HC Deb 22 May 1952 vol 501 cc800-8
Mr. Boyd-Carpenter

I beg to move, in page 43, line 37, at the beginning, to insert: Subject to the provisions of this section. This is a paving Amendment for the one in the name of my right hon. Friend to page 44, line 13, at the top of page 1431, which inserts a new subsection (2).

Amendment agreed to.

Mr. Boyd-Carpenter

I beg to move, in page 43, line 41, to leave out "eighteen," and to insert "fifteen."

Perhaps the Committee will be prepared to take with this Amendment the next three Amendments in the name of my right hon. Friend. Each has a rather remarkable mixture of names attached to it, which is a clear indication that great minds think alike. The Amendments are all designed to decrease the overriding maximum provision from 18 to 15 per cent. As the Committee will be aware, that provision prevents the tax working hardship in extreme cases. The type of case with which it is designed to deal is that of the company which has made a really remarkable expansion over the last few years.

For obvious reasons, I do not want to mention specific companies, but there are some which will be in the minds of many hon. Members that have made great expansion in the last few years. In their case, to leave the companies with just the 30 per cent. rate might result in remarkable hardship since the tax would be very heavy. Therefore, the over-riding maximum provision was inserted in the first place at 18 per cent., but consideration of certain figures, and of the position of one or two companies, has made us feel that it would be wiser to reduce this to 15 per cent. in order to make quite sure that progressive and successful companies should not be penalised. This is one of the changes to which my right hon. Friend referred when he spoke on Tuesday night, and it is part of the general body of Amendments which we have been discussing during the last few hours.

Mr. Blackburn

Will that additional help be given to those industries closed during the war because of the concentration of industry?

Mr. Boyd-Carpenter

This was one suggestion as to how they might be assisted, together with two or three others to which I referred earlier, when I think the hon. Gentleman spoke.

Mr. E. Fletcher

Can the hon. Gentleman tell the Committee what would be the cost to the Revenue of this Amendment?

Mr. Boyd-Carpenter

As I indicated on an earlier Amendment, it is not possible to break down the gross figure which my right hon. Friend gave on Tuesday night. As the hon. Gentleman will appreciate, one variation itself varies the effect of another. I explained earlier that I could not break down the gross figures separately.

10.30 p.m.

Mr. Roy Jenkins

The Financial Secretary said something about the general concept of an over-riding limit. I should like to follow that up. It is an odd provision in an Excess Profits Levy that one should have an over-riding limit of 18 per cent., as it was, and 15 per cent. as it will be if this Amendment is accepted. It is another example of the impossible position which arises when a tax is put on excess profits.

An over-riding limit makes the tax less severe on those people who make more excess profits. If one is against excess profits and thinks that there must be some penalty upon them, it is very curious to find that the bigger the excess profits the less the rate of tax will be. The Chancellor, when we were debating Clause 31, became most eloquent about merchants of death, but the extraordinary position with an over-riding limit is that if one is a fairly successful merchant of death one has 30 per cent. of the profits taken away, but if one is a highly successful merchant of death one has less taken away.

I can well understand that in a rapidly expanding business there are great difficulties about taking 30 per cent. of the excess profits, and that some provision such as this has to be included to prevent hardship. But the whole matter brings out the contradiction between what the Chancellor is trying to do by the concept of an Excess Profits Levy and the concessions which he is now giving to try to make it a little bit more workable.

There is a further difficulty inherent in the nature of the Levy. Companies generally are given an incentive to plough back profits by having their standard increased by 12 per cent. of any money so ploughed back. But a company which has expanded rapidly so that its taxation, when it is liable to tax, is determined not in relation to its chargeable profits and its standard profits but in relation to the 15 per cent. over-riding maximum, loses the incentive to plough back profits which is given to companies which are not expanding so quickly. One would have thought that it was the rapidly expanding companies who one most wanted to encourage to plough back profits.

It is a contradictory situation. I am not against the provision of this overriding limit, but the fact that we have to have it brings out all sorts of contradictions which are inherent in this nonsensical Levy.

Mr. Grimond

I was one of the original ingredients of the rather curious shandygaff which is now supporting this Amendment, and I may, therefore, be allowed to welcome the large and amiable cuckoo who has joined us and to say how glad we are to see him among us. We felt that the original maximum of 18 per cent. would bear very hardly on certain expanding companies and that it ought to be reduced.

