§ (1) If the Treasury certify that an increase in output of any metal, or of oil or asbestos, over output at the normal rate is essential in the national interest, a body corporate whose trade or business consists of or includes the mining of the metal, the getting of oil from oil wells or the extraction of asbestos from natural deposits may, by notice in writing given to the 1246 Commissioners within twelve months from the end of its first chargeable accounting period, or within such longer period as the Commissioners may in their discretion allow, elect that its profits shall be computed, for the purposes of the excess profits levy, in accordance with the following provisions of this section, and those provisions shall have effect accordingly unless the certificate is revoked.
§ (2) If in any chargeable accounting period the profits of the body corporate include profits attributable to the output of metal, oil or asbestos in excess of the output at the normal rate as defined in the next two following subsections (in this section referred to as "additional output"), a deduction shall be allowed equal to an amount representing profit at the normal rate on so much of the additional output as was achieved within the chargeable accounting period.
§ (3) Where a body corporate's standard profits for a full year fall to be calculated by reference to its profits during the standard years, its output of the metal, oil or asbestos at the normal rate shall be taken to be its output thereof during the standard years, reduced so as to bear to the whole of that output the same proportion as the length of the chargeable accounting period bears to two years less so much, if any, of the first of the standard years as preceded the commencement of the body corporate's trade or business:
§ Provided that where, by virtue of an election under paragraph (a) of subsection (4) of section thirty-three of this Act, the amount mentioned in that paragraph is treated as its profits for the year specified in the election, its output in that year shall be taken to have been an output profit on which at the normal rate would be equal to that amount.
§ (4) Where the body corporate's standard profits for a full year fall to be calculated otherwise than by reference to its profits during the standard years, its output at the normal rate of the metal, oil or asbestos shall be taken to be an output profit on which at the normal rate would be equal to its standard profits, calculated without regard to any undistributed profits or over-distribution of profits and without regard to any sums received or paid in cash by the body corporate after the date specified in the next following subsection in respect of any issue of its share capital or as the case may be, by way of repayment of any of its share capital.
§ (5) The date referred to in the last preceding subsection is—
- (a) where the body corporate's trade or business commenced on or before the first day of January, nineteen hundred and forty-seven, at the election of the body corporate, the end of the year nineteen hundred and forty-six or the end of the year nineteen hundred and fifty-one;
- (b) in any other case the date falling twelve months after the commencement of its trade or business,
§ (6) Where the body corporate's trade or business includes, but does not consist wholly of, the mining of the metal, the getting of the oil or the extraction of the asbestos, as the case may be, its output, or output at the normal rate, of the metal, oil or asbestos as calculated under the proviso to subsection (3) or under subsection (4) of this section shall be reduced to such extent as may be just having regard to the extent to which its trade or business consists in the said mining, getting or extraction.
§ (7) Whether or not the profits of the body corporate include profits attributable to additional output, they shall be computed as if section twenty-two of the Finance Act, 1949, section three hundred and ten of the Income Tax Act, 1952, and section eighteen of this Act had not been passed.
§ (8) The Treasury may by statutory instrument make regulations for carrying this section into effect, and those regulations may in particular lay down rules to be followed (subject to the preceding provisions of this section) in determining for the purposes of this section the question whether there is any, and if so what, additional output achieved in any period, and the question what amount is to be taken to represent profit at the normal rate of any output.
§ Any statutory instrument made under this section shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.
§ (9) This section does not apply in relation to any chargeable accounting period for which an election under section thirty-five of this Act has effect as respects the body corporate.—[The Solicitor-General.]
§ Brought up, and read the First time.
§ The Solicitor-GeneralI beg to move, "That the Clause be read a Second time."
The Clause is intended to provide wholly exceptional relief. It is at present confined to metal mines, oil and asbestos concerns, and in those cases, if the Treasury certify that the increase of output over the output at the normal rate is essential in the national interests the concern can take advantage of the provisions of the Clause.
