Sitting of 3 July 1917

Preamble
The House met at a Quarter before Three of the clock, Mr. SPEAKER in the Chair.

PRIVATE BUSINESS.
Bedwas and Machen Urban District Council Bill [Lords],
Caerphilly Urban District Council Bill [Lords],
Reported, with Amendments; Reports to lie upon the Table, and to be printed.

FOREIGN JURISDICTION ACT, 1890.
Copy presented of Order in Council, dated 30th March, 1917, entitled the China (War Powers) Order in Council, 1917 [by Act]; to lie upon the Table.
ARMY.
Copy presented of Instructions issued by the Army Council in connection with the Military Service (Review of Exceptions) Act, 1917 [by Command]; to lie upon the Table.
ORAL ANSWERS TO QUESTIONS.
  WAR.

    CONVALESCENT OFFICERS.
    Mr. DENMANasked the Under-secretary of State for War whether he is aware that compulsory residence in the Great Central Hotel in many cases adds unnecessary unpleasantness to the process of convalescence; and whether, in appropriate cases, convalescent officers will be allowed to stay with responsible relatives or friends?
    The UNDER-SECRETARY of STATE for WAR (Mr. Macpherson): This hospital is going to be used as a primary, and not as a convalescent, hospital.
    Mr. KING: Will it be used for officers?
    Mr. MACPHERSON: Yes.
    Mr. KING: For officers only?
    Sir C. HENRY: When does that change come into force?
    Mr. MACPHERSON: I believe at once.

    NURSES (MILITARY HOSPITALS ABROAD).
    Colonel YATEasked the Under-secretary of State for War whether, with a view to enabling nurses in military hospitals abroad to devote themselves entirely to the work for which they have been specially trained, arrangements can be made to free such nurses from non-nursing duties by the substitution of voluntary helpers to undertake the unskilled work that has now to be done by trained nurses?
    Mr. MACPHERSON: This question is already under consideration, and has been referred to the authorities in France. The only nurses not employed on strictly nursing duties are the Home Sisters, and they frequently have to nurse sick sisters.

    MILITARY SERVICE.

      REVIEW OF EXCEPTIONS.
      Mr. KINGasked the Under-Secretary of State for War whether, seeing that at a public meeting at Liverpool on 26th June he gave a card to a man to exempt him from further medical examination under the Military Service (Review of Exceptions) Act, he will say whether his own personal card or note has any legal effect in excluding a man from his liability under an Act of Parliament; and, if so, under what authority, or to what extent, does he propose to exercise this power?
      Mr. MACPHERSON: I was asked by a sergeant who said he had fought at Ypres and had been discharged in August, 1916, on account of illness and was called up for re-examination on the following morning how he stood under the concession which I had publicly announced in this House. I assured myself of the fact that he was discharged through illness after service abroad. He asked me if 1 would certify that the exception—not the exemption as my hon. Friend calls it—applied to him. I not only certified this

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      but told him, having previously explained to the meeting that in such cases all that was necessary was to send back the Statutory form endorsed, that it was not necessary for him to leave his work in the morning to appear for re-examination. I did this as the pledge was given by myself, and I was and am, so far as I can, determined to see that that pledge is kept.

      CASE UNDER INVESTIGATION.
      Sir WILLIAM BYLESasked the Under-Secretary of State for War whether he is aware that Private T. Yates, No. 1045, Hut 33, Camp 7, D Company, 57 I.K.B., at Kimnel Park, is not in civil life as the Ministry of Pension thinks, having written to him as a civilian at his home address; whether a man who responded instantly to Lord Kitchener's appeal for old soldiers for twelve months' active service, and served in France for eighteen months until put out of action, should have the full benefit of the King's Regulations, whereas on leaving hospital he got a T.M.B. at Knowsley Park, and C 3, being transferred to Class P, Army Reserve, passed the Pension Board, and was sent to Ashton Barracks for civil employment, and was not to appear before a medical board for six months, except for discharge; and whether he will explain why he was summoned to a War Office Board at Ashton on 16th March, of this year, and classified as permanent C3?
      Mr. MACPHERSON: I am not aware of this case, but I have called for a report, and will let my hon. Friend know the result in due course.

      CONSCIENTIOUS OBJECTORS.
      Mr. TREVELYANasked the Under-secretary of State for War whether three men, who are conscientious objectors, Bolger, Biltcliffe, and Morgan, F Company, 3rd Lincolnshire Regiment, have been sent out to France from Grimsby; whether he made inquiries into their case before they were sent out; and whether, in accordance with the promise of the late Prime Minister, they will be returned to this country?
      Mr. MACPHERSON: The answer to the first portion of the question is in the negative; the rest, therefore, does not arise.

    EAST LONDON EXPLOSION.
    Colonel H. CAVENDISH-BENTINCKasked the First Commissioner of Works
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    if he will explain why his Department, in carrying into effect the repairs to the houses affected by the explosion in the East of London, has renewed floors over foundations of wet mud instead of concrete; and, seeing that this action on the part of his Department is calculated not only to endanger the health of the inhabitants but to involve a waste of public money, will he say what action he now proposes to take?
    The FIRST COMMISSIONER of WORKS (Sir A. Mond): The object of the work undertaken by my Department on behalf of the Ministry of Munitions was the most rapid possible reinstatement of the damaged property, and that object was undoubtedly achieved. I made inquiries as to the possibility of compelling owners to contribute to the expense of effecting certain desirable alterations to their property, but the powers were limited and it was not the duty of my Department to reconstruct or alter the character of private property at the public expense; concrete underfloors were therefore not put in in those houses where they did not exist before. As regards the last part of the question, I deny the assumption that any action on the part of my Department has endangered the health of the occupants of tine houses or has involved any waste of public money. I have personally visited the property on several occasions, and to my knowledge this property hag been very materially improved in many respects.
    Lord H. CAVENDISH-BENTINCK: In consequence of the unsatisfactory nature of that answer I shall draw attention to this matter on the Adjournment of the House.
    Mr. W. THORNE: Did the borough surveyor of West Ham have this matter under supervision or not?
    Sir A. MOND: The local authorities were fully cognisant of what was being done all through.

    ALLIES (POLICY).
    Mr. KINGasked the Secretary of State for Foreign Affairs whether he is aware that, as a result of the achievements of the American and French nations in the War and the Russian revolution, there is a growth of republican aspirations especially in Italy, Roumania, Greece, Spain, Germany, and Austria; and whether, in view of the antagonism between German

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    militarism and the republican spirit, it will in future be part of the policy of the Allies to allow a nation or country to set up a republican régime?
    The MINISTER of BLOCKADE (Lord Robert Cecil): The policy of the Allies is to bring the War to a successful conclusion, and is not concerned with internal questions affecting individual members of the Alliance or neutral States.
    Mr. KING: Why, then, did they prevent Greece setting up a Republic?
    Lord R. CECIL: I am not aware they did.
    Mr. KING: Yes they did.
    Mr. LYNCH: Whenever it is thought necessary to have a King might we not have a great, gilt, Indiarubber King?
    Mr. SPEAKER: The hon. Gentleman should really not occupy the time of the House with questions which are not meant seriously.
    Mr. LYNCH: I did mean it seriously.
    Mr. DAVID MASONasked the Secretary of State for Foreign Affairs whether he is now in a position to make any statement with regard to the proposed conference of the Allies for the purpose of revising their war aims?
    Lord R. CECIL: His Majesty's Government understand that the Russian Government suggest that a Conference of the Allied Powers should take place in regard to the eventual terms of peace. His Majesty's Government are in communication with their Allies on the subject.

    LORD NORTHCLIFFE.
    Mr. MORRELLasked the Secretary of State for Foreign Affairs whether his attention has been drawn to the statement of Lord Northcliffe, in America, to the effect that the War had only just begun; and whether, in making this statement, Lord Northcliffe spoke as the representative of the Government?
    Lord R. CECIL: The only statement of the nature mentioned which I have seen was in the "Times" of 26th June, and the passage in question expressly stated that Lord Northcliffe was giving expression to his personal opinion.

