we are bound to have a tax on the lines which we have here.

Mr. C. Davies

Neville Chamberlain, having discovered that, then withdrew the tax.

Mr. Butler

The right hon. and learned Gentleman referred earlier to the present Prime Minister. He will reflect that during the glorious Administration of the present Prime Minister, during the last war, when my right hon. Friend led us to victory, there was an Excess Profits Tax for exactly the precise moral reason that we have this tax now. That is the answer to all the right hon. and learned Gentlemen's remarks about the Prime Minister.

The hon. Baronet the Member for Gravesend said that we were the party of the rich and that therefore we were running away from this tax. First of all, to use the offensive language of the hon. Member for Stechford, we are not running away from this tax at all, as I shall illustrate, both in its yield and in its general content. As for being the party of the rich, if the hon. Baronet the Member for Gravesend had been attacked so much by certain quarters, in which Mammon is supposed to live, as I have been attacked during the last six weeks, he would not imagine that a Conservative Chancellor of the Exchequer was in the pockets of the City, the rich or anybody else—and I think that is a very good moral lesson to indicate the absolute independence of the modern Conservative Party from any interests whatever.

It is in that spirit at any rate—to speak for a moment quite seriously—and in the purely impersonal atmosphere of being Chancellor of the Exchequer, that I would make this comment: I think it absolutely vital in all these matters—and I am sure my predecessor would agree—that the Chancellor of the Exchequer of the day should be absolutely independent to carry out what he thinks is the best policy for the country. I am certainly carrying out my duties in a purely impersonal manner.

I want to say this to the Committee and to the country: I propose to carry out this tax and to make it as fair as possible, but I do not propose, nor do Her Majesty's Government, to be deflected from this course by any criticism from either side of the Committee. I think it is just as well to make that quite plain at the start.

There was a point raised by the hon. Member for Sowerby (Mr. Houghton). I think it is as well to take up these points. Indeed, the hon. Member is very well acquainted with the Inland Revenue and with taxation problems. He raised a question which was voiced in one of his more lucid moments by the hon. Baronet the Member for Gravesend. They both said that it was a great pity to impose this charge and duty upon the Inland Revenue. All I can say is that the Inland Revenue is perfectly capable of carrying out these duties, however heavy they are. I quite agree that there are important tasks to be carried out in the matter of chasing tax evasion and so forth, and I only hope that we have not imposed too heavy a duty upon the Inland Revenue. That is a point which is quite serious and should not be forgotten by any Chancellor of the Exchequer.

I should like to pay a tribute to the Inland Revenue. I have the honour on Friday of attending a dinner of inspectors of taxes, and I feel we should all wish to pay this tribute to the Inland Revenue for the hard work they do in connection with the orders which they have to receive from various Chancellors of the Exchequer.

I have listened with great care to the various criticisms made of the levy and to the suggestions for improvement. The hon. Member for Dumfries (Mr. N. Macpherson) said he would like the levy radically changed. Well, in certain matters we have accepted some fairly radical Amendments, and I hope we shall satisfy him.

May I now give the Committee a short indication of the general line which we are taking. Before the weekend—and I will run over this quite shortly in order that at least the record of what I say may be clear—we put down certain Amendments. The first was for the new alternative standard based on net assets which I promised in accordance with my reply to the Second Reading debate. It really cannot be said that there was no warning on that. The reference is to page 1336 of the Order Paper, and the Amendment will be made in Clause 33 (4, c) and in the new Schedule, on page 1400 and 1401 of the Order Paper. I am putting these in for the sake of the record, so that those people who are troubled about studying this in detail may be helped.

This new alternative standard of 8 per cent. on net assets is an improvement on anything in the old E.P.T. It is in response to requests I have received from many quarters to change the standard based on nominal capital to capital employed. It has been held that there is a difference of principle here—that to base something on nominal capital does not help developing business. We have deliberately met that and put down an alternative standard on capital employed.

