Clause 32.—(SCOPE OF THE EXCESS PROFITS LEVY.)

HC Deb 22 May 1952 vol 501 cc678-715

Amendment proposed: In page 36, line 23, at end, insert: (a) any body corporate satisfies the Special Commissioners that any profits earned in any accounting period in excess of the standard profits are not attributable directly or indirectly to re-armament.—[Mr. E. Fletcher.]

Question again proposed. "That those words be there inserted."

4.2 p.m.

Mr. Eric Fletcher (Islington, East)

I rise to resume the debate on the Amendment which I moved when we were discussing this matter at a late hour on Tuesday evening. I think that all Members of the Committee will agree with me that it was a good thing that we broke off at that stage, and that in the short interval that has elapsed hon. Members have had an opportunity of considering the large series of Amendments to the Excess Profits Levy put down by the Chancellor of the Exchequer on Monday evening.

Not only have the Committee had an opportunity of seeing the precise implications of those Amendments, but we have had the advantage of very constructive and well-informed Press comment in the interval. I hope that the Chancellor will take the view that it has been of benefit not only to the Committee but to him to have seen and heard how the considered financial opinion of the country has responded to the suggestions which the Chancellor has made. I hope that the Chancellor will accept my statement when I say that this Amendment is intended to be helpful and to put forward a concrete suggestion.

I have read the very serious indictment that has been made, particularly in the "Financial Times," but personally I feel a great deal of sympathy with the Chancellor of the Exchequer in the position in which he finds himself today. I hope that the Chancellor will, therefore, bear in mind that the whole object of this Amendment is to make a further attempt to see whether the Excess Profits Levy can be confined to the single purpose for which, admittedly, it was originally proposed.

There is no mystery about the origin of the Excess Profits Levy. Everybody knows that it owes its origin to a phrase in the Conservative manifesto, giving a pledge that steps would be taken to deal with fortuitous rises in company profits because of the abnormal process of rearmament. May I say at once that I think that was a very worthy sentiment and I agree with it, and I do not think that it is any the worse for the fact that it was included in the Conservative Party's election manifesto. I do not think that the Chancellor should be criticised for having made an attempt to carry it into effect.

I think that it is laudable that an attempt should be made to carry out election promises; but what I do seriously ask the Chancellor to recognise is that he must now face a dilemma of his own. Either the Excess Profits Levy can be confined to the companies which will make fortuitous and abnormal profits, or it cannot. I feel that if the levy can be confined in that way, and if we can isolate and segregate companies which will quite obviously make huge profits in the next few years as a result of the rearmament drive, then, not only on moral grounds but on economic grounds, it would be a good thing to do. In other words, if we can cream off the huge profits made by armament companies, I would support it. I would go further. I think that in that case one should increase the rate of the Excess Profits Levy.

But I think that the Chancellor, if he can isolate it in that way, obviously ought to accept this Amendment, because he will then carry out both the moral and the economic purpose which inspired the Amendment. If the Chancellor, on further reflection, takes the view that he cannot restrict the operation of the levy to companies making these abnormal profits because of the defence programme, then he has two alternatives.

The Chancellor on Tuesday indicated that his view was that he could not restrict it to re-armament companies. If that is his view, he is in this dilemma: either he should drop the levy altogether, which is what I think is the right thing to do, or he must proceed with a levy which is almost universally condemned both because of the injustice it causes and equally because of the grave injury it will do to our trade and industry.

I hope that the Chancellor by this time recognises that the various objections that were put forward by Tory back benchers and outside to an Excess Profits Levy would have no relevance if the levy could he confined to re-armament companies, because, in that case, arguments about ploughing back profits into industry, encouraging enterprise and encouraging exports do not arise. These considerations are relevant only because the Chancellor has made this levy applicable to all companies, regardless of whether their activities are directly or indirectly related to re-armament.

Therefore, this Amendment, which I feel deserves the support of all Members on the benches opposite as well as the support of Members on these benches, is designed to try to extricate the Chancellor from the difficulty which he is in. I sympathise with him. I am sure that all hon. Members who read the "Financial Times" yesterday must have been impressed by the scathing indictment of the Chancellor's proposals delivered by one of the leading Conservative newspapers, the chief financial organ in this country. The "Financial Times" said—and this is the point that I am making: The tax has long since lost any relevance it ever had to re-armament profits. The Chancellor himself has conceded that. It went on: But beyond it lie two other questions which are complex and profoundly disturbing. The amendments which the Chancellor has tabled amount to self-criticism on a totalitarian scale. How did he come to lay himself open to such a humiliating experience? It is not for me to attempt to answer that question, but it is worth the Committee's while to ponder it. We have here an opportunity to help the Chancellor to extricate himself from this very embarrassing situation. It is obvious that he finds himself in a terribly humiliating situation, condemned by all responsible opinion on both sides of the Committee and throughout the commercial community and the country as a whole as a Conservative Chancellor of the Exchequer because he has made a laudable attempt, as I believe it to be, to carry out an Election promise. I hope he will not suffer unduly for that, and I hope the country will not be made to suffer merely because the Chancellor thinks it necessary, for political reasons, to try to adhere to that policy.

I shall not repeat the details upon which the levy has been criticised throughout the country and by hon. Members opposite because of the administrative chaos it will produce and the hardship and injury it will inflict upon companies of all kinds, but I would say that the levy is unnecessary. The Chancellor could produce precisely the same results through the medium of the Profits Tax, and, in some ways, far more satisfactory results. If he could cream off the profits merely of the re-armament companies, I should support him. But he does not take that view. He says that he must extend it generally. If he does that, he must deal with the very cogent criticisms which have been uttered.

I appeal to the Chancellor in all seriousness. He must know by now that this is a thoroughly bad and thoroughly indefensible tax. He must know that he can quite well get the revenue he is hoping to get by a further modification of the Profits Tax if he wishes it. He must know that his original ambition to introduce a simple Excess Profits Levy cannot now succeed. This tax in its modified form is not only full of all the cumbersome complications of the old Excess Profits Tax, but is even more complicated.

The Chancellor must face the dilemma. Either he must perpetuate the injustice and the injury to our trade and industry, or he must do the right and courageous thing and abolish it before it is too late. He is a courageous man. We all admire his courage in taking unpalatable decisions. There are plenty of precedents for a Chancellor modifying a budget as he goes along and for scrapping a tax which, in the face of informed, intelligent criticism, is found to be unworkable. The Chancellor must either accept the Amendment and try to make it work—it is designed to be administratively possible—or, if he takes the view that he cannot do that, the only rational alternative is to scrap the Excess Profits Levy.

4.15 p.m.

Mr. Gerald Nabarro (Kidderminster)

On Clause 31 of the Finance Bill the Committee accepted the principle that there shall be an Excess Profits Levy. As we have accepted that principle, it is important that the tax should be applied in a practical form and without the kind of difficulties which would arise if the proposals of the hon. Member for Islington. East (Mr. E. Fletcher) were adopted.

I hope the Committee will reject the Amendment. There are three reasons which make it totally impracticable from an industrial and commercial point of view. The first is that the armament industry is principally concerned with engineering. The engineering industry of the United Kingdom is very largely based upon a complex system of sub-contracting. Practically all the large engineering firms which have received armament contracts rely to a very large extent upon hundreds of sub-contracting units. Thus. it is impossible to say that there is, on the one hand, an armament industry and, on the other hand, a sector of British industry that is not concerned with armaments. It is impossible in the case of hundreds of small sub-contractors in the engineering industry to say what part of the output of each one is devoted directly or indirectly to armaments and what part is devoted to normal civil purposes.

The second reason why the hon. Gentleman's proposals are unacceptable and impracticable is that the infusion of hundreds of millions of pounds' worth of armament contracts into our economy as a whole must necessarily distort the sales and production programmes of practically every industrial company in the country, whether they are directly concerned with re-armament business or not. This must have an effect upon the normal course of their business and must interfere with the raw materials supply, notably the supply of such materials as steel, non-ferrous metals and other metals and raw materials.

The third reason, which I consider the most powerful one of all, is that there are so many firms in the United Kingdom engineering industry which have a duality of production, part being devoted to armament work and part to normal civil purposes, including the export trade. Take, for example, a company concerned with the production of motor cycles. Part of its output is for the export trade, part of it for the home trade and part of it for Her Majesty's Services.

In those circumstances, if the hon. Gentleman's proposals were adopted, at the end of each chargeable accounting period the accountants of the company would have to analyse that part of the profits which were attributable to normal civil production, whether in the home market or for export, and that part attributable to Government contracts.

That would be nearly an impossible task, and it would merely aggravate one of the existing difficulties of the Excess Profits Levy to which the hon. Member for Sowerby (Mr. Houghton) and I drew attention on Clause 31, that of assessing the liability to the Excess Profits Levy. I am anxious that no hon. Member should aggravate that situation, and make the Chancellor's task more difficult, by piling complexity upon complexity. I hope, that, for these three simple reasons, the Committee will reject the Amendment.