    POSTAL CORRESPONDENCE (CENSORSHIP).
    Mr. LYNCHasked the Secretary of State for Foreign Affairs whether letters addressed to Members of this House from America are opened by the Censor; and, if so, whether he will advise that this practice shall cease?
    Mr. MACPHERSON: Postal correspondence between the United Kingdom and the United States is censored under the same regulations as those governing the censorship of other mails, and it is not proposed to make the distinction suggested. The only exempted correspondence is stated in my answer to the hon. Member's next question.

    GREECE.

      EX-KING CONSTANTINE.
      Mr. LYNCHasked the Secretary of State for Foreign Affairs whether the correspondence between ex-King Constantine and persons resident in this country is subject to censorship; and, if so, whether any exceptions whatever are permitted?
      Mr. MACPHERSON: The answer to the first part of the question is in the affirmative, except as regards ex-King Constantine's correspondence with persons whose letters are exempt. With regard to the last part, the only letters which are exempted from censorship are those of members of His Majesty's Government, and such other letters as, to the knowledge of the Censor, have been dispatched by, or will be delivered to, persons who correspond with foreign countries on the public service.

      KAISER AND KING ALEXANDER.
      Mr. LYNCHasked the Secretary of State for Foreign Affairs whether free communication is permitted between the Kaiser and King Alexander of Greece; and, if not, will he state what are the restrictions that have been imposed?
      Lord R. CECIL: The matter would seem one which can be safely left in the hands of the present Prime Minister of Greece.
      Mr. LYNCH: Is it not important with regard to the conduct of the War?
      Lord R. CECIL: I thought the hon. Member had complete confidence in M. Venizelos. At any rate we have.

    FOOD SUPPLIES.

      BACON.
      Mr. PETOasked the President of the Board of Trade whether he is aware that consignments of Danish bacon are still taking as much as ten days to reach London and six days further to reach points as near as Portsmouth; that bacon delivered at Birmingham and Wales is being continually refused on account of its arriving in bad condition; that a consignment which arrived at Portsmouth on the 19th ult. was inspected by the sanitary inspector and condemned as unfit for human food; and will he say what steps he proposes to take to accelerate delivery so that this food shall be available for human consumption in the future?
      The PARLIAMENTARY SECRETARY to the BOARD of TRADE (Mr. G. Roberts): I do not think that I can usefully add to the reply given to the hon. Gentleman on Wednesday last by the lion. Member for the Oswestry Division, except to say that so far as delay on the railways may be concerned the Board of Trade are in communication with the Bail way Executive Committee.
      Mr. PETO: Is it not a fact that all the questions relating to this matter have been referred to the Food Controller's Department? Is it possible for the Food Controller to control the distribution of food if the Railway Executive do not see it delivered in a condition fit for human consumption?
      Mr. ROBERTS: We are in communication both with the Food Controller's Department and the Railway Executive on the matter with a view to expediting delivery.
      Mr. W. THORNE: When this or any other bacon arrives is there no possibility of having it put in cold storage for a time instead of having it destroyed as it is being?
      Mr. ROBERTS: The matter is before the Food Controller.

      FLOUR.
      Mr. MORRELLasked the Parliamentary Secretary to the Ministry of Food whether he proposes to take any steps to control the supply of white flour imported from America so that it may be mixed with other flour produced in this country and thus improve the general quality of the bread?
      The PARLIAMENTARY SECRETARY to the MINISTRY Of LABOUR (Mr. Bridgeman): The supply of white flour imported from America is now controlled by the Royal Commission on Wheat Supplies, and its admixture with flour produced in this country has been regulated and defined.
      Mr. MORRELLasked the Parliamentary Secretary to the Ministry of Food whether he is aware that many cases have recently occurred in which millers have sent sacks and half-sacks of flour to private customers in spite of the Order issued by his Department on the subject, and that particulars of such cases were recently brought to his notice by the Burnley Food Control Committee; and, seeing that a reply was sent to the effect that when it had been the normal practice to order flour in such quantities it was unnecessary to interfere, whether this is still the policy of the Government or whether he proposes to take any further steps to prevent the hoarding of flour by the richer classes?
      Mr. BRIDGEMAN: I am not aware that flour in excess of ordinary requirements is being delivered to private customers. The reply to the representations of the Burnley Food Control Committee invited particulars of cases in which there had been excessive private deliveries, but no particulars have in fact been sent.

    TRADING WITH THE ENEMY (BLACK LIST).
    Sir C. HENRYasked the President of the Board of Trade what action it is proposed to take as regards firms in the United Kingdom whose branches have been placed on the Black List in any of His Majesty's Dominions; and, if the Trading With the Enemy Amendment Act, 1916, does not give the power to deal with such firms, if he proposes to introduce legislation in order to meet the situation?
    Mr. ROBERTS: The Trading With the Enemy Amendment Act, 1916, provides for the winding up of business carried on wholly or mainly for the benefit of enemy subjects. If the question refers to businesses which a-re not so carried on I should be glad if the hon. Member would furnish me with particulars of the class of cases which he has in mind.

    NATIONAL HEALTH INSURANCE.

      VIVISECTION.
      Sir GEORGE GREENWOODasked the Comptroller of the Household, as presenting the National Health Insurance Commissioners, whether he is aware that the funds in the hands of the Commissioners are hardly sufficient to enable them to meet the just claims upon them; whether it is anticipated that by reason of the War those claims will be very largely increased; and whether, in these circumstances he will consider the desirability of applying the moneys provided by Parliament primarily for the purpose of defraying the expenses of sanatorium benefit, under Section 16 of the National Insurance Act, 1911, for such purpose in preference to expending them on painful experiments upon living animals?
      The COMPTROLLER of the HOUSEHOLD (Sir Edwin Cornwall): I am aware that the funds available for the treatment of tuberculosis in this country need to be increased, and that, by reason of the War, this need has become more urgent, but I have no doubt that whatever provision is made for this purpose Parliament would require that provision should also be made for continuing the essential work carried on by the Medical Research Committee in the interests of the health of the community.
      Mr. CHANCELLOR: What advantage in regard to the national health is expected from experiments such as these, the cutting of glands, and the severing of nerves, and allowing the animals to die after hours of agony?
      Sir G. GREENWOODasked whether the painful experiments on living animals performed by Messrs. Noel Paton and Leonard Finlay, and described by them in the quarterly journal of experimental physiology for March, 1917, were done under Regulations made by the Commissioners as provided by Section 16 of the National Insurance Act, 1911; if so, whether such Regulations were duly laid before both Houses of Parliament as required by Section 65 of that Act; and upon what date were they so laid?
      Sir E. CORNWALL: I am unable to add anything to the answer which I gave to my hon. Friend on 28th June as to the methods of work on medical research under the Medical Research Committee.
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      The Regulations made by the Commissioners were laid before both Houses of Parliament, as required by Section 65 of the National Insurance Act, 1911, on 10th February, 1914.
      Sir G. GREENWOOD: Do these Regulations give the slightest indication of the experiments to be made under them?
      Sir E. CORNWALL: I think I replied to that question in the answer I gave on 28th June.
      Sir G. GREENWOOD: That answer did not give the information. I want to know if the Regulations which are required to be laid upon the Table, and under which these experiments are performed, give the slightest indication that such experiments are to be undertaken by the Medical Research Committee?
      Sir E. CORNWALL: The Regulations make no reference to such experiments as the hon. Member refers to. As I told the hon. Gentleman on the 28th June, the scheme and general purposes of the Research Committee are passed by the Commissioners. The methods for carrying out the work are not decided by the Commissioners or the House?
      Mr. CHANCELLOR: Is the scheme open for examination by Members of this House?
      Sir E. CORNWALL: Certainly. I will send the hon. Gentleman a copy.