The certificate has to be given when the Treasury are satisfied that the increase of output is in the national interest, and not only an output from wasting assets. In certain industries it is vitally urgent in relation to our rearmament programme that there should be an increase above the normal output. The Clause applies not only to mining overseas, such as Rhodesian copper, but also to Cornish tin mines.
1248 Having regard to what is in the national interest, regard must also be had to the extraction which assists in our balance of payments position. I would emphasise that to come within the Clause it is not sufficient just to show that a bigger profit is made. It must be shown that a future profit has been anticipated in the national interest and a future profit realised in a period which is subject to E.P.L.
I suggest that the Clause gives generous and exceptional relief. I should like to give an example to show how it works. Let us take a mining company whose normal output is 1,000 tons and normal profit is £50 a ton. Let us assume that it increases its output during the E.P.L. chargeable year to 1,200 tons and earns a profit during that period of £70 a ton. Thus, its excess profits are £34,000; that is, 1,200 tons at £70 a ton less 1,000 tons at £50 a ton. We can split that excess profit into the excess attributable to the increase in price, that is, 1,200 tons at £20 a ton, which equals £24,000, and the excess attributable to increase in output, which is 200 tons at £50 a ton, which equals £10,000.
In the appropriate cases, that £10,000 will be excluded from the profits of the company as being an anticipation of future profits. The other figure of £24,000 is an ordinary excess profit and is properly chargeable to Excess Profits Levy. That gives an indication of the manner in which the Clause is intended to operate and will operate. I would only add that when we discussed Clause 47 there was considerable discussion about the scope of the Clause.
For the reasons I have indicated sufficiently already, any claim for benefit under this Clause in relation to increased output would have to be proved up to the hilt. It does not apply automatically to metal, oil or asbestos. A certificate from the Treasury has to be obtained. It might save time, however, if I said that my right hon. Friend will give most careful consideration to any other cases that may be put forward between now and the Report stage as to whether or not there should not be some extension of the scope of this Clause while retaining the powers of the Treasury to grant or withhold a certificate.
I do not propose to deal with the question of sand ballast or specific extractive industries. I merely say that if 1249 my hon. Friends and others put forward arguments for coming within the scope of this Clause, I give the assurance, without any commitment, that arguments which may be put forward later will be seriously considered.
§ Mr. CroslandWe on this side of the Committee welcome this new Clause in general terms, because we think it is almost impossible to imagine that too many concessions can be made to genuine producers of scarce raw materials. I would put this on a much wider ground than did the Solicitor-General. It is not a question only of re-armament. There are many more far-reaching questions involved.
There is the question of whether the sterling area can ever pay its way, and there is the question of whether or not the world will be able to continue to sustain its likely increase in industrial output unless there is a much larger expansion of raw material output than is likely to be the case on present trends. So that our general attitude is in favour of concessions which will aid these raw material producers, particularly those within the sterling area.
The scale of the concession is a generous one. I believe I am correct in saying that there was a similar concession to metal mining and oil companies in E.P.T., but this goes a good deal beyond that. The way in which it goes beyond is worth a comment, namely, that the element in the profits of those companies which is due to an increase in output since the standard period, and is certified to be in the national interest, and which can therefore be offset against E.P.L., is not added to the standard profit but is deducted from the chargeable profits. This is different from the E.P.T. system.
In the case of many companies this charge compared with E.P.T. will not make any difference to their E.P.L. liability, but the fact that it is done in this way, and not by adding it to the standard profits, will make a difference to the E.P.L. liability in the case of all those companies which come within the over-riding maximum payment of 10 per cent. Therefore, a particularly generous method has been found in making this concession. I do not particularly object 1250 to that, but I want to raise one or two of the complications of this concession.
It is extremely hard to see how it will work out in some cases. The Solicitor-General gave a quantitative example which it was perfectly simple to follow. However, he left out all the difficult part of the calculation because he already assumed the normal profit and normal rate of output, whereas the difficulty lies in determining what is a normal profit and a normal rate of output in the first place.