Mr. Anthony Crosland (Gloucestershire, South)

The hon. Gentleman the Member for Kidderminster (Mr. Nabarro) has made some extremely important practical points, but I can assure him that those of us who put down the Amendment were aware that this would be a difficult tax to adminster as amended like this. However, we took the view that the Amendment was so important, and that the exclusion of non-re-armament excess profits from the tax would be so beneficial, that we were prepared to accept the additional administrative and practical difficulties involved in order to achieve that result.

I would point out to the Committee that the Amendment does not place on the Inland Revenue initially the responsibility of examining the accounts of every company and of determining whether or not those extra profits are due to re-armament or some other cause. The responsibility is laid on the body corporate to satisfy the Special Commissioners that their profits are not attributable either directly or indirectly to rearmament.

I am glad that my hon. Friend the Member for Islington, East (Mr. E. Fletcher) moved this Amendment in such a charitable tone of voice and frame of mind. He made clear that this Amendment is designed to assist the Chancellor. There is a considerable amount of support for him on this side of the Committee in the difficulty in which he finds himself, and while I need hardly say that all our Amendments and interventions from this side are designed to be helpful to him, this Amendment is designed to be particularly helpful to him.

The genesis of this tax is a matter of common knowledge and has been the subject of comment in a good number of speeches from this side of the Committee. But it is certainly getting to a ludicrous situation when, in a Budget which was brought forward weeks before the normal time of introducing a Budget, right at the last minute these very substantial Amendments are still having to be made to what is, after all, the largest and most important section of the Bill. And the consequence of this very ill-considered proposal and the constant flow of Amendments has been that this Excess Profits Levy has been the subject of more unanimous criticism than any tax proposal in any Budget within living memory—unanimous criticism from every political complexion and every variety of interest concerned.

My hon. Friend the Member for Islington, East quoted the extremely damning and damaging leading article in yesterday's "Financial Times" which began by saying what is undoubtedly true and fair comment: The chronicle of the Chancellor's amendments to his own E.P.L. proposals has now reached a ludicrous length. We think that it has reached such a ludicrous length that the best thing would be to scrap the greater part of the Amendments already tabled by the Chancellor and to adopt our own suggested Amendment which would enormously simplify and improve the whole tax.

Everybody admits that the tax is better as a result of many of the Amendments but it still nevertheless remains an extremely dangerous and damaging form of taxation. I do not personally think that the main damage will be done for the reasons which the hon. Member for Oldham, East (Mr. Horobin), and others suggested to the Committee two days ago. I am not so concerned with the general weight of profits taxation on companies as a whole. I am much more concerned with the general principle involved in the taxation of expanding industries and efficient firms, and so far as that is concerned, although the position is improved as a result of some of the Amendments, it is still very serious.

Take two extreme examples of how companies will fare under this tax, companies which have nothing to do with rearmament whatsoever. One example, which I ventured to quote during the Budget debate, is that of brewery companies. Broadly speaking, the profits of brewery companies have been more or less constant over the last few years. But the result of imposing this levy and the changes in the Profits Tax—and this is still true even after the modifications announced by the Chancellor two days ago—is that brewery companies, which have no particular claim to be assisted by the Exchequer at this moment, will pay less in profits taxation than before. On the other side, I think all hon. Members have plenty of examples of expanding efficient companies which should be encouraged, but which are in fact being penalised.

I would quote one case, that of long-playing records. Those who are interested in long-playing records will know we were already a considerable way behind the United States in this, and then four years ago, as will be known to many hon. Members, Decca in this country was the British firm which first developed long-playing records. During the whole of the standard period they were making no profits on this new venture whatever. As any prudent and efficient company would, they were concentrating on building up for the future and so they were making no profits on these records during those years.

After the standard period was over—this company is particularly unlucky but there are many others in the same difficult position—they began to expand their sales, both at home and in the export market. The phase of development was over, output was expanding and sales began. They are now being penalised for the profit they made in 1950 and 1951 and will make in future years as a result of their foresight and efficiency in developing this very important new innovation—new at any rate in this country—during the standard years. It so happens, and this is not uncommon, that about a quarter of their export sales since the standard period have gone entirely to the dollar market, to the United States and Canada.

Those are two examples of cases which show how damagingly this tax must operate. Companies which have shown no expansion since the standard period will find themselves actually paying less tax than before, while companies which have done what everybody was asking them to do are taxed on their marginal profits. That is why we have put forward this proposal to exclude companies where the additional profits are not directly or indirectly due to re-armament, to exclude profits from expansion, efficiency, innovation and the like, and on the grounds of logic, to exclude additional profits made as the result of devaluation.

As hon. Members know, the effect of devaluation, so far as many exporting companies were concerned, was greatly to increase their export profits. This was half the point of devaluation. It was desired by the then Chancellor of the Exchequer. Now they are being penalised for that fact. All manner of causes of profit, as it were, are coming into this in addition to re-armament, and we want to exclude them.

Our attitude to profits taxation is inevitably different from the attitude of hon. Members opposite. We do not take such a gloomy view as many hon. Members opposite about the total weight of taxation on industry. We do not take the same view as hon. Members opposite of the damaging results on the capacity of industry to re-equip, to modernise and the like.

We certainly have no objection to—indeed we strongly approve in principle of the idea of—a heavy weight of taxation on profits. We do not think that all savings should be in the form of private corporate saving, since we believe that this may have undesirable distributive effects. But we object as strongly as we can to the principle of taxing marginal profits, extra profits. A tax as far as possible should fall on average profits and not be heavier on additional profits than on the lower earlier levels of profits.

That is why we are proposing this Amendment in all seriousness. It will give an opportunity for doing exactly what the Chancellor and the country want so far as fortuitous re-armament profits are concerned, and will avoid the damaging results to the rest of civil production which otherwise will follow.

Mr. J. Grimond (Orkney and Shetland)

I agree very much with what the hon. Member for Gloucestershire, South (Mr. Crosland) has said about the inadvisability of taxing marginal profits, and also with what he said about the effect of inflation, which I do not think has been stressed enough in previous debates on this levy.

4.30 p.m.

I would add to what he said that a result of this very high rate of tax on marginal profits will be to encourage companies not to go in for risk-bearing schemes of enterprise but to encourage the type of expenditure which the Chancellor himself may well think is wasteful. A company faced with the alternative of paying for new machinery and taking all the risks of branching out into new processes or, on the other hand, spending an equivalent amount of money on redecorating its board room, may come to the conclusion that it is preferable to spend it on the latter, because so much of the profit made out of its enterprise may be taken away.

The Chancellor must feel much encouraged by the offers of help and sympathy which he is always receiving from this side of the Committee. Sometimes those offers are in acute contrast to what he hears behind him. In view of what he was stressing in his speech a few days ago—that this tax was introduced for moral reasons in order to tax excess profits made out of armaments—I have no doubt that he has great sympathy with this Amendment. In fact, I am sure, in the light of that speech, that he will be prepared to vote at least for the principle contained in it.

Before I say a few words about the principle, however, I should like to say that I am a little puzzled why this Amendment is proposed to be inserted in this particular place. I hope the mover of the Amendment will correct me if I have misunderstood his intention, but it seems to me that he is seeking to insert a new paragraph to subsection (4) of Clause 32. The three paragraphs which are already in subsection (4) deal with companies which are controlled and do business outside this country, and I am not sure that, if this Amendment were inserted, it would not really only apply to those companies which are either trading or controlled, or both, outside this country. I do not know whether that is the hon. Gentleman's intention.

Mr. E. Fletcher

It would apply to all companies.

Mr. Grimond

I thought that was the intention but I was surprised that it was not proposed to insert the Amendment as a new subsection (5). I must confess that I think the objections made by the hon. Member for Kidderminster (Mr. Nabarro) are extremely powerful. It would be entirely impossible to decide whether the excess profits were made on armaments, and it would put an immense extra burden on the Revenue. I am told by companies that already they are faced with having to draw up four sets of accounts, and this might involve them in a fifth set of accounts in which to record their profits earned from armaments apart from other profits.

I should like to say a word or two on this wider issue of the tax on armaments, because the Chancellor laid tremendous stress on the fact that this levy is imposed on a moral basis. I think the Committee should accept this argument with some suspicion. It seems to me that if it is wrong to make profits out of armaments. it is wrong to make any profits out of armaments at all, and I find it difficult to accept the moral argument that it is all right to make so much profit—5 per cent. or 6 per cent.—but not 10 per cent.

Mr. Nabarro

If the hon. Gentleman considers that it is immoral to make profits out of armaments, what does he suggest the armaments companies should do when they finish making armaments and want to go back to civil production?

Mr. Grimond

I have not said it is immoral to make profits out of armaments. I said that if we take that view, I do not see how we can draw the line. The logical conclusion of the argument must be to nationalise the armaments industry. I think that is impossible, but that would appear to be the logical conclusion of the argument. I must say that the Chancellor is on dangerous ground. His argument leads straight to nationalisation of a very large section of the industry.