    NATURALISED ALIENS.
    Mr. PETOasked the Secretary of State for the Home Department how many persons of Swiss nationality have been naturalised as British citizens since the beginning of the War; how many of them were of German parentage, and how many of them had by deed poll, or otherwise, changed their names; how many of them have removed from their previous addresses; whether the Home Office is, in all cases, aware of the present address of these naturalised aliens; and whether the question of restricting naturalisation in the case of persons of German parentage, whether Swiss or other nationality, during the War will be considered?
    The UNDER-SECRETARY Of STATE for the HOME DEPARTMENT (Mr. Brace): The number of persons of Swiss

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    nationality naturalised since the beginning of the War is 124. The number since the commencement of the present year is eight. None of these were of German parentage, and it is the rule not to grant naturalisation in such cases. The other particulars asked for by the hon. Member are not available.

    GENERAL ELECTION (POLLING PLACES).
    Mr. BUTLER LLOYDasked the Secretary of State for the Home Department how many polling places there were at the last General Election in Great Britain; whether if the electorate is doubled it would make many more polling places necessary; and what is the approximate number of officials that would be required to conduct the business in them?
    Mr. BRACE: As to the first part of the question, I would refer my hon. Friend to the Home Office Return No. 272 of 1911. It is not practicable to form an estimate at the present time of the number of polling stations or of clerks which will be necessary to meet the requirements of an increased electorate, but I am advised that no considerable alterations of existing arrangements need be anticipated.

    MUNITIONS.

      BUILDING OPERATIONS, WESTMINSTER.
      Sir H. CRAIKasked the Minister of Munitions whether sanction has been given by his Department to the prolonged building operations which are being carried on in Great Smith Street, Westminster, by a building syndicate; whether he is aware that entirely new work is now being begun by the destruction of a building erected within a few years, and recently in the occupation of the London County Council; and whether the expenditure of labour on such work will be prevented during the continuance of the War?
      The PARLIAMENTARY SECRETARY to the MINISTRY of MUNITIONS (Mr. Kellaway): In accordance with a decision of the Cabinet Committee on Accommodation, permission was given for the erection of certain offices in Great Smith Street, on condition that after completion
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      they are placed at the disposal of the Government for Government purposes. With regard to the second part of the question, inquiry is being made to ascertain whether any work has in fact been put in hand beyond that for which permission has been given; and I will communicate further with my hon. Friend.
      Sir H. CRAIK: Would it not be possible to erect temporary buildings instead of elaborate permanent buildings for Government needs?
      Mr. KELLAWAY: The whole question of accommodation is under the consideration of the Cabinet Committee on accommodation, and the facts of this case were considered.
      Sir H. CRAIK: Is the hon. Gentleman aware that these are very elaborate permanent buildings which have occupied a large amount of labour, and is it not possible, as in other cases, that temporary buildings should be erected, in order not to employ so much labour?
      Mr. KELLAWAY: I think in this ease when the question arose the buildings were already in an advanced condition of construction, and it was a question of completion. The offices can only be used for Government purposes, and all the facts were taken into consideration by the Cabinet Committee when they gave their decision.
      Sir H. CRAIK: Is the hon. Gentleman aware that the buildings now completed were only begun four or five months ago, and not before the War, and that they were begun with the permission of the Ministry of Munitions?
      Mr. SPEAKER: The hon. Member is giving information.
      Sir H. CRAIK: I want to ask if that information is in the possession of the Munitions Department. I am entitled to ask that.
      Mr. SPEAKER: The hon. Member might convey the information by letter.
      Sir H. CRAIK: On a point of Order. I want to know whether that fact was within the knowledge of the Ministry of Munitions.
      Mr. SPEAKER: The hon. Gentleman has already shown that it was not.

      MAN-POWER (WOODWORKERS UNEMPLOYED).
      Mr. TYSON WILSONasked the Minister of Labour if he is aware that there is a considerable number of skilled woodworkers out of employment in London and other industrial centres; if he will state why, seeing that this class of workman is urgently required for building aeroplanes and in shipyards, they are not found employment; and whether he will take steps to improve the present methods of distributing the manpower of the country?
      Mr. BRIDGEMAN: Except in the case of certain towns in Ireland, with regard to which special difficulties exist, I am not aware that the number of skilled woodworkers out of employment is considerable; but if my hon. Friend will supply me with particulars of the cases which he has in mind I will have inquiry made.

    EDUCATIONAL SYSTEM.
    Sir PHILIP MAGNUSasked the President of the Board of Education when he will be able to lay before the House his legislative measures to give effect to the changes which he proposes to introduce into our educational system?
    The PRESIDENT of the BOARD of EDUCATION (Mr. Herbert Fisher): I have every hope of introducing a Bill embodying my proposals during the present Session.
    Sir P. MAGNUS: Is the right hon. Gentleman not able to make some more definite statement as to the date of the introduction of the measure?
    Mr. FISHER: Not at present.
    Mr. WHITEHOUSE: Can the right hon. Gentleman say whether the principles of the Bill are decided and whether the Bill is actually drafted?
    Mr. FISHER: The Bill is drafted.

    NATIONAL SERVICE.
    Mr. T. WILSONasked the Prime Minister whether it is part of the policy of the Government that skilled workmen must 3ign a national service form before they are allowed to start work at an aircraft factory or munition works?
    The CHANCELLOR of the EXCHEQUER (Mr. Bonar Law): The answer is in the negative. There is no National Service Regulation restricting the employment of men at an aircraft factory or munition works.
    Mr. WILSON: Is the right hon. Gentleman not aware that in some districts they are compelling men to sign the National Service form under the circumstances indicated?
    Mr. BONAR LAW: Not to my knowledge.
    Mr. WILSONasked the Prime Minister if he is aware that skilled workmen who apply at Employment Exchanges for employment are told that they cannot be sent to situations unless they sign a National Service form; that owing to this many of these men are losing from three to six days' work before they are found situations; that this is causing dissatisfaction and discontent among the workmen; and whether, with the object of preventing the overlapping and confusion that exists, he will abolish the National Service Department?
    Mr. BONAR LAW: This question would appear to refer to the effect of the Restricted Occupations Order, under which no man can be taken into employment in any of the trades mentioned in the Order except with the consent of the Director-General of National Service or a local officer on his behalf. It was decided, however, that the Order should not apply in the case of National Service Volunteers since, having enrolled, a man is available for transfer to a work of greater national importance when required. To enter a restricted occupation it is, therefore, necessary either for the man to enrol, if he has not already done so, or for the employer to obtain a permit from a National Service Commissioner. If the man enrols no delay is involved, but otherwise it is necessary for him to wait until the employer has obtained the required permit. There is no similar restriction on the engagement of men in industries not included in the Restricted Occupations Order. The answer to the last part of the question is in the negative.
    Mr. DENMANasked the Prime Minister whether his attention has been called to the facts that on 25th June Mr. W. Hill, of the Ministry of National Service, publicly stated that the National

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    Service scheme had failed, that in February a member of the War Cabinet stated that there were three and a-half million men employed in non-essential trades, that the proportion of those since transferred to essential trades is negligible, and that in the Government's present plan for securing labour for agriculture no portion of the male supply is to be drawn from sources which the Ministry of National Service was intended to tap; whether the Government now, as in last December, consider that without the mobilisation of our labour reserves we shall not be able to pull through; and whether, in view of the failure of the voluntary scheme of National Service, the Government will at once fulfil their pledge to introduce a compulsory scheme?
    Mr. BONAR LAW: The attention of the Minister has not been drawn to the statement referred to. With regard to the last part of the question, I can add nothing to the reply I gave to the hon. Member for the Attercliffe Division on Thursday last.
    Mr. PRINGLE: Does the Government contemplate doing nothing to redeem the promise made by the Prime Minister in his speech on the 19tlh of December?
    Mr. BONAR LAW: I do not know precisely to what promise the hon. and learned Member refers.
    Mr. PRINGLE: To the promise that we are going to mobilise the industrial forces of our country?
    Mr. BONAR LAW: If we could not get what was necessary in any other way.
    Mr. DENMAN: Will the right hon. Gentleman take an early opportunity of making a statement on this subject in order to check the growing impression that this Government is following the evil precedent of trifling with, if not shirking, the whole problem of man-power?
    Mr. BONAR LAW: No. I have no intention of making a statement. We are quite willing to let the House and the public judge.
    Mr. WHITEHOUSE: Has it not been announced that the Department is able to supply all the demands made upon it, and that the offers are in excess of the demands?
    Mr. WILSON: Is not the right hon. Gentleman aware that other Commis-
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    sioners besides Mr. Hill have made the statement that the National Service scheme is an absolute failure?
    Mr. BONAR LAW: I was not aware of that statement.