9.15 p.m.

There is an important improvement here—two improvements—on the old E.P.T. arrangements. Last time investments and surplus cash were excluded from the standard, and this time they will not be so. Borrowed money will be treated specially as provided in the new Clause on borrowed money (Addition to standard profits in respect of borrowed money). The percentage will be higher than that given under the old E.P.T. Surely that is the answer to those who have asked, not only on one side but on both sides of the Committee and outside, for an alternative based on net assets.

I come to the next major point—the increase in the minimum standard from £2,000 to £5,000. That is included in the Amendment to Clause 35 on page 1343 of the Order Paper. I shall not go into detail, because we shall come to that later. There are Amendments down which want the figure raised higher, but this, with appropriate allowances for directors employed in the companies concerned will eliminate a third of the small companies. That, I think, is a considerable concession and will meet the point of the hon. Gentleman the Member for Sowerby about the burden on the Inland Revenue, by taking out the smaller cases.

Now I come to the allowance of 4 per cent. on borrowed money to be given over and above the deduction of the interest. That is included in the new Clause (Addition to standard profits in respect of borrowed money).

Then there is a new type of allowance for metals, oil, and asbestos, which we can come to in detail when we reach it.

This exempts from the Excess Profits Levy the normal profit on any increase in output deemed in the national interest by the Treasury, and that follows the old practice of the E.P.T.

We have put Amendments on the Order Paper alas, a bit too late to suit the convenience of the Committee, and I am sorry about that, for there is something in the argument, put quite humanly from the other side. We did not quite reach the gap in the debate which we meant to, and, therefore, these Amendments have not had as much time as they should have had for consideration; which is one of the reasons why we have got into a little bit of a trouble over this; but we shall not debate this immediately, and when we do come to them I hope that hon. Members will be ready to discuss them.

The most important is the question of the standard years. It has been represented very strongly that 1947 was a bad year. This was not true of industry generally, since 1947 fell not far short in profits of 1948 and 1949, as I said in my Second Reading speech, but, in order to meet cases, particularly of concentrated industries, for which 1947—or indeed any of these three years—was a bad year, we now propose that a company should be given the option of taking a standard based on the profits of any two out of the three years. That is provided for in the Amendment to Clause 33, in page 37, line 3, on page 1333 of the Order Paper. There are other Amendments on pages 1335, 1336, 1340, and 1342 of the Order Paper giving effect to this.

Then there is the question of rubber companies, tin companies, and so forth in Malaya and territories occupied by the Japanese. There we consider a very special consideration and standards should apply, and we have proposed in that case, in view of the importance of tin and rubber, to give the years 1949 and 1950 as the standard years. That is provided for in Amendments to Clause 33 on pages 1336–7 of the Order Paper.

Otherwise, as the right hon. and learned Gentleman the Member for Montgomery will realise, we do not propose to bring 1950 into the computations, as I said in my Second Reading speech. This is really the answer to the hon. Member for Stechford. We have stuck to the main lines of what I said, and I do not propose, despite a geat deal of pressure, to bring in 1950. I did not propose it because, looking at the figures, the average profits, which were £2,100 million in 1949, went up to £2,450 million in 1950. They were standing in 1947 at a figure just under £2,000 million. That shows that there was a very considerable rise in 1950. That is the reason, no doubt, why the interests concerned wish 1950 to be taken. I regret to say that the Government do not propose to take that year.

The Korean war broke out in that year, and there is no question but that the profits of 1950 were heavily influenced both by world re-armament and the Korean war. I am satisfied that if a choice is given between the three years, 1947, 1948 and 1949, that will be fair to concentrated companies and to many others, if we consider it in the light of the other proposals I make.