Furthermore, can it be said seriously that a company which was making high profits in the standard years can continue making high profits out of armaments today without any moral imputation against it at all, but that if a company happened to be sufficiently enterprising during the standard years to retool, say, and is now able to take advantage of its enterprise, it is therefore immoral? It may be said that profiteering is immoral. But then a company ought not to be able to make large profits out of the public or Government contracts at any time, whether on re-armament work or not.

My answer to that is that the Government should examine more carefully the costing of their contracts, and in suitable cases should make stronger use of the Monopolies Commission. I must say there is a contrast between their attitude to this levy, when they talk about the moral importance of keeping profits low, and their attitude to the electric lamp manufacturers whom they are prepared to allow to continue making profits without bringing them before the Monopolies Commission.

I feel that if we are going forward with a system of private enterprise, we have got to pursue it with some degree of logic. Of course, we have got to have private enterprise. I think that companies have got to be allowed to make some profit under that system out of armaments, and if they can set aside some part of their profits to their reserves for the future, that is a very good thing and will meet the point of the hon. Member for Kidderminster that when the re-armament drive is over such companies should have something in hand.

I personally think that we shall have to continue making arms for some considerable time. I think the Chancellor is again on dangerous ground when he says that this is only a temporary tax and that in a year or two it will be taken off. We should all like to feel that rearmament will end in a year or two, but we should all be unwise to pin our economic thinking to that assumption.

This Amendment and what the Chancellor has said face us with one of the gravest problems about this tax. We cannot justify this tax as a tax on re-armament only. Therefore, what is the justification for it? It is going to penalise all developing companies. The only justification that I can see is that it may possibly be of some temporary use as an argument for wage restraint, but I would urge upon the Financial Secretary, when we come to discuss the further innumerable Amendments on the Paper, not to use this moral argument, and to realise that in all quarters of the Committee there is grave disquiet about this tax and great anxiety to minimise its ill effect so far as we possibly can.

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

I think it was, after all, fortunate that the hon. Member for Islington, East (Mr. E. Fletcher), despite his manifest coyness on Tuesday night, was persuaded of the immense interest of-this Amendment. As the hon. Member for Orkney and Shetland (Mr. Grimond) has pointed out, the Amendment might well have an effect of a totally different character from that which, according to its mover, is its purpose.

I am bound to say that when I first looked at the Amendment on the Order Paper, and in particular at that aspect of it to which the hon. Member for Orkney and Shetland has referred—that is to say, the proposal to insert certain words in that part of the Clause relating to overseas companies—it looked to me as if what the hon. Gentleman was trying to do was to insert one further condition which had to be satisfied if the companies in that subsection were to have the advantage which they are being given.

It was, therefore, after all, fortunate that the hon. Gentleman was able to move his Amendment and explain that what he wanted to do was to bring forward a general point relating to the exemption of any excess profits which could be said to arise neither directly nor indirectly from re-armaments. The hon. Gentleman will appreciate that I am making no reference to any point of a drafting nature. I am only too well aware of the difficulty, when in opposition and without the technical resources available to the Government, of drafting Amendments of this character, but I take it that it is the wish of the hon. Member and of the Committee that we should deal with this Amendment on the basis that it seeks to raise that particular issue and not on its meaning if it was strictly construed.

What the hon. Gentleman seeks to do is to give to the bodies corporate concerned the right to go to the Special Commissioners to seek to establish that their excess profits were neither directly nor indirectly attributable to re-armament and, if they succeed in that task, then to exempt them from this tax. I think I correctly interpret what the hon. Gentleman was seeking to do, and I equally take it—because he said so—that in so doing he meant to help them.

The first question which poses itself to the Committee on that basis is whether what the hon. Gentleman is seeking to do, leaving aside whether it be wise or unwise, practicable. I am sure that hon. Members will, in making up their minds about that, give some weight to the fact that exemptions of this character are not to be found in previous excess profits legislation, nor have they found their place in such legislation of other countries.

The nearest attempt to do so was, I suppose, the Munitions Levy of the 1914-18 war which, as the hon. Member will no doubt recall, did not confer any exemption on non re-armament profits; it merely proposed either an addition or an alternative tax on top of the old E.P.D. Equally the Armaments Profits Duty of 1939 never came into effect.

Mr. E. Fletcher

Was not the hon. Member aware of that at the time the manifesto was prepared, and is it not a fair assumption that some way of getting over it was found?

Mr. Boyd-Carpenter

I am sure that the hon. Member is trying to be helpful, but it would be a little more helpful if I might come to his remarks on the manifesto at the appropriate place in my argument. I am asking him to bear in mind the fact that whether his objective is sound or not, it has not been found possible to achieve it in any proposed tax of this character. Members will attach some weight to that consideration.

The difficulty, of course, arises in this way: How would it really be possible to establish that any particular set of profits were, in the hon. Member's own words, neither directly nor indirectly attributable to re-armament? The hon. Member himself said, on Tuesday night, when he decided to move this Amendment, that it would be a very heavy onus indeed on the applicant.

The problem is surely, as my hon. Friend the Member for Kidderminster (Mr. Nabarro) has so clearly and forcibly shown, that if there is put into our economy the large amount of purchasing power which a re-armament programme on the present massive scale puts into it, it is a matter of the utmost difficulty to mark or de-limit the final point at which the flow of that purchasing power ends.

Hon. Members may recall that on the Second Reading of the Bill I tried to deal with this issue by way of an example. I instanced a case of the setting up of a munitions factory near a small provincial town, resulting in the bringing in of a number of additional workers at high wages. That would bring immediate benefit to the retail traders, the entertainment caterers, and, in the absence of the hon. Member for Ealing, North (Mr. J. Hudson), I might add the licensed victuallers of the town in question.

None of these are people who are in the ordinary sense what one thinks of as armament makers or as being concerned with armaments. Yet all these three categories of people would benefit from the flow of purchasing power from the Exchequer to the armaments industry, and from the armaments industry to its workers, and from its workers to them. That example shows how difficult it would be in practice to de-limit or mark the limits of this re-armament expenditure.

There are all the obvious complications to which my hon. Friend the Member for Kidderminster referred. What about the company engaged partly on armaments and partly on civil work? The obvious example that springs to mind is that of the great aircraft firms which, we are all proud to reflect, are at the same time building the finest military and the finest civil aircraft in the world. It would be a matter of the utmost difficulty to say not only what profits related to what type of aircraft but, in the case of an intermediate type of aircraft such as trainer aircraft, whether they were military or civil. Equally the job of arranging what figures were to be set off against what set of receipts would provide full employment for the accountancy profession almost to the end of time, but it would serve little other purpose.

What about the manufacturers of components which are useful for civil or military purposes, some of which are used for military purposes? What about their position? What about transport services or public utility services? They gain indirectly from the armament expenditure. When one reflects on such considerations, it will be appreciated that the task which it is suggested should be discharged by the bodies corporate to meet the terms of this Amendment would really be an impossible one.

4.45 p.m.

The hon. Member may say, "If that be so, what harm is there in accepting this Amendment and letting them attempt the impossible?" I do not think that this Committee ought to legislate in that way. I do not think it would be right for us to put into an Act of Parliament a principle which we did not believe to be a reality. I do not think it would be right to suggest to these people that they would have some success in arguing their case. It would be wrong to give them this inducement to argue a case which, the more one looks at it, the more impossible it appears.

The right hon. Member for Leeds. South (Mr. Gaitskell), in one of his Budget speeches, dealt at some length with the effect of a general change in the economic climate and the universality of the effect of general changes in the economic climate. Re-armament expenditure on the present scale has that effect on the economic climate. I think that the task embodied in this Amendment would be an impossible one, and I would stress that if it is impossible, if hon. Members come to the conclusion that it really cannot be done, it would be completely irresponsible and frivolous to put a provision based on a possibility that it could be done in the Finance Bill this year.

The hon. Member for Islington, East was good enough to remind me of our Election manifesto. I think that some reference was made by him or by some other Member to this subject on Tuesday. Let me remind him of the actual words of the manifesto. They were: We shall set our face against the fortuitous rise in company profits because of the abnormal process of re-armament. There is not a word there to suggest that a tax based on that declaration would be limited to firms concerned with rearmament. Surely what it suggests, and indeed makes perfectly clear, is that the process of re-armament on this scale will affect what the right hon. Member for Leeds, South, called the economic climate; that it will, by pouring in this enormous amount of purchasing power, affect the whole working, of our economic system.

Therefore, it is right to base the tax upon the fact that it will go right through our economic system. Accordingly, although it is always agreeable to be reminded of the impressive document from which those words came—and I express my gratitude to the hon. Member for the trouble he has taken in so doing—the words, looked at in their ordinary commonsense meaning, are perfectly clearly far more consistent with the text of the Bill as now brought forward than with the text as it would be if the hon. Gentleman succeeded in having his Amendment carried.

Of course, as my hon. Friend the Member for Kidderminster said, a proposal of this sort would have the fundamental effect of wrecking the tax. The hon. Member for Gloucestershire, South (Mr. Crosland), was perfectly frank. He does not like the tax, and he is perfectly logical in supporting the Amendment on those grounds.