    MESOPOTAMIA COMMISSION.
    Sir JOHN JARDINEasked the Prime Minister if he is now in a position to name a day for a discussion of the matters, naval, military, medical, and civil, reported upon by the Mesopotamia Commission?
    Commander WEDGWOODasked the Prime Minister whether he will inform the House which of the recommendations of the Mesopotamia Reports His Majesty's Government intend to adopt, and when a day will be given for the discussion of all those recommendations?
    Mr. BONAR LAW: I am not yet in a position to make any statement with regard to the Report, and, as I stated yesterday, I hope to be able to indicate the precise date on Thursday.
    Mr. MacCALLUM SCOTT: Is the right hon. Gentleman aware that there are many matters arising out of the Report which may be discussed in other aspects on the Estimates, and will he consider the question of giving a day for these Estimates this year?
    Mr. BONAR LAW: I will consider that.
    Mr. DEVLIN: Is the right hon. Gentleman aware that Lord Hardinge is to make a statement in the House of Lords to-day? Is he permitted to do so by the Government?
    Mr. BONAR LAW: I have heard that Lord Hardinge proposes to make a personal explanation to-day. As a Member of the other House, I think that he is entitled to do so.
    Mr. DEVLIN: Is Lord Hardinge entitled as a permanent Civil servant to take advantage of his position in the House of Lords to make a statement when no statement has been made by the Minister concerned in this House?
    Mr. BONAR LAW: I really cannot be expected to know what is the constitutional position in a case of that kind. Personally I should not think it unreasonable for a Member of the other House to be permitted to make a personal explanation.
    Mr. KING: Are not those persons affected who are not members of either of these Houses under a disadvantage in being given no opportunity of explaining their position in the same way as those who are members?
    Mr. BONAR LAW: Of course it is a disadvantage. It would be very hard to have no advantage from being a member.
    Sir J. JARDINE: Will the Government give an extra day if the multitude of matters arising out of the Report makes that course advisable?
    Mr. BONAR LAW: We must judge of that when the occasion occurs.
    Mr. DEVLIN: Has the Minister for India asked to make a concurrent statement, a personal explanation, in the House of Commons?
    Mr. BONAR LAW: No. I am sure that he has no such intention. I believe that he considers that no such explanation is necessary, whatever part he may take in the Debates.

    IRISH CONVENTION.
    Major NEWMANasked whether any scale of remuneration for attendance at the meetings of the" forthcoming Irish Convention has been decided on; and will such remuneration include traveling allowances?
    Mr. BONAR LAW: The Government propose to provide out of public funds for the necessary expenses involved to members of the Convention by their attendances at its meetings. The question of remuneration for attendance has not been raised by any of the gentlemen who have accepted nomination to the Convention, and is not expected to arise.
    Major NEWMANasked the Prime Minister whether Tie will give the names of those nominated by the Government to attend as delegates the forthcoming Irish Convention?
    Mr. BONAR LAW: I am not yet in a position to give the names.
    Mr. LYNCHasked the Prime Minister whether he can give the list of parties or organised bodies which, having been invited to take part in the Irish Convention, have declined to send representatives; and whether he still proposed to hold the Convention?
    Mr. BONAR LAW: The answer to the first part of the question is in the negative, and to the second part in the affirmative
    Mr. LYNCH: Will the right hon. Gentleman give the proportional parts of those who have not agreed?
    Mr. BONAR LAW: I see no object.
    Mr. LYNCH: Has not the Convention already performed a great part of its functions in enabling the Government to avoid dealing with the Irish question?
    Mr. SPEAKER: The hon. Member is not asking a question. He is only taking an opportunity of airing his own views. Questions are not intended for that purpose.

    JUDGES (DIRECTORSHIPS).
    Mr. CURRIEasked the Prime Minister whether he will grant a day for the discussion of the Motion standing in the name of the hon. Member for the College Division of Glasgow concerning the holding of directorships by judges of the Court of Session?
    Mr. BONAR LAW: It is not possible to give a day for this purpose.
    Mr. CURRIE: May I ask your guidance, Sir, as to what is competent for a Member of this House who wishes to draw attention to the matter which is raised in question No. 39?
    Mr. SPEAKER: This House has no control over the judges. One of the glories of our Constitution is that the judicature is separate and apart from the Administration.
    Mr. DEVLIN: On a point of Order. When judges are appointed presidents of Commissions, is the House to be permitted to discuss the action of these judges as presidents of these Commissions?
    Mr. SPEAKER: I will wait and see what is the Commission?
    Mr. CURRIE: If it be the case that the House has no authority in matters of the kind, has the Government no authority?
    Mr. SPEAKER: The hon. Member knows that if he wishes to remove a judge from the bench there is a proper way of doing it by giving notice for an Address

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    and raising the question here; but there is no control on the part of the Government over the judges.

    BEER RESTRICTIONS.
    The following Question stood in the name of Mr. W. THORNE:
    40.To ask the Prime Minister if be is aware of the discontent in all the large towns, and more especially in towns like London, Barrow-in-Furness, Sheffield, Birmingham, Newcastle, Manchester, Leeds, and Nottingham, because of the shortage of beer; if he can state whether the Government will consider the advisability of increasing the barrelage from 10,000,000 to 15,000,000; and if he is now prepared to make a statement on the matter?
    Mr. THORNE: This question is postponed by request, but I would be glad if the Chancellor of the Exchequer would name a day?
    Mr. BONAR LAW: If my hon. Friend will put down the question for to-morrow, I hope to be able to answer it.
    Sir J. D. REES: Is the right hon. Gentleman aware that these large cities require a great deal of stimulant before they can stand proportional representation?
    Mr. O'DONNELLasked the Chancellor of the Exchequer whether he has been informed of the number of cases in Ireland where licence holders have been unable to get their one-third supply of beer because previously they got it from men who were not recognised agents of brewers; and whether, seeing that these men are being ruined, he will have the law amended so as to give an equal distribution to all traders?
    Mr. BONAR LAW: I am informed that it is the case that a number of licence holders in Ireland are finding it difficult to obtain the supply of beer to which they consider themselves entitled, and that the difficulty is increased by the fact that the persons from whom they obtained supplies in the year ended 31st March, 1916, are not recognised as agents by the brewers who brewed the beer. I am afraid it is not possible to amend the law so as to effect the result desired. This seems a matter in which the brewers concerned might usefully advise the persons who are, it is understood, declining to supply.
    Mr. O'DONNELL: Will the right hon. Gentleman consider the suggestion of giving these men the right of civil action?
    Mr. BONAR LAW: I do not see how that depends on the Government.
    Mr. O'DONNELL: Will the right hon. Gentleman consider the amending, of the Beer Restrictions Act, so as to give them that right?

    SHIP CANAL (SCOTLAND).
    Mr. WATTasked the First Lord of the Admiralty whether his Department have had submitted to them detailed plans and estimates for a mid-Scotland ship canal, viâ Loch Lomond, with four locks; and would the Department allow an eminent engineer to examine the plans, etc., on behalf of the Corporation of Glasgow, or other corporations, who are supporters of a sea-level canal by the direct route, with a view to their submitting to the Admiralty similar plans, etc., of the direct route at sea-level with two sea-gates?
    The PARLIAMENTARY SECRETARY to the ADMIRALTY (Dr. Macnamara): Plans have been submitted to the Admiralty for a canal viâ Loch Lomond, but they are not the property of the Admiralty, and the Admiralty has no authority to dispose of them.

    SHIP CANAL (SCOTLAND).