8.15 p.m.
The whole concept of normal profits seems to me to be difficult and I hope that some explanation will be given from the Government Front Bench of what is in mind when this phrase is used. What are normal profits? There is no simple criterion of what is a normal and what is an abnormal profit. I daresay hon. Members opposite and hon. Members on this side would give different definitions of what constituted a normal profit. If it is difficult in the case of an ordinary industrial company, I should have thought it was almost impossible in the case of a raw material producing company. If one considers the fluctuations in raw material prices that happen over every decade, it is hard to speak of a normal profit.
What is the normal profit of a copper company? Is it the profit when the copper price is what it is today, what it was three years ago or what was it before the war? I should like some guidance from the Solicitor-General as to what sort of consideration will be in the minds of the Treasury when they come to define, as they will have to under Statutory Regulation, what constitutes a normal profit.
That is the first general complication. Allowing for that, it is tolerably easy to work out how this Clause will operate so far as subsection (3) is concerned; that is to say, where standard profits are calculated as the profits of any two or three of the standard years. But where the body corporate elects to have its standard profits assessed on the net assets standard, and therefore comes under subsection (4) of this new Clause, it seems to be extremely complicated and difficult to work out how it will be effective.
I want to take one imaginary example which probably covers a good many of 1251 these companies. I am concerned with companies who are choosing the net assets standard and are therefore covered by subsection (4). Take the case of a company which, between the end of 1949 and the end of 1951 greatly expanded its net assets, as many of these raw material producing and oil companies did. In particular, the oil companies were investing heavily during this period and were encouraged by the then Government to do so. Companies in this position will choose to be assessed on their net assets at the end of 1951. What will be the position of such a company? How is its liability for E.P.L. to be decided? In particular how is its normal rate of output to be decided?
First we have to decide what is its standard profit—8 per cent. on the net assets at the end of 1951. We then have to decide what is considered to be a normal profit on the ton of copper, barrel or oil, or whatever it may be. We then have to calculate the number of tons or barrels on which a normal profit would give a total profit equal to the standard profit, which we assume is already known to the Treasury, and that number of tons or barrels constitutes a normal rate of output. That is just comprehensible. One can just seize that and have some rough idea of how it will work in the ordinary case. But in the case of which I have been talking, where there was a large growth in net assets from end 1949 to end 1951, what will be the consequences of this calculation?
I maintain that the calculation in that case will give a normal rate of output as defined under this Clause far in excess of the company's actual output during the standard years. I do not want to give this calculation in the form of figures, because I do not think the hon. Member for Croydon, East (Sir H. Williams), would begin to understand it if I did.
§ Sir H. WilliamsThe hon. Member might try.
§ Mr. CroslandOn the whole I would rather not take the risk, so I will eschew figures and, because I think it is slightly more simple, use one or two signs. Suppose an output of X, on which the normal profits per ton come to a figure of total profits which we will call Y. That is simple. Suppose, also, a figure of net 1252 assets at end-51, which we call Z, 8 per cent.—[interruption.] It comes out all right in the end—which gives total profits also equal to Y. Then the standard profit is equal to the normal profit on the normal rate of output.
All I am saying is that there is some figure of capital employed in business at end-51, and some figure of normal profit on normal rate of output, which will both give rise to the same total level of profits. It is not actually a very peculiar case. It must be quite common. In this case, the standard profit is equal to the total normal profit, as defined in the proposed new Clause.
That being so, the normal rate of output is the output which I originally called X, and that rate of output in this case could be the same as was actually achieved at end-51. The normal rate of output under the proposed new Clause is the same in this case as the actual rate of output at the end of 1951. The point is perfectly simple. In the case of a company which invested heavily during the years 1949–50–51, their end-51 output would surely be greatly in excess of their actual output during the standard period 1947–48–49. That seems a perfectly likely case to consider, in which the normal rate of output as defined in this Clause exceeds the actual rate of output during the years 1947–49.