Mr. Crosland

Before the hon. Member leaves the point of the Conservative manifesto, of which I am bound to say I do not think he has made a very plausible defence, might I ask him whether he does not agree that that manifesto makes it quite clear that the intention is not to tax excess profits which are not due to this injection of purchasing power as a result of re-armament, of which the hon. Member has spoken? That is the clear intention of the manifesto, whereas this proposal does tax excess profits which have nothing to do with this injection of purchasing power as a result of re-armament.

Mr. Boyd-Carpenter

The hon. Gentleman is intelligent enough to know that he is begging the whole question of whether there are such profits. If we accepted the hon. Gentleman's view, which he implied by his support, that we can cut out certain profits and say, "These have nothing to do with re-armament," there might be some force in his contention. It is not easy to say whether certain profits are the result of re-valuation or of re-armament. The only commonsense meaning of the words is that we shall take out in taxation some amount of the extra profits which, throughout the economy, result from the very large public spending which the re-armament programme produces.

Mr. E. Fletcher

Is the Financial Secretary now saying that the Conservative Party manifesto did not make it clear that the tax was to be limited to fortuitous profits?

The Chairman

I have allowed a very wide debate, but I think it is now going a little too far.

Mr. Boyd-Carpenter

I have to accept your Ruling, Sir Charles, and I do so with regret, as I should have said that it was quite clear that it was intended to introduce a tax of the same general character as its predecessor.

Mr. Fletcher

As the Amendment arises almost entirely out of a passage in the Conservative manifesto, should we, in this short debate, be completely precluded from referring to the manifesto?

The Chairman

I have allowed hon. Gentlemen to refer to it, but we cannot debate the manifesto.

Mr. Boyd-Carpenter

I can say no more. The words of the Bill are perfectly clear. The essence of the matter is that nobody's ingenuity can isolate the limits of public spending on this scale. What the hon. Gentleman puts forward, be it wise or unwise, is unworkable, and for that reason ought not to go into the Finance Bill.

Mr. Douglas Houghton (Sowerby)

The Financial Secretary, courageously and fully, made out an overwhelming case against the Amendment. The whole time he has been criticising the lack of care used by the Conservative Party in the references made to the tax in their manifesto. The words which they are writing into the Clause are only a few Conservative chickens coming home to roost.

I do not rise to give the Chancellor any assistance but to support the Amendment, and not because it will make a bad tax better, but because it will make it a great deal worse, quite unworkable. That seems to be the sole merit of the Amendment; something the Financial Secretary failed to destroy in his argument. He referred to the number of undesirable consequences of the Amendment, but they are as nothing to the number of appellants who would be lined up at the office of the Special Commissioners if the Amendment were carried. From a practical point of view, it is clear that the Amendment would make the Excess Profits Levy unworkable, and that is why I am adding my support to it.

I agree with the Financial Secretary as to the difficulty of distinguishing between profits which are fortuitous and profits which are not, between profits which fortuitously arise from re-armament and those which fortuitously arise from something else. I suppose it could be argued that the excess profits of the printers of pacifist literature or the voluminous appeals of the British Peace Committee could be considered as arising out of re-armament, and that they should be taxed, even under the Amendment. On the other hand, speculative builders who are about to make fortuitous profits, not out of rearmament but out of the fortuitous return of the Conservative Government, might think it unjust that an excess profits tax should be levied on them, outside the scope of the Bill.

We all appreciate that, in talking about an absurd tax, one can indulge in absurdity until the cows come home. The Chancellor of the Exchequer has announced concessions which will substantially reduce the yield from the tax and have compelled him to re-impose some part of the Profits Tax which he otherwise would have lifted. If he were to look again at the whole situation, he would find that he can get extra money by closer administration of the taxes we already have. That is what worries me. While the machinery and personnel of the Department are mastering the complexities of this new tax, they are bound to relax their close attention to other branches of taxation which would yield substantial revenue.

I feel that in all this I have with me the hon. Member for Kidderminster (Mr. Nabarro), whose appointment as next Chairman of the Board of Inland Revenue I should warmly welcome. He and I see things very much from the same point of view. He has helped by drawing attention to the problems of administration. Despite the great ability with which the Financial Secretary demolished the Amendment, the hard core of it remains untouched. It is a wrecking Amendment, and for that reason I support it.

Mr. Douglas Jay (Battersea, North)

The Government have put us in an extraordinary position. The Financial Secretary has just argued that it is impossible to impose a tax on profits which would tax only re-armament profits. Our complaint—that is why we are pressing this Amendment as a protest—is that in that case that the Conservative Party should never have put the pledge in their manifesto.

The Financial Secretary has just put a gloss on the words in the manifesto: the fortuitous rise in company profits because of the abnormal process of rearmament. The Financial Secretary now tells us that the profits referred to, and which the Government wish to tax, are those resulting over the whole economy from the rearmament programme. Is that a correct interpretation? I gather that the hon. Gentleman agrees that it is. Then it is contrary to what the Chancellor of the Exchequer said in the debate on Tuesday. He said: 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."—[OFFICIAL REPORT, 20th May, 1952; Vol. 501, c. 384.] Therefore, it is clear that the argument of the Financial Secretary today is quite unconnected with what the Chancellor said the other night. I prefer to accept the version of the Chancellor as the true reason of the Government for this tax.

5.0 p.m.

In that speech the Chancellor made two quite contradictory assertions in commending the tax to the House. That contradiction has become even more glaring after the speech we heard from the hon. Gentleman this afternoon. First the right hon. Gentleman said that the whole basis of the tax was moral, and he assumed an air of tremendous ferocity and talked about "merchants of death" and so on. It is true he spoiled that a moment afterwards by using the phrase "But speaking for a moment quite seriously." He then told us that the tax for which there was this terrific moral case was impossible to impose in practice. That seemed a remarkably contradictory way of commending a tax to the Committee, and we have put down this Amendment by way of exploration.

In his attempt to carry out the Election manifesto, the Chancellor is imposing a tax which we all know to be a bad tax. Hon. Members on both sides of the Committee, tax experts, and almost the whole Press, know that this switch over from Profits Tax to E.P.L. is bad in every way. It is a tax which relieves companies who are making no increased profits, such as brewery companies, when there is no reason for doing so. It falls more heavily on the efficient and expanding company. It encourages waste, and imposes an unnecessary and indefensible burden on the Inland Revenue and accountants, who would be better occupied.

That is the stage we have reached. Simply because of that sentence in the manifesto, the Chancellor is impelled to impose this tax on the country. Therefore, we are entitled again to inquire, how did it come about that this sentence was included in the Election manifesto, because that is the source of the trouble. I do not think one has to examine the document very closely to be perfectly certain that here again the guilty man is the right hon. Gentleman the Prime Minister. We were told at the time—

The Temporary Chairman (Sir Austin Hudson)

I hope the right hon. Gentleman will not go too far into the question of Election manifestos.

Mr. Jay

I shall not go too far, Sir Austin. This document was sent out to the right hon. Gentleman when he was on holiday in Italy and was signed by his own hand. The right hon. Gentleman made extensive alterations in the document. One only has to read the prose style of this paragraph and the following one to have little doubt on this point. I notice that the Chancellor is not denying this allegation.

The fact of the matter is that it was the Prime Minister who committed the crime, and the Chancellor complacently agreed to take over the corpse when the Government were formed. In fact, on Tuesday, in the interests of the Prime Minister he obligingly made a false confession here; because I cannot really believe that he is any more a supporter of this tax than the rest of us. He seems to have received a reward for that, because I observed that the same day the Prime Minister, in making a speech elsewhere, said that the Chancellor, the Foreign Secretary and the Minister of Housing and Local Government were all doing very well. I thought there were some rather significant omissions. The Leader of the House was not mentioned, nor Lord Woolton nor Lord Leathers and some others, but I will not pursue that matter now.

What a piece of frivolity and irresponsibility this really is. The Chancellor is asking us this afternoon to pass a tax which we all know to be inefficient and undesirable. He is forcing through a tax we all know to be bad in the face of opinion on every side of the Committee. I suggest to the Chancellor that he has a last hope, that there is still a possible way out. The Prime Minister has enunciated a doctrine about passages in Election manifestos which the Chancellor may have overlooked, but which in this debate might come to his rescue. Some hon. Members may remember that the Prime Minister said: I do not admit as democratic constitutional doctrine that anything that is stuck into a party manifesto thereupon becomes a mandated right.…"—OFFICIAL REPORT, 7th February, 1951; Vol. 483, c. 1748.]

Mr. Crosland

On a point of order, Sir Austin. Is there any method by which instructions can be given to draw the blinds? As a result of sitting up all night, night after night, studying this Finance Bill, the sudden blinding sun is beginning to make me feel extremely sick.

Mr. Jay

I was trying to help the Chancellor, as we all are throughout this debate, by reminding him that the Prime Minister has enunciated the doctrine that nothing is binding just because it was "stuck" into an election manifesto—to use his own words. Indeed, he said that if that principle were accepted, why should we not "shove" more items in? Therefore, the Chancellor need not ride roughshod over the Committee and over the experts just because the Prime Minister "shoved" that unfortunate sentence into the manifesto.