I should like to remind the Committee that in the U.S.A. the standard is only 83 per cent. of the average of the profits of any three of the four years, 1946 to 1949. For the Excess Profits Tax in the United States, therefore, the trader has to take a three-year average instead of a two-year average, and he gets only 83 per cent. of the result instead of 100 per cent. Therefore, I think it will be seen that we have not been unfair in providing this two-year standard, and in giving 100 per cent. we are being more generous than they are in the United States.

I would also remind the Committee that the Excess Profits Tax of the last war had a standard which reached back to 1935, 1936 and 1937, so in meeting these legitimate criticisms of the standard years. I hope the Committee will feel that we have been fair without being unduly generous or unfair. That is the whole spirit in which these very elaborate and hardly thought-out Amendments had been made by the Government.

Pursuing this matter, I well understand that where a business was developing in the standard period—and this is the point that the hon. Member for Stechford and the hon. Member for Oldham, East (Mr. Horobin), made earlier in the debate—restricting the choice of years to 1947, 1948 and 1949 might cause hardship; but we think that there is a better way of meeting this kind of case, and I propose, therefore, and have put it on the Order Paper, that the overriding maximum should be reduced to 15 per cent. The Amendments are to Clause 37 on page 44, so hon. Members will have an opportunity of studying them.

This change has been brought urgently to my mind by the sort of case which has been so much mentioned in this debate, namely, the expanding industry which was making very low profits before. I do not want to mention names, which would be invidious, but I have certain companies in mind where they are ploughing back profits made into the industry, and where they are very often engaged in the export drive and where it would be hard if we had left the overriding maximum as it was.

This brings me to the first general figure I want to give, that in no case under the Amendment as proposed, taking into account what I am going to say about the Profits Tax, which we shall not come to for a little time, can the total tax payable on profits not distributed, Income Tax, Profits Tax and E.P.L. combined, exceed 65 per cent. That, I think, is important, because I have been impressed by the weight of taxation on industry.

This is a matter to which general reference has been made by my hon. Friends on this side of the Committee and by hon. Members opposite. The words of Lord Brand have been quoted by the hon. Member for Oldham, East, in which he said that private saving is a negative quantity, and the Committee must realise that private saving in industry is almost as valuable, or as valuable, as the Budget surplus and that therefore we must not underestimate that matter in framing either this tax or any other tax.

Now I come to a further matter, that of companies overseas. A number of Amendments on this point appear on the Order Paper. It is proposed that companies operating overseas should be exempted from this levy altogether. The Government is not prepared to go as far as this. To do so would, in our view, be unfair to certain enterprising exporting companies at home whose earnings are as important from the point of view of our balance of payments as any other.

It has, however, been impressed upon me, not least by my own colleagues in the Commonwealth Relations Office—I see the late Secretary of State for Commonwealth Relations in his place—that there is a strong case for considering overseas companies and for leaving as much money as possible in the countries concerned for their own development, for that has social and other significance.

Therefore, we have proposed in the Amendment to Clause 37, at the top of page 1345, that the over-riding maximum for overseas companies should be 10 per cent. instead of the general rate of 15 per cent. That will mean that companies operating overseas cannot pay more than 60 per cent. in Income Tax, Profits Tax and E.P.L. combined on their profits not distributed in dividends. I think that meets the case for overseas companies which has been very fully put to me.

On the question of the tax not spoiling future development, our Amendments are on pages 1335, 1336, 1338 and 1341. This is the answer to some of the puzzles of the hon. Member for Gloucestershire, South. New capital ranks for allowance at 10 per cent., and I propose raising this figure to 12 per cent. To encourage companies to put their money to reserve and finance their capital requirements in this way, the rate of allowance on undistributed profits will also go up to 12 per cent.

This is an important concession on a matter which was raised very much in the earlier part of our debate today. It means that we are considering very carefully the importance of the undistributed part of the profits. That is why, as the Committee will remember, I have kept the reduction on the Profits Tax on reserves to 2½per cent., or half what it was under the late Administration. This concession for undistributed profits under the E.P.L. is a further move in the same direction.