I do not know whether the figure 15 will satisfy the rather fastidious mind of the hon. and learned Member for Kettering (Mr. Mitchison). At any rate, it is an acceptable figure to us. We certainly think it a very great improvement on 18. As has been mentioned, there are very strange results which can be seen in some of the figures which companies have prepared as a forecast of the effects of this levy. I have little doubt that this is an Amendment which is acceptable to most companies, and especially to expanding companies about which the Committee must be concerned.

Mr. Nabarro

This Amendment disposes very satisfactorily, by providing an alternative standard, of one of the gravest anomalies that existed in the war years with the Excess Profits Tax. A company engaged in important work, generally in connection with armaments, could expand its turnover many times in the course of the war years, while retaining only a small capital in the business. That company would find at the end of the war that something above 90 per cent. of all the profits earned had been paid to the Treasury and that there were no reserves of any description available for post-war business.

That was the position in a large number of companies. This alternative standard, for which the hon. Member for Stechford (Mr. Roy Jenkins) could not understand the reason, disposes of that grave anomaly which was recognised on all sides in the operation of the Excess Profits Tax during the war years.

Mr. Jenkins

I certainly understand the reason for this alternative standard. I was merely pointing out that the fact that we have this alternative standard does indicate the great number of contradictory factors in relation to this tax.

Mr. Nabarro

I am sure I did not misunderstand the hon. Gentleman at the beginning of his speech, when he criticised the alternative standard in itself. I think that the two Amendments which the Chancellor has made in the later stages of this Finance Bill are of great importance to the medium and small manufacturer. The first was the raising of the minimum standard, which we discussed in an earlier Clause, and this one is of even greater importance, because there are undoubtedly thousands of medium and small companies in the United Kingdom which have been steadily building up during the course of the last few years and which have, not fortuitously but by efficient and sound trading—particularly in export markets—succeeded in expanding their profits very substantially. They are the very companies which will benefit by this alternative standard, and they will be encouraged to go on expanding, which is precisely what this alternative standard seeks to achieve.

Mr. Crosland

I am sorry to say that my hon. Friend the Member for Stechford (Mr. Roy Jenkins) has fallen into rather serious error on this Clause. After a consistent record in the Committee stage debate, it is sad that at this late stage he should have sunk below his usual level and failed to see the logic of this overriding limit. Like the hon. Member for Kidderminster (Mr. Nabarro), I think that this is one of the most important concessions which the Chancellor has made, because it does go some way to weaken the main objection to this tax, which has been raised so strongly on both sides of the Committee.

If one considers this matter a little more seriously than the hon. Member for Stechford has done, one realises that we cannot have an excess profits tax of any kind without an over-riding limit. To take the case—which is not so uncommon—where chargeable profits exceed standard profits by some very large amount, without an over-riding limit, the weight of excess profits tax would be unbearable. Therefore, it is logical, if one is to have an excess profits levy, that the tax should be levied at this point at 30 per cent. and beyond it at 15 per cent.

So far from being illogical, it seems to me to be sensible and essential that excess profits should be taxed at a lower rate the higher they are. The reason why that is sensible and logical and wholly desirable is the reason which has been advanced from these and the benches opposite, throughout this Finance Bill. What we disliked about this tax was the way it fell so heavily on additional profits over a standard period. If one accepts that criticism, it is clearly essential to have some system whereby the higher the profits over a certain standard period the less heavily they are taxed.

I welcome this concession, and I agree with the hon. Member for Kidderminster that it is one of the most important concessions the Chancellor has made. It is quite a substantial improvement in the Bill.

Mr. Roy Jenkins

I am extremely sorry that my hon. Friend—who has told the Committee on a number of occasions how early he has been getting up and how long he has been staying up to study this Bill in great detail—should have got befogged by all this detail and missed a rather obvious general point, which is that if one is in favour of taxing excess profits, the bigger the excess the more one should be in favour of taxing it. I think this levy is such nonsense that the Chancellor is bound to bring in some provision of this sort to prevent doing immense harm. On the Chancellor's own showing—as somebody who believes in a levy of this sort—it is nonsense to say that small excess profits should be taxed at 30 per cent. and that big excess profits should be taxed at less than 30 per cent.

Mr. Gaitskell

In view of this apparent disagreement on our side of the Committee, I should explain, in case there is any misunderstanding, that there is no split in the Labour Party, and that both my hon. Friends are right. It all depends on the way one looks at it. If one is looking at it from the point of view of the "merchants of death," it is quite clear that, according to the ceiling arrangements, the larger the profit the lower is the rate of Excess Profits Tax. That certainly seems paradoxical. That, I understood, was the point of my hon. Friend the Member for Stechford (Mr. Roy Jenkins).