What these debates have shown, and what is proved by the leading article in the "Financial Times" of yesterday, is the rightness of the policy we in the Labour Government followed in raising the straight Profits Tax, which falls as a straightforward percentage on all companies, of whatever sort, and not as an extra, heavy tax on those which are expanding and increasing their profits.

By the Amendment he is now making, and by taking a step back towards the Profits Tax, the Chancellor is admitting the rightness of the policy we followed throughout those years. I do not know whether the Chancellor remembers, but after devaluation in the autumn of 1949, instead of imposing a tax like this E.P.L., we raised the distributed rate of the Profits Tax. The right hon. Gentleman argued against that from this side of the House, and I tried to convince him with the arguments which he has now accepted in making the Amendments he introduced so hurriedly this week.

Now that we have learned that it is impossible to carry out the intentions of the manifesto—on the interpretation of the Chancellor and not on that of the Financial Secretary—and bearing in mind the escape clause of the Prime Minister of which I have reminded him, is it really too late to decide what we all know is the right thing to do, namely, to drop this absurd tax altogether and to raise the Profits Tax instead? The Chancellor could get the revenue that way. He could save a great deal of burden and trouble to all sorts of people, and we all know that it would be a far better arrangement.

I can guarantee to the right hon. Gentleman that, in spite of all the language about vacillation, clumsiness and un-skilful Government in the "Financial Times" yesterday, if he were to do that we would undertake not to accuse him any further, in that matter anyway, of further vacillations, hesitations and indecision; and we would give him our support both in increasing the Profits Tax and in sweeping away the remainder of E.P.L. in the Bill.

Like the right hon. and learned Member for Montgomery (Mr. C. Davies), I happen to be one of those who took part in a modest way in the campaign against the N.D.C. in 1937. We who were then the critics suggested to the then Chancellor, Mr. Neville Chamberlain, that he should sweep away this tax, with its capital standard and all the rest, and substitute a simple corporation profits tax, as it was termed in those days, of, we suggested, 5 per cent.

In fact, Mr. Chamberlain at about this stage of the Finance Bill, attacked from this side of the House and also by the then "Financial News," changed his mind, agreed to accept that and introduced—the hon. Member for Oldham, East (Mr. Horobin) recalls this controversy—what was the National Defence Contribution throughout the war, which has become the present Profits Tax. Everybody applauded him for doing so. So I end by again asking the Chancellor whether he could not benefit by that example and still do what everybody knows he ought to do this afternoon.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 212; Noes, 242.