Before I sum up the position from the financial angle, I need only mention the output allowance for metal mines and oil wells where output has been increased in the national effort. A new Clause dealing with this appears at the bottom of page 1369. I also propose that the additional percentages under Clause 47 for metal mines and oil wells, which at present stand at 4 per cent. for short-lived mines and 2 per cent. for longer-lived mines, should be increased to 6 per cent. and 3 per cent., respectively. The cost of these concessions including those I tabled last week, will be considerable, and I propose to recoup a substantial part of this loss by restoring the rate of Profits Tax on distributed profits to 22½ per cent. In answer to the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), I referred to the fact that this was also on the Order Paper, and, as at present advised, I do not consider that we need put down any further Amendments. This is an important new—

Mr. Dalton

Does not the right hon. Gentleman propose to state any figures? He seems to be passing away from the subject.

Mr. Butler

Not at all; I was just coming to the figures. The figure of 22½ per cent. will still be less than it was before the Budget, and so, to that extent, there has been a reduction in undistributed Profits Tax and distributed Profits Tax.

We originally estimated the yield of the Excess Profits Levy at about £200 million gross. The tax was not, introduced primarily for revenue purposes, although it is important to accept the view of my hon. Friend the Member for Kidderminster (Mr. Nabarro) that the revenue next year—it is not this year that we are considering in relation to the tax—will, I am certain, be important to the Exchequer.

It is not possible to give an absolutely accurate estimate in this field, for the tax will fall for the first time on the profits of 1952, which are not yet known. We estimate, however, that the concessions I have proposed will make the yield of the Excess Profits Levy between £140 million and £150 million. [An. HON. MEMBER: "£60 million less."] No, not £60 million but more likely £50 million. It is nearer £150 million than £140 million. I have taken the greatest trouble to estimate, and I do not want to delude the Committee. The estimates have to be almost entirely speculative.

9.30 p.m.

This remains a formidable figure of tax, and this is the answer to those who say that the Government are destroying the tax and running away from it. It is necessary to bear in mind that the Excess Profits Levy is not deductible in computing Income Tax, and for this reason any direct comparison between the yield of E.P.L. and E.P.T. in the last war is misleading. I see a newspaper which is very well informed, the "Economist." says that the net yield of £100 million is a mere shadow of the £470 million produced by E.P.T. under full steam. This shows a misunderstanding of the existing tax.

The £470 million produced under E.P.T. was deductible for Income Tax and represents a net yield of £235 million, so that the original figure of £200 million must be compared with that. We are now on a figure between £140 million and £150 million, though nearer to the latter figure, and at that figure we claim the tax is a serious and substantial one.

Now for the remainder of the calculations. On the new basis of 22½ per cent., the Profits Tax reliefs as a whole will cost £68 million instead of the original £100 million. I would at this stage impress upon the Committee that the yield of the Profits Tax is more certain than the yield from the Excess Profits Levy, which may easily fall off if there is a serious recession in profits. By altering the emphasis between E.P.L. and the Profits Tax, the Exchequer is not likely next year to lose substantially on balance, but in order to give a final figure to the Committee instead of the £100 million figure, and to give estimates, if anything against myself, I would say that the total operation will bring in next year an additional sum of between £75 million and £80 million in a full year, and will not bring in anything significant, as it was never intended to, this year.

That, I think, is as fair a picture as my advisers can give me, and it is my duty to give their estimates to the Committee with as much frankness as I can. I must apologise for giving this technical picture, which I have tried to do as best I can, but I should like to stress that it does not affect the Revenue this year. Next year the Chancellor of the Exchequer can be in a position either to impose or reduce what taxation he likes. This tax was not imposed for Revenue purposes, but a figure rising up to £80 million will be available as a result of this very considerable tax.

