Clause 35.—(MINIMUM STANDARD PROFITS FOR A FULL YEAR.) (Hansard, 22 May 1952)

§ Mr. Boyd-Carpenter
I beg to move, in page 40, line 22, to leave out "two," and to insert "five."
The Amendment is linked with the subsequent similar Amendments in page 41, lines 4 and 21. Their combined effect is to carry out the change which my right hon. Friend announced on Tuesday night in respect of the minimum standard. The effect of the Amendments is to raise the minimum standard from £2,000 to £5,000.
The Committee might be interested in the effect, which, when taken into account with the changes regarding director-controlled companies, will relieve one-third of the companies which otherwise would have fallen under this tax. Briefly, the effect of the Amendment is to relieve the one-third group of the smallest companies. It will be of particular assistance to the small companies started by ex-Service men since the war, a considerable number of which are in this category of size. They will be relieved entirely of the tax. At the same time, the administrative burden of the tax on the Revenue, about which hon. Members have shown very proper concern, will be diminished by the very substantial reduction in the number of companies subjected to the tax.

§ Mr. Grimond
I wish to say a word about this because I think it is one of the most important Amendments the Chancellor has put down. As the Financial Secretary said, it is the Amendment which more than any other will relieve the Revenue staff from at least some of the tremendous burdens which will be put on them by this Bill and it will affect one-third of the companies affected by the levy.
Can the hon. Gentleman tell us the financial effect and what the loss will be as a result of this concession? I wonder whether he could also indicate why the Government have chosen this figure. My hon. Friends and I had suggested a higher figure because we felt there was a great case for relieving the tax authorities of some of the detailed work with regard to small companies and we felt that these companies, as the hon. Gentleman indicated, are those which one would particu- 782 larly wish to encourage. We should be grateful to know why five rather than 10, 20 or two was the chosen figure. It seems to us that, unless there are very substantial reasons, the Chancellor might consider raising the figure still further. If the hon. Gentleman could give more information as to the financial and the administrative effects, it would be of assistance to the Committee.

§ Mr. Crosland
I wish to reinforce what the hon. Member for Orkney and Shetland (Mr. Grimond) has said. I think it is probably the case that this is a good change and it will be generally welcomed on all sides of the Committee. but we ought to have a little more information why it was made. It was made only a month or so after the figure of £2,000 was put in and there must have been a reason for £2,000 and for the last-minute decision to change to £5,000. What was the logic behind the first figure and what is the logic behind the present figure?
I did not gather that the Financial Secretary was willing to commit himself at all as to the cost of this Amendment as distinct from the cost of the other new Amendments which the Government have tabled, but it would be interesting to know whether this is largely responsible or not for the total loss to the Revenue of £50 million or £60 million which the Chancellor apparently expects on the whole of these E.P.L. Amendments.
I do not think anyone is hostile in principle to raising the amount, but we ought to know what made the Government change their mind. Is it merely the fact of administrative convenience and the relieving of the Inland Revenue staff of this burden of one-third of the total of companies previously involved, or is it second thoughts which the Government had about the financial effects of the levy on these small companies?

§ Mr. Mitchison
Or was it because they found on the Order Paper an Amendment put down by some of their right hon. and hon. Friends suggesting £10,000 and—overcoming for once the Treasury's one well-known objection to prime numbers—that they split the difference, as they did over the Purchase Tax on boots and shoes? Is the real reason why they selected five instead of 10, or 20 simply that the machinery on the opposite side 783 of the Committee is that back benchers put down an Amendment, the Government take half, and the taxpayer suffers from the result?