In this case the concession is very much less than it might seem, because it depends upon having the largest possible gap between the normal output and the rate of output achieved during the chargeable period; but when the normal rate of output is in fact very much higher than the actual rate of output during the standard period, the concession means a good deal less to these companies than one might otherwise suppose, because the concession depends upon the gap between the normal output and the actual output during the chargeable period.
I do not know whether there is an answer to this. I imagine that the answer that the Solicitor-General will give is that the company in this case had had a great increase in its net assets between end-49 and end-51, and, finding itself rather unfavourably placed from the point of view of the definition of the normal rate of output, it would, by definition, find itself very favourably placed from the point of 1253 view of the net assets standard. The 8 per cent. will be computed on the net assets at the end of 1951, although they were greatly swollen in the previous years. We might suppose that those two factors would cancel each other out.
I do not ask for a detailed answer tonight as I have only taken this case as an illustration. I suggest, with great respect, that it is the sort of case that must be quite common. There must be a considerable number of companies for which the value of the various items will be the same as the X Y Z which I have taken in this instance. It is an important point.
In conclusion, let me refer to my main point. Although the proposed new Clause will command general welcome in the Committee, we should like to be assured of the sort of consideration which will operate when the Treasury come to the definition of normal profit. They have a phrase here which no two people would define alike. It is extremely hard for us to decide what the precise effects of the proposed new Clause will be unless we are given some insight into the Government's attitude on the subject of normal profit.
§ Mr. NabarroI hope I may be forgiven if I do not attempt to follow the hon. Member for Gloucestershire, South (Mr. Crosland) in his abstruse and most instructive harmonical progression. Although I think we agree in all parts of the Committee that the proposed new Clause is admirable in principle, it will undoubtedly lead to considerable complexity in actual operation, in view of the number of variables involved, such as the value of the raw materials three years ago, their value in the chargeable accounting period, the cost of operation in these respective periods, and the assessment of the profits made.
I rise to draw attention to one specific omission in the list of materials covered in the proposed new Clause. There is no reference in it to coal. Although the bulk of the coal industry in the United Kingdom is nationalised, quite a large number of small pits are licensed for private operation. One that springs to my mind immediately is Brora, a well-known pit in Sutherland which, although it is only small, has I believe, the largest output per man year of any pit in the United Kingdom. There are several of 1254 these licensed pits in the Midlands. Surely coal is the most important single raw material we have in this country.
It is a wasting asset, and I should have thought it would have been made subject to the provisions of this Clause. In view of the statement made by the Solicitor-General that between this stage and the Report stage of the Bill he will consider extensions in certain circumstances, I wonder whether the Treasury might give consideration to the small licensed coal mines in this country.
Complementary to them—although I cannot give a specific example, for obvious reasons—there are, I believe, quite a number of coal mining companies in the Dominions and Colonies which are controlled from head offices in London, and the bulk of the share capital of which is subscribed from the United Kingdom and is actually held by United Kingdom residents. I should have thought that the provisions of this Clause would apply to those coal mining companies as a complementary measure to the small licensed pits in the United Kingdom. I hope that the Chancellor will give consideration to this raw material between now and the Report stage.
§ Sir H. WilliamsI do not want to speak at any great length, particularly as I see I have lost my mathematical opponent the hon. Member for Gloucestershire, South (Mr. Crosland) with his X Y Z. As my Amendments are not likely to be called, I missed the first few minutes of the Solicitor-General's speech. I understand that he indicated that something more might be said on this subject when we reach the Report stage. I hope that it will be something comforting.
I know that my proposals are incomplete. The words "oil, metal and asbestos" appear so frequently that I was not able to spot them every time. I hope that when we get to the later stage consideration will be given to the very large extractive industry, wtih which I have an indirect connection. I said yesterday most of what I want to say, so I will not repeat it now.
§ Mr. GaitskellOne thing we can all agree about in the proposed new Clause is its great complexity. I found it complex before my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) began to speak about it.