I believe this readjustment of the balance between the distributed Profits Tax and E.P.L. is, considering the amendments made, in the general interests of the body politic. I believe that the tax on distributions may help, for example, the trade unions in the recent discussions that have been held with them on the general question of wages policy and the danger of inflation. Anyway, it cannot do any harm; I think it will help, because the taxation on distributions is bound to affect something in which many people are very interested.

The last point I want to deal with is the question raised by the right hon. and learned Gentleman the Member for Montgomery as to how long the tax will last. I can give no assurance as to how long the tax will last, but it is not intended by this Government that the tax shall go on for an indefinite time. It was allied with the re-armament period. Though re-armament may lag, it would not be our idea to make this tax last indefinitely. It must come into its full fruition, and it must stay there for a certain time. At present, I cannot go further, but it is not intended as a permanent tax. It has a moral basis. It has great difficulties. I have tried to improve the difficulties, and I hope the Committee, making full allowances for all the inconvenience I have caused them, will accept the tax in the spirit in which I have put it forward.

Mr. Gaitskell

We are discussing the Question that Clause 31 stand part of the Bill and the Chancellor has used the occasion to give us what amounts to a new section of a new Budget speech. We make no complaint about his using the occasion to make these announcements. My first comment is that what he has said absolutely confirms the arguments of my right hon. Friends the Members for Battersea, North (Mr. Jay), and Bishop Auckland (Mr. Dalton) when they proposed earlier today that we should adjourn the debate. It is quite impossible for the Committee to consider whether this Clause should stand part of the Bill until we have had time to study what the right hon. Gentleman has said.

The Chancellor himself, during this debate, referred once or twice to the Amendments he is making and, rather plaintively, asked whether some of his hon. Friends had not read the Amendments. They had not read them. I do not know that it would have done them a great deal of good if they had done so. If, on the other hand, the speech had been made two or three days ago there might be some purpose in discussing Clause 31 in the light of what later Amendments we knew were coming forward.

My second comment is that the changes that have been announced involve a substantial amendment to the Budget itself. The other day the right hon. Gentleman gave away £20 million on the Purchase Tax. Of course, we are grateful for small mercies, as I said at the time, and glad that he did that. Now he has made other further adjustments, some of which I agree are in the direction we recommended, but I am bound to say that this involves a substantial change from the line he adopted on 11th March. I cannot help feeling that it shows how badly thought out were the Budget proposals at the time they were made.

Nevertheless, despite the handicap of having all these announcements made at the last minute, I shall endeavour to discuss the Clause since there are certain general principles which remain that we can discuss. I would say this to the Chancellor: his only defence of the general principle of the Excess Profits Levy was an extremely artificial show of indignation which deceived nobody in the Committee, which he himself abandoned completely when, at a certain moment in his speech he began a new sentence with the words "To be serious for a moment."

To do the right hon. Gentleman justice, we know that he did not put this proposal into the Conservative Party manifesto. It is well known that it was written in by the Prime Minister without the right hon. Gentleman being consulted. I am fairly sure that he himself would have opposed it strongly had he been consulted. It would be far better if, instead of trying to show great moral indignation, he were to admit that he had been landed with this thing but that, after all, he had to carry it out.

Mr. R. A. Butler

The right hon. Gentleman should not try to drive a wedge between myself and the Prime Minister. That is the oldest game in politics. The doctrine of Cabinet responsibility applied to the shadow cabinet as much as it applies to the flesh and blood Cabinet of today.

Mr. Gaitskell

If the right hon. Gentleman would like to give us a faithful account of exactly how that phrase came to be written in—when, by whom and where—it would be of great interest to the Committee.

Mr. Butler

If I were to publish all the conversations which, day and night, I hold with my right hon. Friend the Prime Minister, I should make quite a fortune.

Mr. Gaitskell

In view of the contribution that would be made to the Revenue, I am sure that we should all be delighted.