§ Mr. Hugh Gaitskell (Leeds, South)
This is an extremely important Amendment, and I make no apology for troubling the Committee further about it. After all, if one is letting out one-third of the companies involved, one really must consider whether the reasons for so doing are adequate. I should like to supplement what my hon. Friends have said about the exact effects of this. I, too, would like to know how much this costs. I should also like to know, if the Financial Secretary can tell us, just how many companies—if he can give us the breakdown—were excluded altogether under the previous arrangement, how many more are excluded under this, and how many remain subject to the Excess Profits Levy.
I think we all agree that from an administrative point of view there are, of course, great advantages in this degree of simplification, and there is, indeed, all the more reason and need for that in view of the complications that have been introduced by other Amendments, however desirable from the point of view of equity they may be. But, here again, one has to balance one thing with another.
There is, as I say, undoubtedly a great administrative advantage, but are we quite sure that the letting out of these firms is going to be fair in so far as the remainder are concerned? The Financial Secretary may have seen some comments in "The Times" this morning—or the "Manchester Guardian," I forget which—regarding the effects of this concession on the whole difficult wage issue and on the attitude which trade unionists might take up towards these widespread concessions to small businesses when, at the same time, their members employed by the same businesses were being asked to restrain their demands for higher wages.
That does not mean that we support or are in any way enthusiastic about this whole Excess Profits Levy but it does, I think, lead to the conclusion that there is all the more case for increasing the Profits Tax as such to take the place of the Excess Profits Levy. It is, as I say, 784 hardly possible, without having an answer to the questions we have all put, to say just how significant the consequences of this Amendment will be.
I share the general view of hon. Members that we should assist the smaller companies if we can do so in equity and without adverse consequences, but before we allow the Amendment to go through, I hope that the Financial Secretary, now that he has received the message for which he was waiting, will be able to give us the information we want, which is no doubt contained in that message.

§ Mr. Boyd-Carpenter
The right hon. Gentleman did a very neat piece of timing with his speech for which I am obliged to him, and as a consequence of his courtesy I can return it by giving him the figures for which he asked. There are in all 200,000 companies, the vast majority of them very small. Under the original proposals between 35,000 and 45,000 were liable. The reduction which I propose will reduce the numbers liable to, substantially, 25,000. Those were the figures for which the right hon. Gentleman asked.
The hon. Member for Gloucestershire, South (Mr. Crosland) asked why £2,000 had been originally proposed. As the right hon. Member for Leeds, South (Mr. Gaitskell) will know, £2,000 is not only the Surtax but the Profits Tax limit, and it seemed proper in the first place to fix this tax at the same limit. After its publication and the discussions which took place, representations were made to us from many quarters to the effect that this tax might bear hardly on the type of company to which I referred in moving this Amendment—the small company, started very often by the ex-Service man after the war, making its way upwards. On consideration we thought it right to raise the figure and to exempt a good many of these by putting it at £5,000.
I am afraid I cannot give the separate figure for the cost of this concession. I think an hon. Member opposite anticipated that it might be difficult to make a break-down of the gross figure my right hon. Friend mentioned. As hon. Members will appreciate, each particular change has a reaction on each other change and, therefore, no really satisfactory figure can be given for the particular cost of each one.
785 The hon. Member for Orkney and Shetland (Mr. Grimond) indicated that he thought we might have gone even further. I understand that if one goes very much beyond £5,000 one gets into a zone where there are many companies of a fair degree of substance, and to go very much beyond £5,000 would have a very serious effect on the yield of this taxation. In all the circumstances, we thought that £5,000 was about the right figure.

§ Sir WaveII Wakefield (St. Marylebone)
I am on the executive committee of the National Union of Manufacturers, a body composed of small and medium firms. My information and my experience on that committee show that these small firms deeply appreciate what the Chancellor has done. I should like to tell hon. Members opposite that many of these small firms are having a hard time now because of the restriction of bank credits, the falling value of money and the desire to increase production. This help which the Chancellor is giving will undoubtedly assist in maintaining employment which all hon. Members opposite desire just as much as we do.
Of all the steps the Chancellor has taken in his Budget to try to undo some of the ill effects of this taxation, this action of his is probably one which will be found most beneficial to employment and to production in this country. As much of our production, and indeed of our export trade in the future, depends on a flourishing condition in these small businesses, I should like to say how much this step is appreciated by small firms and to congratulate the Chancellor on the action he has taken.