Division No. 143.]	AYES	[5.12 p.m.
Acland, Sir Richard	Ewart, R.	Lee, Miss Jennie (Cannock)
Albu, A. H.	Fernyhough, E	Lever, Leslie (Ardwick)
Allen, Arthur (Bosworth)	Field, W. J	Lewis, Arthur
Allen, Scholefield (Crewe)	Fienburgh, W	Lindgren, G. S.
Attlee, Rt. Hon. C. R.	Finch, H. J	Lipton, Lt.-Col. M
Awbery, S. S.	Fletcher, Eric (Islington, E.)	Logan, D. G.
Ayles, W. H.	Follick, M.	MacColl, J. E.
Bacon, Miss Alice	Forman, J. C.	McGhee, H. G.
Balfour, A.	Fraser, Thomas (Hamilton)	McKay, John (Wallsend)
Bartley, P.	Gaitskell, Rt. Hon. H. T. N.	McLeavy, F.
Bellenger, Rt. Hon. F. J.	Glanville, James	MacMillan, M. K. (Western Isles)
Bence, C. R.	Gordon Walker, Rt. Hon. P. C.	MacPherson, Malcolm (Stirling)
Benson, G.	Greenwood, Anthony (Rossendale)	Mainwaring, W H.
Beswick, F.	Greenwood, Rt. Hn. Arthur (Wakefield)	Mann, Mrs. Jean
Bevan, Rt. Hon. A. (Ebbw Vale)	Grey, C. F.	Manuel, A. C.
Blackburn, F.	Griffiths, David (Rather Valley)	Marquand, Rt. Hon H. A
Blenkinsop, A.	Griffiths, Rt. Hon. James (Llanelly)	Mayhew, C. P.
Blyton, W. R.	Griffiths, William (Exchange)	Messer, F.
Boardman, H.	Hale, Leslie (Oldham, W.)	Mitchison, G. R
Bottomley, Rt. Hon. A G	Hall, Rt. Hon. Glenvil (Coin Valley)	Monslow, W
Bowden, H. W.	Hall, John (Gateshead, W.)	Moody, A. S.
Braddock, Mrs. Elizabeth	Hamilton, W. W	Morgan, Dr. H. B. W.
Brockway, A. F.	Hannan, W.	Morley, R.
Brook, Dryden (Halifax)	Hargreaves, A.	Morris, Percy (Swansea, W.)
Broughton, Dr. A. D. D.	Hayman, F. H.	Morrison, Rt. Hon. H. (Lewisham, S.)
Brown, Rt. Hon. George (Belper)	Healey, Denis (Leeds, S.E.)	Mort, D. L.
Brown, Thomas (Ince)	Henderson, Rt. Hon. A. (Rowley Regis)	Moyle, A.
Butler, Herbert (Hackney, S.)	Herbison, Miss M.	Mulley, F. W.
Callaghan, L. J	Hobson, C. R	Murray, J. D.
Champion, A. J	Holman, P.	Noel-Baker, Rt. Hon. P. J.
Chetwynd, G. R.	Holmes, Horace (Hemsworth)	Oldfield, W. H.
Clunie, J.	Houghton, Douglas	Oliver, G. H.
Cocks, F. S.	Hoy, J. H.	Orbach, M.
Collick, P. H.	Hubbard, T F.	Oswald, T.
Corbet, Mrs. Freda	Hudson, James (Ealing, N.)	Padley, W. E.
Cove, W. G.	Hughes, Emrys (S. Ayrshire)	Paget, R. T.
Craddock, George (Bradford, S.)	Hynd, H. (Accrington)	Paling, Rt. Hon, W. (Dearne Valley)
Crosland, C. A. R.	Hynd, J. B. (Attercliffe)	Pannell, Charles
Daines, P.	Irving, W. J. (Wood Green)	Paton, J.
Dalton, Rt. Hon. H.	Isaacs, Rt. Hon. G A.	Pearson, A.
Davies, A. Edward (Stoke, N.)	Janner, B.	Plummer, Sir Leslie
Davies, Ernest (Enfield, E.)	Jay, Rt. Hon. D. P T	Porter, G.
Davies, Harold (Leek)	Jeger, Dr. Santo (St. Pancras, S.)	Price, Joseph T. (Westhoughton)
Deer G.	Jenkins, R. H. (Stetchford)	Price, Philips (Gloucestershire, W.)
Delargy, H. J.	Johnson, James (Rugby)	Proctor, W. T.
Dodds, N. N.	Jones, David (Hartlepool)	Pryde, D. J.
Donnelly, D. L.	Jones, Jack (Rotherham)	Pursey, Cmdr. H.
Ede, Rt. Hon. J. C.	Keenan, W	Rankin, John
Edwards, John (Brighouse)	Kenyon, C.	Reeves, J.
Edwards, W. J. (Stepney)	Key, Rt. Hon. C W	Reid, Thomas (Swindon)
Evans, Albert (Islington, S.W.)	King, Dr. H. M.	Rhodes, H.
Evans, Edward (Lowestoft)	Kinley, J.	Robens, Rt. Hon. A.
Evans, Stanley (Wednesbury)	Lee, Frederick (Newton)	Roberts, Albert (Normanton)
Roberts, Goronwy (Caernarvonshire)	Swingler, S. T	West, D. G.
Rogers, George (Kensington, N.)	Sylvester, G. O.	White, Mrs. Eirene (E. Flint)
Ross, William	Taylor, John (West Lothian)	Whiteley, Rt. Hon. W
Schofield, S. (Barnsley)	Taylor, Rt. Hon Robert (Morpeth)	Wigg, George
Shackleton, E. A. A.	Thomas, David (Aberdare)	Wilkins, W. A.
Shinwell, Rt. Hon. E	Thomas, George (Cardiff)	Willey, Frederick (Sunderland, N.)
Short, E. W.	Thomas, Iorwerth (Rhondda, W.)	Williams, David (Neath)
Shurmer, P. L. E.	Thomas, Ivor Owen (Wrekin)	Williams, Ronald (Wigan)
Silverman, Julius (Erdington)	Thorneycroft, Harry (Clayton)	Williams, Rt Hon. Thomas (Don V'll'y)
Silverman, Sydney (Nelson)	Thurtle, Ernest	Williams, W. R. (Droylsden)
Simmons, C. J. (Brierley Hill)	Timmons, J.	Williams, W. T (Hammersmith, S.)
Slater, J.	Tomney, F.	Wilson, Rt. Hon. Harold (Huyton)
Smith, Norman (Nottingham, S.)	Ungoed-Thomas, Sir Lynn	Woodburn, Rt. Hon. A
Snow, J. W.	Viant, S. P.	Wyatt, W. L.
Soskice, Rt. Hon. Sir Frank	Wallace, H. W	Yates, V. F.
Sparks, J. A.	Watkins, T. E.
Steele, T.	Webb, Rt. Hon. M. (Bradford, C.)	TELLERS FOR THE NOES:
Strauss, Rt. Hon. George (Vauxhall)	Weitzman, D.	Mr. Royle and
Summerskill, Rt. Hon. E	Wells, Percy (Faversham)	Mr. Kenneth Robinson.
NOES
Aitken, W. T.	Digby, S. Wingfield	Legh, P. R. (Petersfield)
Allan, R. A. (Paddington, S.)	Donaldson, Cmdr. C. E. McA.	Lennox-Boyd, Rt. Hon. A. T.
Alport, C. J. M.	Donner, P. W.	Linstead, H. N.
Amory, Heathcoat (Tiverton)	Douglas-Hamilton, Lord Malcolm	Lloyd, Maj. Guy (Renfrew, E.)
Anstruther-Gray, Major W. J.	Drayson, G. B.	Lloyd, Rt. Hon. Selwyn (Wirral)
Arbuthnot, John	Drewe, C.	Lockwood, Lt.-Col. J. C.
Ashton, H. (Chelmsford)	Dugdale, Maj. Rt. Hn. Sir T. (Richmond)	Longden, Gilbert (Herts, S.W.)
Assheton, Rt. Hon. R. (Blackburn, W.)	Duncan, Capt. J. A. L.	Low, A. R. W.
Astor, Hon. J. J. (Plymouth, Sutton)	Duthie, W. S.	Lucas, Sir Jocelyn (Portsmouth, S.)
Astor, Hon. W. W. (Bucks, Wycombe)	Elliot, Rt. Hon. W. E	Lucas, P. B. (Brentford)
Baldock, Lt.-Cmdr. J. M.	Erroll, F. J.	Lucas-Tooth, Sir Hugh
Baldwin, A. E.	Fell, A.	McAdden, S. J.
Banks, Col. C.	Fisher, Nigel	McCorquodale, Rt. Hon. M. S.
Barber, A. P. L.	Fleetwood-Hesketh, R. F.	Macdonald, Sir Peter (I of Wight)
Barlow, Sir John	Fort, R.	Mackeson, Brig. H. R.
Baxter, A. B.	Fraser, Sir Ian (Morecambe & Lonsdale)	McKibbin, A. J.
Beach, Maj. Hicks	Galbraith, T. G. D. (Hillhead)	McKie, J. H. (Galloway)
Beamish, Maj. Tufton	Garner-Evans, E. H.	Maclean, Fitzroy
Bell, Philip (Bolton, E.)	George, Rt. Hon. Maj. G. Lloyd	MacLeod, John (Ross and Cromarty)
Bell, Ronald (Bucks, S.)	Godber, J. B.	Macmillan, Rt. Hon Harold (Bromley)
Bennett, F. M. (Reading, N.)	Gomme-Duncan, Col. A.	Macpherson, Maj. Niall (Dumfries)
Bennett, Sir Peter (Edgbaston)	Gough, C. F. H.	Maitland, Comdr. J. F. W. (Horncastle)
Bennett, Dr. Reginald (Gosport)	Gower, H. R.	Maitland, Patrick (Lanark)
Bennett, William (Woodside)	Graham, Sir Fergus	Manningham-Buller, Sir R. E
Bevins, J. R. (Toxteth)	Gridley, Sir Arnold	Markham, Major S. F.
Birch, Nigel	Grimond, J.	Marshall, Douglas (Bodmin)
Bishop, F. P.	Grimston, Hon. John (St. Albans)	Marshall, Sidney (Sutton)
Black, C. W.	Grimstan, Sir Robert (Westbury)	Maude, Agnus
Bossom, A. C.	Hare, Hon. J. H.	Maudling, R.
Bowen, E. R.	Harris, Frederic (Croydon, N.)	Maydon, Lt.-Comdr S L C
Boyd-Carpenter, J. A.	Harrison, Col. Harwood (Eye)	Medlicott, Brig. F
Boyle, Sir Edward	Harvey, Air Cdre. A. V. (Macclesfield)	Mellor, Sir John
Braithwaite, Sir Albert (Harrow, W.)	Harvie-Watt, Sir George	Molson, A. H. E.
Braithwaite, Lt.-Cdr. G. (Bristol, N.W.)	Heald, Sir Lionel	Morrison, John (Salisbury)
Bromley-Davenport, Lt.-Col. W. H.	Heath, Edward	Nabarro, G. D. N.
Brooke, Henry (Hampstead)	Higgs, J. M. C.	Nicholls, Harmer
Brooman-White, R. C.	Hill, Dr. Charles (Luton)	Nicholson, Godfrey (Farnham)
Browne, Jack (Govan)	Hill, Mrs. E. (Wythenshawe)	Nicolson, Nigel (Bournemouth, E.)
Buchan-Hepburn, Rt. Hon. P. G. T.	Hinchingbrooke, Viscount	Nield, Basil (Chester)
Bullard, D. G.	Hirst, Geoffrey	Noble Cmdr. A. H. P
Bullus, Wing Commander E. E.	Holland-Martin, C. J.	Nugent, G. R. H.
Burden, F. F. A.	Hollis, M. C.	Oakshott, H. D.
Butcher, H. W.	Holmes, Sir Stanley (Harwich)	Ormsby-Gore, Hon. W D.
Butler, Rt. Hon. R. A. (Saffron Walden)	Holt, A. F.	Orr, Capt. L. P. S.
Carr, Robert (Mitcham)	Hope, Lord John	Orr-Ewing, Charles Ian (Hendon, N.)
Channon, H.	Hopkinson, Henry	Orr-Ewing, Ian L. (Weston-super-Mare)
Clarke, Col. Ralph (East Grinstead)	Hornsby-Smith, Miss M. P.	Osborne, C.
Clarke, Brig. Terence (Portsmouth, W.)	Horobin, I. M.	Partridge, E.
Cole, Norman	Horsbrugh, Rt. Hon. Florence	Peake, Rt. Hon. O
Colegate, W. A.	Howard, Greville (St. Ives)	Perkins, W. R. D.
Cooper-Key, E. M.	Hudson, W. R. A. (Hull, N.)	Peyton, J. W. W.
Craddock, Beresford (Spelthorne)	Hutchison, Lt.-Corn. Clark (E'b'rgh W.)	Pickthorn, K. W. M.
Cranborne, Viscount	Hylton-Foster, H. B. H.	Pilkington, Capt. R. A
Crookshank, Capt. Rt. Hon. H. F. C.	Jenkins, R. C. D. (Dulwich)	Pitman, I. J.
Crosthwaite-Eyre, Col. O. E.	Johnson, Eric (Blackley)	Powell, J. Enoch
Crouch, R. F.	Jones, A. (Hall Green)	Price, Henry (Lewisham, W.)
Crowder, John E. (Finchley)	Kaberry, D.	Prior-Palmer, Brig. O. L
Crowder, Petre (Ruislip-Northwood)	Keeling, Sir Edward	Raikes, H. V.
Cuthbert, W. N.	Kerr, H. W. (Cambridge)	Rayner, Brig. R
Darling, Sir William (Edinburgh, S.)	Lambert, Hon. G.	Redmayne, M.
Davidson, Viscountess	Lambton, Viscount	Remnant, Hon. P.
Davies, Rt. Hn. Clement (Montgomery)	Leather, E. H. C.	Roberts, Peter (Heeley)
Deedes, W. F.	Legge-Bourke, Maj. E. A. H.	Robertson, Sir David

Robson-Brown, W	Stevens, G. P.	Wakefield, Edward (Derbyshire, W.)
Rodgers, John (Sevenoaks)	Steward, W. A. (Woolwich, W.)	Wakefield, Sir Wavell (Marylebone)
Roper, Sir Harold	Stewart, Henderson (Fife, W.)	Walker-Smith, D. C.
Ropner, Col. Sir Leonard	Stoddart-Scott, Col. M.	Ward, Han. George (Worcester)
Russell, R. S.	Storey, S.	Ward, Miss I. (Tynemouth)
Ryder, Capt. R. E. D.	Stuart, Rt Hon James (Moray)	Watkinson, H. A
Salter, Rt. Hon. Sir Arthur	Studholme, H. G.	Webbe, Sir H. (London & Westminster)
Sandys, Rt. Hon. D.	Summers, G. S	While, Baker (Canterbury)
Savory, Prof. Sir Doulas	Sutcliffe, H.	Williams, Rt. Hon. Charles (Torquay)
Schofield, Lt.-Col. W. (Rochdale)	Taylor, Charles (Eastbourne)	Williams, Gerald (Tonbridge)
Scott, R. Donald	Teeling, W	Williams, Sir Herbert (Croydon, E.)
Scott-Miller, Cmdr. R.	Thomas, P. J. M. (Conway)	Williams, R Dudley (Exeter)
Shepherd, William	Thompson, Kenneth (Walton)	Wilson, Geoffrey (Truro)
Smithers, Peter (Winchester)	Thompson, Lt.-Cdr. R. (Croydon, W.)	Wood, Hon, R.
Smithers, Sir Waldron (Orpington)	Thornton-Kemsley, Col C N	York, C.
Smyth, Brig. J. G. (Norwood)	Turner, H. F. L
Spearman, A. C. M	Turton, R. H	TELLERS FOR THE NOES:
Speir, R. M.	Vane, W. M. F	Major Conant and Mr. Vosper.
Spent, Sir Patrick (Kensington, S.)	Vaughan-Morgan, J K

Question put, and agreed to.