      Hyde Park.
      Sir H. CRAIKasked the First Commissioner of Works whether it is proposed to alter and relay the roadway running to the north of the Serpentine in Hyde Park, the expediency of which alteration is very doubtful; and whether, in any case, the expenditure of money and labour on such work might be postponed for the present and during the continuance of the War?
      Sir A. MOND: The answer is in the negative. The road will shortly be sprayed with tar, as this treatment has been proved to be economical in the case of macadam roads.
      Sir H. CRAIK: But there is no really large operation being carried out?
      Sir A. MOND: No, nor in contemplation.

      Philippine Islands.
      Commander WEDGWOODasked the Secretary of State for Foreign Affairs if

      903
      he will ask the Government of the United States to furnish His Majesty's Government with copies of the enactments regulating the constitution and administration of the Philippine Islands?
      Lord R. CECIL: I think my hon. and gallant Friend will find all the information he desires in the Act of Congress of 29th August, 1916, a copy of which I shall be very glad to send him.

      Lapsed Insurance Policies.
      Mr. PETOasked the Secretary to the Board of Trade whether his attention has been called to cases of hardship in connection with the lapse of policies of insurance of poor people who are unable to keep up their premiums, where the industrial insurance company concerned give no surrender value for the policy, contrary to the provisions of the National Insurance Act with regard to insurances under that Act; and whether he proposes to take any action in the matter?
      Mr. G. ROBERTS: I have seen two letters from policy-holders which my hon. Friend has been good enough to send me, and I am communicating with him with regard to those letters. The Assurance Companies Act does not require a company to give surrender values, but it is usually the practice of the large industrial assurance companies to issue a paid-up policy, where the assured wishes to discontinue the payment of premiums on a policy which has been in force for five years.
      Mr. PETO: Will the hon. Gentleman's Department convey to the insurance company concerned the latter part of his answer and ask whether they will not pursue the usual course in giving a surrender value for the policy and not pursue a policy which in effect robs these poor people of premiums they have paid?
      Mr. ROBERTS: I will take those matters into consideration.

    NEW MEMBER SWORN.
    Captain Edward Montagu Cavendish Stanley, commonly called Lord Stanley, for the Borough of Liverpool (Abercromby Division).

    PRIVATE BUSINESS.
    North Cheshire Water Bill[Lords],
    Reported, with Amendments; Report to lie upon the Table.

ORDERS OF THE DAY.

  FINANCE BILL
  Considered in Committee.—[Progress, 2nd July.]
  [Mr. WHITLEY in the Chair.]

  FINANCE BILL

    CLAUSE 17.—(Continuance and Increase of Rate of Excess Profits Duty.)
    (1) The Finance (No. 2) Act, 1915 (in this Part of this Act referred to as the principal Act), shall, so far as it relates to Excess Profits Duty, apply, unless Parliament otherwise determines, to any accounting period ending on or after the first day of August, nineteen hundred and seventeen, and before the first day of August, nineteen hundred and eighteen, as it applies to accounting periods ended after the fourth day of August, nineteen hundred and fourteen, and before the first day of August, nineteen hundred and
    seventeen.
    (2) Section thirty-eight of the principal Act shall, as respects excess profits arising in any accounting period commencing on or after the first day of January, nineteen hundred and seventeen, have effect as if eighty per cent, of the excess were substituted as the rate of duty for sixty percent, of the excess, or, in the case of an accounting period which commenced before that date, but ends after that date, as if eighty per cent, were substituted for sixty per cent, as respects so much of the excess as may be apportioned under this Act to the part commencing on that date.
    In calculating any repayment or set-off under Sub-section (3) of Section thirty-eight of the principal Act any amount to be repaid or set-off on account of a deficiency or loss arising in any accounting period commencing on or after the first day of January, nineteen hundred and seventeen, or, in the case of an accounting period which has commenced before that date, but ends after that date, on account of so much of the deficiency or loss as may be apportioned under this Act to the part commencing on that date, shall be calculated by reference to duty at the rate of eighty per cent.
    Any additional duty payable by virtue of this Section in respect of a past accounting period may be assessed and recovered notwithstanding that duty has already been assessed in respect of that period.
    (3) It shall be the duty of every person chargeable to Excess Profits Duty, if he has not previously given notice of his liability to be charged with Excess Profits Duty in respect of any accounting period, to give notice to the Commissioners within two months after the termination of any accounting period in respect of which he is chargeable, or, if the accounting period terminated before the passing of this Act, within one month after the passing of this Act.
    If any person fails to give the notice required by this provision he shall be liable on summary conviction to a fine not exceeding one hundred pounds, and to a further fine not exceeding ten pounds a day for every day during which the offence continues after conviction there for.
    Mr. HOLT: I beg to move, in Subsection (2), to leave out the words "the first day of January," and to insert instead thereof the words "the fourth day o): August."
    I am afraid that this Amendment is not wholly satisfactory as it stands, but I move it for the purpose of obtaining some explanation from the Chancellor of the Exchequer as to the reason why he proposes that the increased rate of Excess Profits Duty shall be demanded as from the 1st January. Sub-section (2) of the Bill says that Section 38 of the principal Act shall, as respects excess profits arising in any accounting period commencing on or after the 1st January, 1917, have effect as if 80 per cent, were substituted as the rate of duty for 60 per cent, of the excess; or in the case of an accounting period which commenced before that date, as if 80 per cent, were substituted for 60 per cent, as respects so much of the excess as may be apportioned under this Act to the part commencing on that date. The rate of 60 per cent. Excess Profits Duty was substituted for the first rate of 50 per cent.; in other words, every person liable to the duty had in contemplation one year and 60 per cent, coming in another, but by this Subsection the result will be produced that all persons do not pay at the same rate in regard to the Excess Profits Duty, which began on the 5th April and ended on the 15th April. I desire to ask the Chancellor of the Exchequer what is the reason of the proposal for increasing the rate of Excess Profits Duty not over the accounting period, which I think is fair as between one taxpayer and another, but over

    911
    a period of time which I submit, having regard to what has been the previous practice, is not fair as between one taxpayer and another.
    The CHANCELLOR Of the EXCHEQUER (Mr. Bonar Law): I think my hon. Friend is under a misapprehension as to the working of this proposal. When the rate was raised from 50 per cent, to 60 per cent, the arrangement was retrospective to a far greater extent than the arrangement I have made. I discussed this subject with the representatives of a number of firms—controlled and private firms—and I think it was considered that this proposal is really better in form. The reason for choosing the 31st December is twofold. In the first place, the accounts end on that day as a rule, and it is easier to work. In the second place, the House will remember that when this Government was formed my right hon. Friend said it would be necessary to increase the rate of Excess Profits Duty, and the result was the making of this proposal, the effect of which will be that if the accounting period is partly in last year and partly in this year, 60 per cent, will be paid in respect of the first part and 80 per cent, in respect of the second part. I think the Committee will be right in making the change, and I do not think it could be put on a fairer basis.
    Mr. LEIFJONES: Would not the apportionment between accounting period and accounting period be exceedingly difficult if you make a change in the proportion of apportionment?
    Mr. BONAR LAW: There would be so many months in one year and so many in the other. We could not expect them to make special accounts.
    Mr. HOLT: If you are going to take a period of time, of course the 1st January is far more convenient as mostly coinciding with accounting. The right hon. Gentleman has not convinced me, however, that the result of this arrangement will not be that some persons will pay at the rate of 60 per cent, for a greater period of time than will others. I do not think, as between one person and another, that is a fair thing. But the right hon. Gentleman has given the explanation, and I beg leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    The following Amendment stood on the Paper in the name of Mr. CURRIE: In Sub-section (2), after the word "date" ["commencing on that date"], insert the words "always provided that any society registered under the Industrial and Provident Societies Act, 1893, and liable for excess profits duty shall pay such duty at the same rate as last year, namely, 60 per cent., and further provided that any such society shall be entitled at its own option to pay in lieu of such duty at the rate of 60 per cent, a sum equal to 1 per cent, upon its whole sales for the year under taxation at the same may be computed and determined in such manner as may be prescribed by regulations to be made for the purpose by the Commissioners of Inland Revenue."
    The CHAIRMAN: The Amendment in the name of tine hon. Member for Leith Burghs (Mr. Currie) is out of order on this Clause, and as it deals with matters of a special character, it should be brought up in the form of a new Clause.
    Mr. J. M. HENDERSON: I beg to move, in Sub-section (3), to leave out the words "or, if the accounting period terminated before the passing of this Act, within one month after the passing of this Act." I move this Amendment in order to get an explanation as to the-meaning of this Sub-section.
    Mr. DENNISS: May I interrupt the hon. Member. I have an Amendment earlier, and did not happen to be here at the moment it was reached—[at the end of Sub-section (2), to insert the words "Provided always that so much of the excess as is over 60 per cent, of the excess shall be treated as a loan bearing interest at the rate of 5 per centum per annum."]
    The CHAIRMAN: I called the hon. Member's name without response, and 1 am afraid I cannot now call on the hon. Member, at is might be extended to other cases.
    Mr. HENDERSON: The Sub-section provides that "it shall be the duty of every person chargeable to Excess Profits Duty.…to give notice to the Commissioners within two months after the termination of any accounting period in respect of which he is chargeable." And the Sub-section proceeds, in the words I propose to omit, to give a period of one month if the accounting period terminated before the passing of the Act Why should there be two months in one ease and only