If I may again use the right hon. Gentleman's phrase, "To be serious for a moment," I should like to turn the Committee's attention once more to the principles which are involved, which I do not think are really affected by the Amendments that the Chancellor is proposing. In the first place, surely we all must agree that whether the tax is a good or a bad one from an ethical or moral sense, administratively it is a shockingly bad tax and it certainly is bound to impose a very heavy burden upon the staff of the Inland Revenue.

I do not know whether the Chancellor still sticks to the comment, which, I think, was made by the Financial Secretary during the Budget debates or on the Second Reading of the Bill, that there would be no increase in the staff of the Inland Revenue to cope with this work. I simply cannot believe that that is so. The only possible interpretation one can place upon it is that important other work, including particularly the recovery of tax arrears, is to be suspended entirely in order that staff may be put on to this particular job.

It is no answer to this charge for the right hon. Gentleman to say that, after all, he has made the task rather simpler than it was under the old Excess Profits Tax. His simplifications are of a completely minor character compared with the real problems—the problems connected with the estimates of the profits in a standard year, and so on—which will absorb, unfortunately, the activities of the officials. That is, therefore, one powerful argument which remains absolutely intact.

In the second place, I should not have thought from what the right hon. Gentleman has said that the main charge, which came from the benches opposite just as much as from this side, that this was a tax on efficiency and was bound to be a disincentive so far as higher productivity is concerned, has been met. It is true that to the extent that one puts back the tax on those profits as such, and particularly upon distributed profits as such, and takes it away from the excess of profits over a certain amount in a standard year, it is an improvement: there is less disincentive

But the extent of the change, so far as I could gather from what the right hon. Gentleman said, is only about a quarter of the whole, and the disincentive, therefore, remains. It is still a mystery to me how a party which goes about the country arguing and propaganding in favour of greater incentives, how the right hon. Gentleman, who defended the major part of his own Budget on the ground that it would improve incentives, can still adhere to a tax of this kind. It is quite beyond comprehension.

What are the arguments in favour. We had a novel one this evening from the hon. Member for Kidderminster (Mr. Nabarro), that it would help the right hon. Gentleman to reduce the scale of capital investment. I found that a rather difficult one to follow. It is true that we have to have some scaling down of capital investment—the right hon. Gentleman is trying to do it in various ways—but why paying an Excess Profits Duty should reduce capital investment now I cannot possibly imagine.

9.45 p.m.

Mr. Nabarro

I do not think it is so difficult to understand why. In thousands of cases of all kinds in all parts of the country the effect of the Excess Profits Levy is to raise very substantially the aggregate of taxation and make a less amount of money available for re-equipment. That is having a direct effect on buildings and plant and, whereas buildings are covered by direct licensing, there is no such system for plant.

Mr. Gaitskell

There is, as my hon. Friend the Member for Edmonton (Mr. Albu) said a little while ago, very little sign of any shortage of money at the moment for investment purposes. The real problem is to curtail the amount which is spent on plant and investment. I would personally have thought that there is a great deal more to be said—we do not by any means wholly accept it—for the arguments of most of the hon. Friends of the hon. Member that at a later stage this might certainly have an effect of that kind. But, "at a later stage" is not when we will want to reduce capital investment. On the contrary, it is their argument that it is precisely then that they will want to increase it.

To make our own position clear on that, I say we do not believe that even in the longer run there need be any shortage of capital for investment purposes because we have, naturally, to provide that the firms should go to the market for fresh money when they require it. But there is at least some sense in the argument there, whereas the argument of the hon. Member for Kidderminster simply does not conform at all to the reality of the present situation.

Then there was the revenue argument, and here I found the Chancellor rather equivocal. At one stage he said that that is not the main purpose of the tax. I think he was probably right to say that because he himself would admit and it used to be argued from the Conservative benches when they were in opposition that the tax is bound to be paid out of accumulated profits which otherwise would be saved. Therefore, in effect, the increase in the tax revenue will be paralleled by a decrease in companies' savings.