Sir Patrick Spens (Kensington, South)

I beg to move, in page 36, line 43, at the end, to add: (5) Notwithstanding the provisions of subsection (3) of this section, this Part of this Act does not apply to a trade or business carried on by a body corporate ordinarily resident in the United Kingdom if and to the extent that the trade or business consists of the winning or production of raw materials. This group of Amendments arises out of a visit which I paid to Borneo and Malaya in April, 1948. Having toured both the island of Borneo and a great deal of Malaya during that month, when I saw this Bill drafted and saw that the years 1947, 1948 and 1949 were to be taken as the basis of the standard profits, I realised, in view of the conditions of the countries as I had seen them, that those standards for companies producing raw materials from those areas which had been occupied by the Japanese forces could not possibly be fair to them, particularly in view of the way in which development had gone on and has gone on since.

In those circumstances I ventured to put down as Amendments to this Clause a series of alternatives, starting from the larger category—namely, the producers of raw materials anywhere—and going down to the smallest categories-namely, those whose business was producing minerals and oilwells in territories occupied by the enemies of his late Majesty, and where the source of production had a life of less than 30 years.

It was my hope that one of these alternatives would be selected but, whichever was selected, it was made quite clear by the last Amendment that if these companies were to be excluded from the Excess Profits Levy, they would at least have to pay the old rate of Profits Tax. There was no suggestion, either by myself or by those with whom I conferred, that they should be excluded from the Excess Profits Levy and then have the benefit of reduced taxation to an extent more than any other form of trading company.

I am in this difficulty: a large number of Government Amendments have recently been placed on the Order Paper and a number of them are most pertinent and material to the suggestions which I have made. If I may be allowed to refer, very shortly, both to these Government Amendments and to some of the new Clauses, I would start by saying that I appreciate very much indeed the concessions which my right hon. Friend has clearly made to those who are producing these types of minerals from the territories formerly occupied by the Japanese.

The fact that they now have a choice of the years 1949 and 1950 makes an enormous difference, of course, when compared with an average based on 1947, 1948 and 1949. When, in addition, they are given certain other advantages by the new Clauses in connection with average output, another very serious point is overcome at least to some extent. That point is really one of principle. Was it right, as the tax was originally drafted, that a company which was in a state of developing, and bringing back into production each year more and more sources of valuable raw material, should thereby incur in each chargeable period an extra amount of tax on account of such development?

Again, to some extent that point has been met. There is, of course, difficulty in corresponding with one's friends on the subject of these Amendments, but I regret to say that I have to tell my right hon. Friend this: while they thank my right hon. Friend for what he has done, the producers of tin and rubber in Malaya would still much prefer to be excused the levy and to pay the old rate of profits tax. They make two points. First, better as the standard years 1949 and 1950 are than the years 1947, 1948 and 1949, the fact is, as the right hon. Member for Vauxhall (Mr. G. R. Strauss) will remember, that the price of tin was controlled up to 15th November, 1949. Therefore, in these standard years, there are 11 months of controlled prices and only 13 months of what one might call freed prices.

As far as Malaya is concerned, therefore, and also as far as the tin mines of Nigeria are concerned, they say that in principle we have a chargeable period in which they are entitled to sell their products in a free market, but the taxation is based on a controlled price, which was admittedly a great deal lower than the free price. That, itself, is a special point in connection with these companies which must merit special consideration.

They also say that the rehabilitation and bringing back into development had not nearly finished by the end of 1950 and that it is still going on today. They say that the figures themselves show that they are affected not by greater production from the sources working in 1949 and 1950, nor by better prices for a similar amount of production by comparison with the prices for these periods; but by greater overall profits coming from the amount which is still being brought back into production each year. In those circumstances, they still submit that this Excess Profits Levy cannot act with fairness on these companies.

I realise that in the Amendments later on the Paper, and in the new Clauses, a great deal has been done to meet the suggestions put forward in my Amendments, but I hope that, between now and the Report stage, my right hon. Friend will allow representations to be made to him on the two points I have mentioned. Bearing in mind the enormous importance of the utmost production of these raw materials—oil, tin, and so on—and the necessity for getting the greatest possible advantage from industry at this time, I hope that my right hon. Friend will hear those representations with a sympathetic ear even now. I feel certain that he will. 5.30 p.m.

The Amendment contains the same suggestion as that in my right hon. Friend's new Clause; that is, it covers the companies operating mineral deposits of metals and oils which are situated in territory which was formerly occupied by enemies of this country. I do not know whether it would be right at this stage to deal with the Amendment and get rid of it, or whether, later, my right hon. Friend might give an undertaking that further representations will be considered. In the latter eventuality it would not be necessary for me to press the Amendment.

Mr. Douglas Marshall (Bodmin)

I want to focus the attention of the Solicitor-General, who is to reply, and of the Committee, on two specific points which come within the range of these various Amendments. An Amendment in my name to Clause 31, dealing with the question of mining in this country, was not selected by the Chair, but I understand that the substance of that Amendment can now be discussed.

I want to put two special points to the Solicitor-General. In 1949 my right hon. Friend who is now Chancellor expressed sympathy with the idea of trying to help the development of mineral wealth which is hidden in our own hills. He spoke in support of an Amendment which was moved by me in an effort to get temporary relief from taxation for three or four years for any mining venture likely to operate in the United Kingdom. The suggestion I made was more or less on the lines of the taxation passed by the Dominion of Canada, and this exclusion method helped to a great degree to build up the great mining wealth of that Dominion.

It is not my purpose today to develop the argument which I then submitted, and which I may well be able to develop at a later stage. But if there was any substance in that argument then, equally, there must be great substance when we consider mines in the United Kingdom when a new venture is starting and we should consider removing them from the imposition of the levy. That is one point to which I desire the Solicitor-General to apply his mind.

My second point is also of considerable substance. I join with my hon. and learned Friend the Member for Kensington, South (Sir P. Spens) in welcoming many of the new Clauses and Amendments which the Chancellor has put down but which it would be out of order for me to refer to specifically at present. But there is a new Clause which gives some help for an output allowance where Her Majesty's Government feel there is a vital necessity to increase production or where previously they have given instructions to try to get production increased, and I am wondering whether, in those allowances, china clay has been included. The Solicitor-General is fully aware, as are all the Members of the Committee, that to get over our difficulties it is necessary for us to do everything in our power to secure additional effort in production to increase our exports to the hard currency countries.

Let us take the raw materials of china clay, and see what that industry in Cornwall and in Devon has done in the matter of exports to the United States of America. The figures which I propose to give to the Solicitor-General will hearten any hon. Member who is interested in the subject of increased exports to other countries. The exports of that industry to the United States have been to the value of £442,000 in 1948 and, in 1951, £590,000. I know of no other industry whose exports to the United States have risen in that way. I am sure my hon. and learned Friend would wish to do everything possible to support and encourage an industry like that, which through its basic raw materials can add to the wealth of this country and help to close the dollar gap which we have all been talking about for many years.

If china clay is not included in the particular Clause which deals with output allowances, I hope that the Solicitor-General will say that between now and the time when the new Clause is moved he will give consideration to the facts which I have put before him. I would prefer, of course, that he would say that it is now included in the new Clause. Having read it and studied it I am not too sure that it is, but I trust he will apply himself to this matter, remembering always the vital importance of bringing dollars to this country.

Mr. Roy Jenkins (Birmingham, Stechford)

Since the Finance Bill was published, some of my hon. Friends who have looked closely at this subject, have been worried about the effect which E.P.L. will have on the position of certain raw materials. We welcome some of the quite substantial concessions which the Chancellor has announced, and particularly five of them which will be dealt with later. I should have thought that the Amendments which have not been called go a little too far in exempting some of these companies altogether. After all, there are no companies who can make larger profits out of the events following the outbreak of the war in Korea and re-armament than some of those which the hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) has in mind.

Sir P. Spens

But one of the Amendments made it quite clear that if they were exempt from E.P.L., they must pay at the unamended rate of Profits Tax.

Mr. Jenkins

I appreciate that the hon. and learned Gentleman is putting that forward, but that is not a point which the Chancellor could possibly accept. The Chancellor's argument is that one has to have something special over and above the Profits Tax to deal with these fortuitous profits. I should have thought that it was difficult to exclude entirely companies which have already done strikingly well as a result of world re-armament.

