§ I now come to company taxation. In the Budget Speech last year I explained the reasons which led me to conclude that it would not then be right to make a further increase in Corporation Tax beyond the level to which my predecessor had raised it at the time of devaluation. This year, however, after a very buoyant rise in company profits, I cannot exclude companies from some further contribution. Company profits in 1968 rose by 10 per cent. I do not regret the rise in profits. I believe in a healthy level of company profits, properly applied. But I also believe that companies should make their fair contribution to our budgetary needs. And if this means a somewhat less buoyant Stock Exchange, I would not regret that either. There is undoubtedly a relationship between a Stock Exchange boom and the level of consumption.
§ I therefore propose to increase the rate of Corporation Tax by 2½ per cent. to 45 per cent. in respect of profits arising from 1st April, 1968. After taking account of the consequential reduction both in the cost of overspill relief and in the amount of Income Tax under Schedule F on company distributions, I expect the increase to yield £75 million in 1969–70 and £120 million in a full year.
§ At the new rate our Corporation Tax will be in no way out of line with the rates in force in the main trading nations of the world. The United States and Canada, Australia and New Zealand, France, Germany, Belgium and the Netherlands all charge tax at 45 per cent. or more on undistributed company profits. The increase does not therefore put our 1027 own companies at a disadvantage compared with their principal trading competitors. Equally, there is no reason why the increase should have a serious effect on the welcome rise which is taking place in the level of industrial investment and modernisation. The additional tax which I propose is small by comparison with the growth in gross company profits; by comparison with the amounts which companies as a whole distribute as dividends to their ordinary shareholders it is even smaller—only 7 per cent.
§ One of the points brought out in the Brookings Report on the British economy was that, although our investment ratio has historically been rather low by comparison with other industrial countries, company liquidity has been rather high. Additional force was given to the point by the experience of the last part of 1967 and the beginning of 1968. Liquidity was then very high, and investment low. The evidence is that factors other than the availability of retained profits are crucial to the determination of company investment. I believe that these other factors are favourable, and will remain so.