§ Sir H. WilliamsHe has gone to dinner.
§ Mr. GaitskellHe deserves it. I find arithmetic easier than algebra. I began with arithmetic and went on to algebra, but I could have wished that the examples of my hon. Friend had been in arithmetical form. I have some sympathy with the Solicitor-General in giving any kind of answer to the extremely complex points that have been put to him.
While drawing attention to that matter and to the great and distinct improvement in the administration of the Excess Profits Levy, one cannot but point out that that is the sort of difficulty we are bound to get into as soon as we try to do reasonable justice and prevent the ill effects of the Excess Profits Levy coming into action.
The position of the Treasury under this new Clause is extraordinarily difficult. They have a very remarkable degree of authority for deciding whether an increase in output is in the national interest, what a normal profit should be and so on. I confess that I do not envy the job of the official who will have to do this. However, I suppose that in the circumstances it is better to try it than to do nothing at all.
8.30 p.m.
That brings me to the other point that I want to mention, relating to the scope of the Clause. My hon. Friend said quite rightly that the case for dealing with mining companies generally did not rest on re-armament alone, but there can be wider grounds. Equally, I will once again say it is ridiculous to limit the benefits of this Clause to three products, oil, metals and now we have asbestos thrown in for some obscure reason. Why asbestos came in here and not at an earlier stage I do not know.
I understood from the Solicitor-General that the whole matter was to be looked at again. I should like him to give us an assurance that it is not a matter of saying, "Well, shall we add two or three other things to the list to see if it looks a bit better." We ask the Chancellor to consider whether it would not be possible to cover the problem we have in mind by a general phrase, and, if necessary, to set up an administration to deal with it. After all, the Treasury will have to face a difficult problem under the Clause 1256 already, and I would have thought that adding another problem, namely, whether a particular type of mineral extraction came under the Clause, would not add greatly to their difficulties.
If only we could get some general phraseology so that those concerned could apply to the Treasury it would meet the wishes of the majority of the Members of the Committee. I hope, therefore, that the assurance that the Solicitor-General has given is not limited in this way to looking at one or two other possible cases, but that the Chancellor will consider if it is not possible to cover the matter in the way that I have suggested.
§ The Solicitor-GeneralThe object of this Clause seems to have met with approval from every quarter, but its interpretation has given rise to alarm owing to its very complex character. One must admit that it is extremely complicated, and I am not going to attempt —what I know I am unequal to—to deal with the very difficult algebraic problem that the hon. Member for Gloucestershire, South (Mr. Crosland) put to me. All I can say in his absence is that I hope that what he said has been recorded correctly, so that we can ponder it at our leisure and see whether his arguments as to that particular hypothetical company are well founded.
In moving the Second Reading of this new Clause I did not seek to restrict the meaning of national interest as solely in relation to the re-armament programme. I gave that as one instance on which we could act in view of the necessity for an increased output for that programme. I also made some reference to the overseas position and to the balance of payments problem. All these matters have to have consideration given to them.
The right hon. Gentleman has asked me certain questions about a statement I made as to other industries. My hon. Friend the Member for Kidderminster (Mr. Nabarro) raised the question of coal and my hon. Friend the Member for Croydon, East (Sir H. Williams) that of sand and ballast.
What I said is general in character. I am not committing myself any further than to say, as I have already said, that we are looking, and will look, into the position as a whole in relation to other industries. What change will be made, 1257 I cannot predict. I cannot give any assurance as to whether any change will be made. All I am saying is that we shall look at the whole problem and that there may be one or more alternative ways that might be adopted.
I cannot go further than that tonight, except to say, as, I think, one must say, that this is a wholly exceptional kind of relief and that the case for applying it to the other industries requires to be very clearly established. We shall go into all that, and we shall, no doubt, have an opportunity of discussing this matter further if what we decide to do does not meet, although I hope that it will, with universal approval.
§ Clause read a Second time, and added to the Bill.