    913
    one month in the other? Surely two months is little enough time to give in the second case.
    Mr. BALDWIN (Joint Financial Secretary to the Treasury): We have taken the words from the 1916 Act.
    Mr. HENDERSON: That is no sound reason. My point is this: that one man gets a period of two months and another man a period of one month. If anyone is to get two months to ascertain whether he is chargeable or not, then I say everybody should have two months.
    Mr. BALDWIN: According to our previous experience the period has been found ample and there has been no complaint.
    Mr. HENDERSON: That is not my experience.
    Amendment negatived.
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. CURRIE: I wish to take this opportunity, if it is appropriate, to ask the Chancellor of the Exchequer if he can give us more information than we have at present as to the sources from which this tax has been derived. Last year it amounted to £140,000,000 which corresponds to excess profits amounting to from £280,000,000 to £300,000,000. At a time when the House is about to consider a great many questions involving trade in tea, tobacco, shipping, beer, whisky, and Army contracts of various kinds, I think it is really a pity if no information can be given as to where that £140,000,000 comes from, and even more unfortunate is it that the Treasury take up the position that they themselves do not have that information. It seems to me impossible that any of those trade discussions can be conducted satisfactorily in the absence of information as to what the excess profits are derived from. I understand that in Norway and in Sweden that particulars of the amount of people's incomes are more or less public property. I do not make that suggestion here, but I see no reason why trade by trade a good deal of information should not be placed at the disposal of the country by the Treasury Bench. I think, if that were done, a good deal of current misunderstandings to the effect of so-called profiteering would be done away with. There are two other points to which I desire to refer. I still have a strong
    914
    feeling that it is unfortunate that professional men are exempted from this test. I know that that feeling is shared by a great number of people, mostly, of course, mercantile people. I feel it very strongly myself. Another suggestion I should like to make would be that the profits of short operations on the Stock Exchange should be made liable to taxation of some sort, and this would appear to be a proper kind of taxation in that case. I know that it is part of the accepted Income Tax law that profits of that sort are not assessable to tax at all. At a time like this, when the Chancellor of the Exchequer is badly in need of money and when speculation is highly undesirable, I think it would be fair that taxation of some sort should be applied in this case.
    Mr. SHERWELL: I confess to some amount of surprise that the substance of this Clause should pass without more discussion in Committee. It occurs to me that whatever may be the view as to the soundness of the principle of this Excess Profits Duty there is at least room for grave doubt as to whether the figure at which this Bill proposes to place the amount of that duty is not one which might be attended by consequences of greater permanent mischief to the trade and industries of this country than the amount of revenue which might be derived from it would justify. There is no disagreement in the Committee as to the justice or soundness of this particular tax, but I am concerned by considerations which pass beyond the scope of this financial year. We are getting many reminders—we had a very impressive one from the Government only last week—as to the absolute necessity of having regard to the extension and development of the industrial and commercial prosperity of the country in the years that will immediately follow the conclusion of peace. I myself give it as only a personal misgiving that I am gravely disquieted by the fear which possesses me that when peace comes, and what I believe will be unprecedented opportunities for commercial and industrial expansion offer, the great traders of this country will not be in a position to take full advantage of those unparalleled opportunities. This particular duty is one which, for the convenience of the Treasury, has been levied without discrimination and without particularity. It is levied on the small and young firms with equal pressure as on

    915
    the old and well-established and strong firms. I myself hold very strongly that the future of the industry of the country really depends upon the encouragement that is given not to the established and strong firm, but to the young firms with no great history behind them. What, as a matter of fact and actual experience, has been the case with the levying of this particular tax 1 It is within the knowledge of practically every Member of the Committee that there are in the country a great number of young commercial and trading firms who had for a few years prior to the War, and without any anticipation of the War, laid their plans for success in the immediate future, and the expenditure and effort of many of those young firms tended automatically to fructify within the period which, unhappily, has been covered by the War. Yet those firms are hit as heavily as firms of long standing with large reserves of capital behind them. I cannot help thinking that in the case of young firms in connection with taxes of this kind, where no discrimination whatever is shown, there may be no small hardship, and what, in my estimation, is of very much more importance, considerable injury, to the commercial and industrial prosperity of the country in the near future.
    I myself gravely doubt whether the Chancellor of the Exchequer does not propose to put this tax at a level which is highly dangerous to the maintenance and cultivation of those reserves of capital which are absolutely essential if this country, in company with her competitors, is to seize to the full the opportunities that will occur at the close of the War. I know one is open to the charge, in expressing a doubt of this kind, of favouring the rich. As a matter of fact, there is no question of capital and labour involved in this consideration. There is not even a question of Capitalism versus Collectivism. Everyone who has thought at all about the subject knows that under whatever economic system the country may be governed, collectivist or capitalistic, capital is essential to the maintenance and development of trade and industry. This particular tax would be as objectionable from the point of view I am suggesting if the country were under a collectivist system as it is to-day when we are under a capitalistic or competitive system. I suggest to the right hon. Gentleman the Chancellor of the Exchequer that he might reconsider the point as to whether this
    916
    tax is not placed at a level which will really frustrate the hopes, which, I know, he himself personally shares, in the possibility of the expansion of the trade of the country in the years following the peace. My own doubt is that we have now advanced in the direction of this particular form of taxation to a point where we may actually endanger the permanence of the commerce and trade of this country. I am out for everybody contributing to the utmost extent of his power to the expenses of this War, but it would be altogether a false view to accept the impression that taxation of a direct character placed upon an industry may be carried to the full limit without grave risk to the future development of the trade of the country. For this reason I venture to challenge the particular figure which is named in this tax.
    Major HAMILTON: I should like to press a little further the point raised by the hon. Member for Leith Burghs (Mr. Currie). I do think it is necessary for the House and the country to know where this £140,000,000 Excess Profits Duty is coming from. One question we are being asked in the country is, "Are the Farmers paying any portion of this Excess Profits Tax?"
    Mr. PRINGLE: We are giving them a bounty!
    Major HAMILTON: I have a paper in
    my hand, sent to me this morning, which refers to a sale of potatoes this week in Scotland—
    Mr. PRINGLE: Hear, hear!
    Major HAMILTON: And the farmer concerned, owning 200 acres, and selling the potatoes, has this year made an excess profit over last year of £10,000. There is a strong feeling in the country that the excess profits made by farmers should receive the attention of the Chancellor of the Exchequer. All I wish to ask the right hon. Gentleman to-day is to be good enough to let us know whether the Excess Profits Taxes of £140,000,000 received last year included any derived from farmers; if not, whether he will see if, by any means, he can bring such excess profits as these in his clutches in the coming year?
    Mr. LOUGH: On the Second Reading I said that I thought the increase was a dangerous experiment. I would repeat that now, for nothing I have seen has