If the Chancellor is following the normal practice these days—as I think he did—of trying to make a Budget which stabilises the economy, which covers the gap between savings and investments, he will, of course, have to make allowance for that and aim at a higher Budget surplus accordingly because of the reduced amount of saving. Therefore, I do not think that that argument can be treated very seriously.

Now I come to the equity argument on which the Chancellor seems primarily to rest his case. Just what is involved here? He made great play with the fact that during the war there was an Excess Profits Tax and we all supported it. That is quite true. There is not the slightest doubt that under war conditions, when we have a very large proportion of the resources of the country devoted to defence, intervention with civilian industry on a scale unparalleled by any other circumstance, when firms are forced to close down and others forced to be concentrated and where profits in short have to become more and more purely fortuitous and less and less dependent on the initiative, energy, skill and foresight of management—then, of course, there is a very strong case for an Excess Profits Tax.

But surely the right hon. Gentleman is not really saying that we are in that situation today. The proportion of our industries affected by the defence programme is, as he knows perfectly well, happily still comparatively minor. I think I am right in saying that the defence programme as a whole—and that includes all the pay of the Forces—amounts to something like 11 per cent. of our national income. Probably it is now lower on account of the stretching out of the programme and not more than 25 per cent. of the engineering industries would be absorbed.

I do not think one can use the argument that because there was an Excess Profits Tax during the war we must have one now. If one proceeds further with the study of exactly why the tax was brought in, and turns to the Conservative Manifesto, one finds that it was—in spite of what the right hon. Gentleman may say—clearly based on the idea that there was going to an abnormal profits in re-armament. It says: We shall set our face against the fortuitous rise in company profits because of the abnormal process of re-armament. We shall accordingly impose a form of Excess Profits Tax to operate only during this exceptional period. Many of his hon. Friends on those benches said that had he introduced a tax of that kind which really singled out those who benefited from re-armament as such they would have been prepared to support it; and some of my hon. Friends have an Amendment down on the Order Paper which we shall be discussing later which seeks to achieve precisely that end.

But nobody can possibly pretend that the tax in its present form does that. It is, of course, completely widespread. The right hon. Gentleman may say, "Well, I am sorry, but it is not practicable." We may discuss this later. If it was not practicable why did the Conservative Party put phrases into their Manifesto suggesting that it was? Why did they mislead not only the country but their own supporters in this Committee, because that is what they did? At least in those circumstances I should have thought that the right hon. Gentleman would either withdraw the tax or make a serious effort to live up to these words of the Manifesto.

He may say, "I cannot do that. After all we said there would be an Excess Profits Tax. I cannot withdraw it, because that was a promise." Perhaps six months ago that argument might have commended itself for a time to some of us. But we are now so entirely accustomed to broken promises from the other side of the Committee that we should not have minded if he had decided to break another one. He need not be embarrassed by that, and his hon. Friends would be quite happy and prepared to face the country with one more broken promise. One more or less does not make all that difference.

I would still urge the right hon. Gentleman, despite the concessions, if they may be so called, which he appears to have made, to think again about this tax. I cannot but feel that it will entail nothing but harm. I do not believe that he will achieve the moral purpose which appears to be animating him. I do not believe either that the concessions he has made in any way strengthen his case, or weakens our argument against the principle of this Clause.

Mr. Assheton

My right hon. Friend the Chancellor of the Exchequer has today listened with very great good humour to a certain amount of criticism. On behalf of several of my hon. Friends who have been associated with me in putting down Amendments I should like to say that we want to thank him for the great care—[Laughter.]—yes, the great care with which he has paid attention to those Amendments, which were put down, I may tell the Committee, in the interests of the trade and industry of this country.

It is only on account of the fact that the Chancellor saw that some of his original proposals were not in the interests of trade and industry of the country that he has felt able to meet them. If I may, I will draw attention, quite briefly, to two or three of the principal Amendments he has made which, I think, are of great importance.