But, if one looks at it from the point of view of my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) and is as concerned as he is with the devastating effect of this tax on incentives, it is a relief to have anything which puts an end to the disincentive effect of that tax. Both are primarily right, and it only goes to show what a terrible thing the Excess Profits Levy is.

Sir E. Boyle

In view of the fact that the two hon. Gentlemen opposite are right, would it not save the time of the Committee if they made their speeches simultaneously?

Amendment agreed to.

Further amendments made: In page 43, line 45, leave out "eighteen," and insert "fifteen."

In page 44, line 4, leave out "eighteen," and insert "fifteen."

In line 11, leave out "eighteen," and insert "fifteen."—[Mr. Boyd-Carpenter.]

Mr. Boyd-Carpenter

I beg to move, in page 44, line 13, at the end, to insert: (2) In relation to a body corporate ordinarily resident in the United Kingdom which, throughout all its chargeable accounting periods, carries on the whole, or substantially the whole, of its trade or business through a permanent establishment situated in territory outside the United Kingdom the preceding subsection shall have effect as if the references to fifteen per cent. were references to ten per cent. This is a further Amendment which provides that the over-riding maximum in the case of foreign companies operating mainly overseas shall be 10 per cent. It is confined to those companies which are, to all intents and purposes, operating completely overseas, and which must have a permanent establishment abroad to qualify for the lower figure. The reasons for the change were outlined by my right hon. Friend the Chancellor during his speech on Tuesday night. It is designed to deal with the special difficulties of companies operating abroad, and my right hon. Friend made clear the reasons he thought they were entitled to the lower figure, and the considerations he put forward then were fairly clear and generally appreciated by the Committee.

Mr. Gordon Walker (Smethwick)

It seems to me that this Amendment goes a little wide. It is a considerable concession in itself, and it seems that some of these companies may come within the framework and terms of that ill-starred sentence written into the Conservative manifesto about companies making fortuitous profits directly out of armaments. We would wholly support this in so far as it includes companies operating in the Commonwealth, including the Colonies, because it is vital to build up our capital and resources there.

Would the Chancellor consider limiting this. Amendment to companies in the Commonwealth and Colonies and, within that, to limit it to those concerned with the production of primary products? That would be a proper discriminatory use of taxation, and it would fit in with the great objectives we have to build up resources, particularly dollar earners, in the Commonwealth. It would fit in with the communiqu é issued by the Finance Ministers of the Commonwealth when they met, and it might be good use of what we think is a bad tax. Could the Chancellor consider limiting it to companies operating within the Commonwealth and to those concerned with primary goods and products.

10.45 p.m.

Mr. E. Fletcher

I hope that the Financial Secretary will be good enough to explain to us what is the significance of the words "a permanent establishment." As far as I know, these words are an innovation in the language of the Finance Acts, and I think that it would help the Committee if the Financial Secretary would tell us what he thinks is meant by these words. Are they meant to indicate a branch or an office? Can he tell us whether they are intended to add anything to the meaning of the Clause? I should have thought myself that the Clause would have been equally valid and equally effective if the words "through a permanent establishment" had been omitted. Are they intended to be of a limiting nature? If so, how? Can the hon. Gentleman give us any indication?

Mr. Boyd-Carpenter

Yes, the words "a permanent establishment" derive from double taxation practice. They are designed to ensure that the advantage of this concession is not obtained by a company whose headquarters are in this country simply because it exports goods abroad. It must have an office, a branch, or a productive unit—some definite physical establishment—abroad in order to qualify. They are, of course, as the hon. Gentleman appreciates, limiting words; otherwise it would be very difficult to get a satisfactory definition, and it would be quite likely that companies whose main activities are really in this country but conduct substantial export business would get the benefit of the concession. A permanent establishment is some fairly easily identifiable object, and it does make it possible to have a fairly clear line of demarcation.

In response to the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker), I would say that, of course, the points he brought forward were very carefully considered. He will appreciate that to discriminate between overseas territories may well, particularly in certain countries, involve considerable international difficulties, and we think it wiser to make it a general overseas provision.

Sir Ian Fraser (Morecambe and Lonsdale)

Can my hon. Friend tell me whether a company in London owning a subsidiary company, which has permanent premises abroad that acts for it and thereby gives it a standing in the country in which its trade is done, would qualify as a company having a permanent office abroad?

Mr. Boyd-Carpenter

As my hon. Friend is aware, I am sure, there are separate provisions in the Bill dealing with overseas subsidiaries.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 38 ordered to stand part of the Bill.