    917
    induced me to alter my opinion. I believe that this tax has had a lot to do with the increase of the cost of the vital necessities from which everyone is suffering at present. However, I do not want to open up that point to-day, but if I could have got any support on the Budget on a Motion to alter the 20 per cent, into 10 per cent.—I considered I should succeed!—I would have carried it to a Division. The tax appears to me to be a sentimental sort of tax. Nobody looks at it in a businesslike way. It is mixed up with the War. It applies to 10,000 businesses in the country that have not benefited at all by the War. For growing businesses, as my hon. Friend says, the experiment was one which was exceedingly difficult to make. I believe it has been made most unequally and unfairly. Another curious thing is that we always find that the representatives of Labour are tremendously in favour of these kind of taxes. But I believe that working people, as well as everybody else, know that the country cannot prosper unless there are profits. What they should aim at is to get their share of the profits. The new Clauses in the name of the Labour representatives include proposals to exempt their enterprises altogether from the Excess Profits Tax. The representatives of Labour show the most extraordinary common sense— no sentimentality here !—when the matter touches themselves. The representatives of the Labour party are always keenly alive to everything that touches themselves. In relation to the Excess Profits Duty, Income Tax, or anything else of the sort, they say, "Go for the other fellow first!" I have not changed my opinion of the unwisdom of the tax, and I think the Chancellor of the Exchequer would do well to reconsider the matter.
    Mr. DENNISS: I must apologise to the House for not being present when my Amendment came up, but I was called away. I entirely agree with what has been said by the hon. Gentleman the Member for Huddersfield (Mr. Sherwell). Now when I move my Amendment I hope the hon. Gentleman will support it. There is a great deal of difficulty, I am told by commercial people, especially by the London Chamber of Commerce—who asked me to move this Amendment—in getting the necessary capital to carry on their businesses. The very high prices, increased cost of material and wages make it very difficult to find money to meet
    918
    all their engagements or even to transact the normal volume of business. Then, too, they have had to find money for new machinery for warlike purposes, and at enhanced prices, which they will have to scrap after the War or use for some purpose not to the best advantage. The Treasury are forbidding them to raise any money from the public, and for commercial men and industrial men after the War it will be almost impossible to find any money for fresh capital, though after the War a very much larger amount of capital will be required than is required at the present, not only for the purpose of that development, without which I suppose this country will never be able to pay the immense burden of the War debt, but also merely to carry on their normal business. Those who have had their business interfered with by being diverted for war purposes will have to regain not only their peace position, but will have to reconstruct their business altogether, and for that purpose will need an immense amount of fresh capital.
    I shall consider whether or not I will put down the Amendment which stands in my name on the Report stage. If the Chancellor of the Exchequer could see his way to allowing the difference between the 60 per cent, of last year and the 80 per cent, of this year, namely, the 20 per cent. of excess profits being treated as a loan on interest, so that those who really are in need of capital now for carrying on either their normal business or the business which has been increased very much by diversion to war purposes, shall be able to borrow money upon the loan which would meet their present pressing necessities, and certainly after the War leave them with a fund, which fund would be available for that capital, either for recovering their former position or for developing their business in such a way as would enable the country generally to meet War Loan obligations. I shall probably put the Amendment down on Report, although I shall have some hesitation in doing so, because I have some reasons for thinking that, whatever may be said by the hon. Member for Huddersfield (Mr. Sherwell) or by myself or other hon. Members, the Chancellor of the Exchequer is not willing to accept the Amendment.
    Mr. GOLDSTONE: I do not follow the hon. Gentleman (Mr. Denniss) in what he has just said, but I think the speech of the right hon. Gentleman opposite calls

    919
    for some brief reply. He, all along, has been opposed to any considerable application of the principle of excess profits, and he seemed to twit Members who sit on these benches for their keen support of this principle, and their desire to absolve anyone associated with them from the application of it to themselves. I failed to follow him entirely. I am not going to touch on the question of farmers for the moment, though I think there is reason for applying the principle to them; but we may take it that the sentiment of the working classes that the Excess Profits Tax should be applied is a very sound and true sentiment. It is the form in which they express their dissent from profiteering, about which we have heard from gentlemen as highly placed as the Prime Minister, and certainly from others lower in the scale, and it seems to me that the Excess Profits Tax is one very sound way the Government has in hand for preventing profiteering, and for preventing those who have applied this system of profiteering from reaping the unfair reward of their treatment of the working classes who have recourse to them in the ordinary way of business.
    For my part, I wish to support the Government in their policy of maintaining the Excess Profits Duty at a high level, and I think the sentiment so frequently expressed in this House in the early days of the War that no person ought to be able, as the result of the War, to make any more profit than he did in pre-war days, is entirely sound, and I am surprised to find that there are so many ready to depart from that principle. The change in the expression of the sentiment of the House to-day as compared with the expression we heard when this tax was first applied is to me most remarkable, and to find so many Members now swinging away from what I regard as a sound sentiment seems to me to show a change, possibly, of attitude almost to the War, and certainly towards the conduct of business during the War, which is surprising. The right hon. Gentleman called attention—and I feel I would be out of order in going very far into the details of it—to the Clause which has been put down in the names of labour Members, presumably in their endeavour to protect the co-operative societies from the application to them of this Excess Profits Duty Evidently the right hon.
    920
    Gentleman either wilfully, or because he does not know the principle of the co-operative societies—
    Mr. DENMAN: On a point of Order. On this Clause may we go into the application of the tax to the particular case of co-operative societies?
    The CHAIRMAN: Certainly not in detail, because it is coming up later; but the hon. Member is quite entitled in general terms to reply to the observations, also in general terms, which have just been made to the Committee.
    Mr. GOLDSTONE: It was my intention merely to reply in very general terms to the observations of the right hon. Member for West Islington (Mr. Lough), and if he will only look at the Report of the inquiry into the whole question of Income Tax he will find that those responsible—and they were amongst those who knew more about this question probably than anyone else at the time— laid it down quite clearly that cooperative societies did not in any way make what is termed a profit. Their dividend is in no sense a profit. It is rather a rebate on prices, and therefore there is no real profit, and consequently no excess profit. The two things are not at all comparable, and the right hon. Gentleman was endeavouring, by bringing this question of co-operative societies forward, cither to undermine any opposition which might come from here, or to try to support the principle he was expounding. I am entirely with the Government in maintaining this tax, and I hope they will be very careful about—shall I say?—subscribing to the general principle of profiteering by altering its basis and reducing its application.
    Mr. HOUSTON: I think the Committee, and, in fact, the country at large, are indebted to my hon. and gallant Friend the Member for Altrincham (Major Hamilton) for having raised the question of the farmer in connection with this Excess Profits Duty. My hon. and gallant Friend, apparently, is unaware of the fact that the farmer does not pay any Excess Profits Duty, and that he does not pay any Income Tax on his profits, but only on his rent, and, as he does not keep books, presumably he does not pay any Super-tax. I think if any member of the community has been making profits out of the War, and out of the food of the