The choice of years will be of great benefit to those numerous businesses who suffered under the concentration scheme, and particularly those concerned with the cotton mills of Lancashire and elsewhere will be very grateful to the Chancellor for not having overlooked them. He is also helping our rubber and tin industries in Malaya which went through such a very difficult time, and by the additional choice of years he has provided for them he has shown a continuing interest in our overseas trade.

So far as the new standard is concerned, that, of course, is very helpful and many hon. Members on this side of the Committee feel that the Chancellor has, rather at long last, accepted the principle that one cannot reasonably relate taxation to the nominal capital of companies. It is an indefensible proposition intellectually to relate taxation of companies to their nominal capital. The fact that that has been recognised is a very great advance. With regard to the overseas investments, my right hon. Friend has not only helped us with the additional standard and the choice of years, but also with several Amendments which help various interests in addition to rubber and tin.

I cannot pretend that we on this side of the Committee are particularly pleased with the additional 5 per cent. Profits Tax. Many of us hoped that the Chancellor would have found that money by economising in expenditure rather than by levying alternative taxation. We are hopeful that by next year he will find ways and means of reducing our expenditure a great deal more. But, for all that, we think that the Chancellor has shown courage in recognising that some of the original proposals were not in the interests of the trade of the country, and we are grateful to him for what he has done.

Mr. Albu

Before we finally make up our minds about this Clause, we must have a little further discussion on the way in which the Chancellor defended it. So far, most of the debate has consisted of attacks by his own supporters. Now that we have had a defence of the Clause and of the changes which the Chancellor proposes to make, we must consider the question rather more fully.

The Chancellor seemed to base almost the whole of his case on moral grounds. He made a most powerful defence. We were glad to hear him so vigorous in defence. We must consider that there is some moral difference between the Excess Profits Levy, as it is now much weakened after all the concessions which have been made, and the ordinary Profits Tax, which the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) said he hoped would be reduced in future years.

One of the main objects of the whole exercise, which, I think, has been overlooked by some of my hon. and right hon. Friends, is to prepare the way for a considerable reduction in the Profits Tax in future years. Mention of that was made in the Conservative Party Election manifesto. It would have been indecent, in present circumstances and with the cuts made elsewhere, to have reduced the Profits Tax by itself. Therefore, this rather demagogic device was introduced to cover up the retreat from the present level of Profits Tax.

The defence the Chancellor made was no defence at all of the levy in its present form. It is an illogical and disincentive tax, as everybody has said. As far as one can see, it means that all those whose profits do not increase by more than about one-fifth or one-quarter will not benefit, whereas those whose profits are doubled will find that the tax is, on the whole, full of advantage. The tax then flattens off. Therefore, unlike Surtax, it is a regressive tax.

The whole of this extraordinary exhibition of irresolution and muddle about company taxation arises out of a profound disagreement, or lack of conviction, on the opposite benches about the purpose of profits. They are sometimes defended by hon. Members opposite on the ground that they are an incentive. Sometimes they are defended purely on the ground of expediency—that we could not raise risk capital without them; and sometimes if hon. Gentlemen opposite pretend that nobody ever receives them.

10.0 p.m.

Before we have any further changes in company taxation we shall have to consider much more closely what the true purposes of profits are in different types of companies. Then perhaps we can make up our minds what is the best way to apply the tax. On this side of the Committee we welcome the concessions that are to be given to small and developing companies.

There, again, we shall have to examine fairly closely whether these concessions are being given to the rather more important type of company in which the profits are the direct incentive to managerial efficiency. I am not at all sure whether the concessions are being given in that case.

I doubt if ever in the history of Finance Bill debates there has been such an exhibition of retreat from the whole principle concerning a whole batch of Clauses dealing with a particular sort of taxation, and one can only feel that this is another example of the complete irresolution and muddle in which the Government appear to be.

Question put, and agreed to.

Clause ordered to stand part of the Bill.