The whole problem that we are debating illustrates again the enormous difficulties which this levy presents. It illustrates the head-on clash that exists. Obviously, we need to increase our raw materials production, especially overseas, as much as possible. If that increase takes place, there is likely to be a big increase in profits; yet, if one is to exclude these companies, one must really depart from the whole principle.

The Chancellor, or whoever is behind him on this matter, is the real sinner. He has placed us in an impossible position. If we are to have a levy at all, I should have thought that it was not possible to exclude entirely these companies as the hon. and learned Gentleman has suggested.

Mr. F. J. Erroll (Altrincham and Sale)

I hope that the hon. Member for Stechford (Mr. Roy Jenkins) will agree that my Amendment, which has been grouped with the others, would in fact fit into his definition. My Amendment seeks to exempt only those statutory undertakings which operate abroad. There are, alas, very few statutory undertakings controlled from Britain which operate abroad, many of them having been nationalised by the Governments of those countries since the war. However, there are one or two. I suggest that the case of the statutory undertaking is exceptional.

Most, if not all, of the overseas utilities are subject to the most rigid control of profits. In most cases the taxes which they have to pay are regarded as working expenses. Therefore, if there is any increased taxation, it usually represents an increased charge to the consumer which has to be passed on in the form of increased rates or increased fares. In order to be brief, I shall quote only two examples—the Calcutta Electricity Supply Company, Limited, which is controlled by the Indian Electricity Act, 1948, and the Calcutta Tramways, Limited, which is now rigidly controlled by the Bengal Tramways Act, 1951.

Many increases in taxation which these two undertakings will have to meet as a result of E.P.L. will cause additional charges to be passed on to the consumer. I cannot see how it can be argued that a Bengali taking a tram from the How-rah Bridge to the centre of Calcutta can be classed as a person who is assisting the re-armament effort and who should, therefore, have to pay more for his ticket. But that is the effect of E.P.L. if applied to the Calcutta Tramways Company, Limited, in its present form.

We must remember that if we insist on increasing the rate of taxation on these overseas utilities, those countries which have not yet nationalised them will have an additional reason for doing so. They will see in those utilities still retained by British nationals simply a milch cow for the British Treasury. I hope that favourable consideration will be given to my small but important Amendment.

5.45 p.m.

Sir Harold Roper (Cornwall, North)

I should like to express my gratitude to the Government for the concessions they have made to the metal mining industry. I feel it desirable to intervene now because I wish to express my belief that the Government's alternative new Clause which has not yet been discussed does not go far enough.

I believe that the Government approach to this question pays too much regard to the narrower revenue considerations and too little regard to the benefit to the national revenue which would result from an increase in home production. The new Clause, in showing its determination to safeguard the Treasury, puts the Government in danger of so frustrating development that there will be none at all in the home-producing mining industry end, therefore, no increased revenue.

In stressing the need for home production, I wish to draw attention to the present cost of the import of essential metals. Last year imports of tin cost £24,500,000 and imports of wolfram cost £7,500,000. Those are large figures. The world supply of tin for immediate needs is reasonably assured. A good case for encouraging our mining industry can be made out on a long-term basis, and an immediate need is reflected in the £24,500,000 which is being spent on imports. There is good reason to believe that at least part of that sum could be saved by increasing home production. Of the two metals, tin is still perhaps of the higher importance, but I also wish to draw attention to the position of wolfram.

The potential production of wolfram in this country is less well known than that of tin. When our tin mining industry was at its peak in the last century, wolfram was more or less a waste product, and the potentiality of its production is therefore unknown. There is a permanent need for wolfram not merely in time of war but in peace. It is a commodity which will continue to be essential to our home industry. Though our home production at present is small, the possibilities of increasing it must certainly not be ignored. In my own constituency deposits are known to exist in four different places. How important they are cannot be foreseen until a proper examination of their potentialities is made.

Wolfram is in short supply in the world today. The main sources of cheap wolfram in China are now behind the Iron Curtain. Another important source in Burma is lost to us for an indefinite period. The International Materials Conference recently reported on the world supply of wolfram. According to their report since 1950 world production of wolfram has been doubled. But it is still in short supply. The Report says: It is the view of the Committee that both tungsten (wolfram) and molybdenum, two metals of critical importance for the defence programme and for the maintenance of civilian standards in the modern world, are likely to be in short supply for the remainder of the current year and for a further period thereafter. The reason that production has been doubled is a point of importance in reference to this debate. The reason is the extremely high price at the present time of wolfram, which today stands at £2,500 per ton, and which, at its peak last year, rose to over £3,000 per ton. The important point is that the doubling of the production of wolfram in the world today is solely due to that very high price. The position is that the greatly increased production has come from low-grade deposits in the United States which can only be made to pay when the selling price remains exceptionally high.

There is no prospect, therefore, that adequate world supplies will be maintained except by maintaining an extremely high selling price, and it follows that we must expect the high cost of importing wolfram to continue in this country. It is, therefore, of the utmost importance that the production of wolfram in this country should be encouraged in every way practicable, and there are on the Order Paper a number of Amendments designed to that end.

I hope the Government will pay close attention to these wider aspects of the matter. We have this highly speculative industry, demanding risks which are without parallel in any normal industial concern, and which, therefore, are without parallel in the justification for exceptional measures in dealing with them. What we want in this country is a pattern of taxation which will give more encouragement to capital investment in our mining industry, and I hope the Solicitor-General will pay close attention to that need.

The Solicitor-General (Sir Reginald Manningham-Buller)

I can assure my hon. Friend the Member for Cornwall, North (Sir H. Roper), that I have given the closest attention to his extremely interesting speech on wolfram, but I am still not clear from his speech as to which of the many Amendments, with which I am now called upon to deal, he was supporting and which he was not.

My hon. and learned Friend the Member for Kensington, South (Sir P. Spens), has put down a large number of Amendments, all drafted with the ingenuity that one would expect. I do not know whether he is a fisherman, but if he is, he is trying to get the fish to rise to a wide variety of bait, all of differing size. I am afraid I must disappoint him, because the Government are not able to accept any of the Amendments we are now discussing, because, in our belief, those Amendments constitute the wrong approach to the problem which he so clearly outlined and which the Government recognise.

We take the view that it is difficult to draw a line to show which particular industry is making the profits in consequence of re-armament. These profits may go right down the line, and we believe that the right approach is to make this levy of general application, and to give special reliefs where those reliefs are justified.

My hon. and learned Friend made some reference to the immediate reaction which he had received from Malaya in consequence of the Amendments that have been tabled. I venture to doubt whether the full effect of the extensive reliefs now proposed by my right hon. Friend has yet been appreciated, and I feel confident that, when they are fully understood, those people in Malaya and in Borneo to whom he particularly referred will recognise that due regard has been paid to their very difficult problem.

I should like to indicate quite shortly the special reliefs that are now proposed to be given to those engaged in winning metals and oil. It would be wrong of me at present to discuss in any detail Clause 47, under which an increase of the percentage allowance for new capital and for ploughed-back profits is made of three per cent. where the estimated life of the mine or well is between 30 and 60 years, and of six per cent. where the period does not exceed 30 years. These additional increased allowances are also given in respect of foreign borrowed money after deduction of the interest paid. That particular concession reflects our view that in that type of business a higher return than usual on the capital is regarded as necessary.

Then there is the proposed relief under a new Clause where the Treasury certify that increased output is essential in the national interest. In addition to that, there is the Clause proposing a 10 per cent. overriding maximum for overseas companies. These proposals will benefit not only companies engaged in Malaya and Borneo, but companies operating overseas and engaged in winning metals and oil. In addition, there is for those companies operating in enemy-occupied territory the choice of later standard years, which will make a very great deal of difference to them. I feel confident that, when the full extent and effect of these concessions, which are rather complicated, is appreciated, my hon. and learned Friend will feel satisfied that the case has been very well dealt with.

I would also say, in answer to him, that he referred to the Amendment in his name providing that if these particular concerns were exempted from E.P.L., they should revert to the old Profits Tax level. It would by no means follow that that reversion would always be to the financial advantage of the company concerned, for where their profits were just above the E.P.L. standard, by exemption from E.P.L. they would only get back a small amount of cash, whereas then they would have to pay the Profits Tax at the old rate of 50 per cent. for distribution and 10 per cent. for reserves, which would probably cost them a great deal more money.

In reply to my hon. Friend the Member for Bodmin (Mr. D. Marshall), the position of metalliferous mines is precisely the same as that of other mines, to which I have already referred, and they will get the same concession and special reliefs as are proposed in the later Clauses of this Bill in regard to mines. China clay does not at present come within the provisions of Clause 47. My hon. Friend made an argument in favour of the inclusion of this particular industry, which has played an important part in our export trade. I am not in a position to give him an answer "Yea" or "Nay" today. All I can say to him is that we shall, of course, give careful consideration to what he has said in respect of that important industry.