    921
    people, it has been the farmer. Personally, I am very pleased indeed that my hon. Friend raised this question, because it has a most distinct bearing upon Clause 19. I am not at liberty, of course, at the present time to deal with that Clause, nor do I propose to refer to it, except to point out that, as we are on the question of the farmer, the farmer is being coddled by the Government, whilst the shipowner is being coerced, and I think we shall be able to show later on that, so far as the charge of profiteering is concerned, the shipowner can free himself from that charge, and the farmer cannot. My right hon. Friend smiles when I say the shipowner will be able to free himself from the charge of profiteering, and I hope on Clause 19 to be able to disabuse his mind of the mistaken ideas which possess him, and which have caused him to put the shipowner in the pillory. At the present moment I would simply impress upon my right hon. Friend, as I have previously done, that it is most unfair to every other class of the community that the farmer should escape, as he has escaped. Not only is he escaping, but the Government are proposing to subsidise him as well as guaranteeing him minimum prices and fixity of tenure and other inducements to cause him to do what I contend is his duty, and what he ought to feel he is bound to do. If coercion can be applied to the shipowner, in my opinion it can also be applied to the farmer.
    4.0 P.M
    Sir G. TOULMIN: Notwithstanding what has been said in this Debate, I have not discovered that there are a great many people who object to this tax. The general opinion seems to be that it is a very fair tax. Nevertheless, in its application there have been found cases of hardship in the way it is applied which might be avoided. I know the case of a young firm who started in 1912. For the first couple of years no profits were made, and the two skilled workmen who started the business themselves only took 25s. per week out of the business, and in consequence of that they are now, having made a success of then1 business, paying what is to them a very large amount in the shape of excess profits; so much so that the excess profits exceed the average profit for Income Tax which this firm has made. They had to take time to pay the excess profits, and they have actually had to borrow money in order to do so. I think
    922
    the position of these small firms which started just before the War merits the attention of the Government, and I think they are entitled to greater consideration than is sometimes shown to them.
    Mr. BONAR LAW: I do not complain of the discussion which has so far taken place, but I do not wish myself to set the example of treating this as a Second Reading debate. I agree with the statement that there is no good in saying the same thing over and over again, and that is a sound principle which I shall try to observe. It has been said that the Excess Profits Tax has had great results, and so it has, and I do not know how we could have financed the War without those results. [HON. MEMBERS: "Speak up !"] I may say that I have often noticed in the case of my right hon. Friend (Mr. Lough) that when he is dealing with the trade which he particularly understands he shows a great deal more common sense than he does when he is dealing with trades that he does not understand. The hon. Member for Leith (Mr. Currie) asked for particulars as to the different sources from which this income is derived, but to do this would involve an amount of labour which I am perfectly certain we should not be justified in imposing upon the officials concerned. As regards the speech of the hon. Member for Huddersfield (Mr. Sherwell), I am quite sure that he does not suppose that I or anyone in my position overlooks the seriousness of the after-the-War-effect of taxation such as that which is now being imposed upon these firms.
    We all recognise that, but I should like to put two considerations before the Committee. Obviously a War like this, with expenditure like this, which is really appalling in its amount, cannot fail to have bad results on the trade of the country after the War. Nobody doubts that, and we must recognise it, and in raising our revenue all we can hope to do is to try and raise it in such a way as will do the smallest amount of harm. After all, the general trade credit of the country will depend upon the trade as a whole. I think everybody will admit that. I know that my predecessor often expressed a view, which I strongly share, that our credit as a nation depends now, and is so good now, because in one way or another we have, been able to raise such a largo amount of money to me-et our expenditure out of revenue. All this has

    923
    a practical bearing on our credit, and I am convinced that when the War ends we shall have a stronger national credit as the result of this War because of the vast amount of money we are raising now as compared with Germany, where they have practically no war taxation at all. Therefore in the end we shall gain rather than lose by having raised such a large amount by taxation at the present time.
    There is another consideration, although it is perhaps not so strong. I am myself convinced from inquiries I have made and the knowledge that has come to me—and this was confirmed the other day by the speech made by the Minister of Munitions—that the revolution in our methods of manufacture which has taken place under the Munitions Act in the production of all kinds of munitions will have a lasting effect in improving the general industrial condition of this country. I am sure of that, and we have at least to put that against the evil results of taxation of this kind. But while I say this I need hardly tell the Committee that I felt myself in making this Excess Profits Duty 80 per cent, that it was a very serious step, and I certainly did not do it without looking round to see if there was any other way of increasing the revenue. To me it was quite plain that this was a question either of increasing the Excess Profits Duty or raising the Income Tax, and in arriving at this decision I was much influenced by the views expressed by hon. Members below the Gangway. I thought that at a time when so many people were suffering privations of all kinds no man could consider himself ill-used who was enjoying a larger income now than he had before the War. But apart from those general considerations, I believe that an increase in the Income Tax would have had worse results than this increase in the Excess Profits Duty. But while that is the case, and while I thought it was necessary to raise taxation to this amount, I felt that I must reconsider many aspects of this tax in order to make it work a little less harshly, and I have tried to do that. Let me refer to what has been said about the hardship in the case of young firms. It is not quite accurate to say that they are treated in the same way as big firms, because the concession we have made, to a considerable extent, helps these small firms. If the Committee will look at the Clause we have put into the Bill specially
    924
    dealing with these firms, hon. Members will see that we have really gone a long way to meet this grievance, and I hope our proposal will have a considerable effect in making the hardship less as regards those young firms.
    But we have done more than that. I should like to express my view as to the duty of a Chancellor of the Exchequer in a case of this kind. At any time the Budget proposed by the Chancellor of the Exchequer represents the view of the Government, and it means that if the Chancellor of the Exchequer insists on his view it is either a case of his view being taken by the House of Commons or a change of Government, or something of that kind. That fact, in my opinion, lays a special duty upon the Chancellor of the Exchequer to see that, as far as possible, his proposals are equitable. I think every Chancellor of the Exchequer has recognised that fact, and I have tried to do so. If hon. Members will look at the Paper as it stands to-day, they will see that I have put down some Amendments which do meet additional cases of hardship, and certainly it is my hope that these Amendments will shorten the discussion and will convince the Committee that we are trying to deal fairly with these matters. I am not going to say anything about the hardship of shipowners, and I hope the Amendment I have put down will shorten the discussion on that subject. Perhaps I may say, in passing, that when my hon. Friend the Member for Liverpool (Mr. Houston) speaks of putting shipowners in the pillory, it is a pillory in which I should like to stand.
    Mr. HOUSTON: Will the right hon. Gentleman say a word about the farmer?
    Mr. BONAR LAW: I had almost forgotten the farmer, but I will say a word about him. I was greatly interested by the enthusiasm with which this case was brought forward, and the hon. Member rather illustrates to me the truth of the proverb that when a monkey has lost his tail he wants other monkeys also to lose their tails.
    Mr. HOUSTON: It was the fox, and not the monkey.
    Mr. BONAR LAW: Perhaps I may be forgiven this slip. The fox, so far as the shipowners are concerned, has only lost a very small part of its tail. With regard to the farmers. I think there is

    925
    a great deal in what has been said by those who have raised this point. I dealt with this matter on the Second Reading of the Bill, and whether my explanation was right or not, at any rate it is the best I can give. We did consider this question, and we found, as a matter of fact, that the machinery to carry out such a policy would be very difficult to organise, and it would involve a great amount of labour, which, in our opinion, would not be justified by the result. The majority of farmers do not keep accounts and consequently the difficulty of getting these facts would be exceedingly great.
    Mr. HOUSTON: If the farmer was assessed at a larger amount than he had earned he would very soon prove what he had earned.
    Mr. BONAR LAW: I do not know how he could do that, and I would like to ask how the hon. Member would like that policy tried with himself. I do not think that would be a very fair method.
    Mr. CHANCELLOR: Will the right hon. Gentleman ignore other people who do not keep books?
    Mr. BONAR LAW: I do not think there are any others who would come under the Excess Profits Tax who do not keep books. There is only one other thing I wish to say in the hope that it may shorten discussion latex on. There is one point in connection with the Excess Profits. Duty which is extremely difficult and complicated. There is an Amendment in the name of a number of hon. Members dealing with the question of stocks. I am not going into it now, but I would point out that to understand the question requires a considerable amount of technical knowledge and an acquaintance with higher mathematics. It is extremely difficult to understand. I have tried to understand it, and I think I do, more or less, but I am perfectly sure that the House of Commons would not understand it without something in writing before them. I propose, therefore, to put our case, and to show what we are going to do in black and white in a White Paper, and to ask the Committee to defer discussion on the point until the Report stage, when they will have had a better opportunity of judging of the methods we propose.
    Sir J. RANDLES: The greatest objection to the working of the Excess Profits Tax in the past has been the difficulty and the delay which firms have experienced in getting their standard fixed. This has been particularly so in the case of controlled firms, where there has been taxation under the Ministry of Munitions and taxation under the Finance Act. If the Chancellor of the Exchequer, now that the taxes have been unified at 80 per cent., could devise some plan or method by which persons liable to pay the tax would know the standard upon which they would be assessed, it would really mitigate the hardship to a very considerable extent. It has been very common for it to take twelve months to get a determination of the payment of a firm or company under the measure as we have had it up to date. Even now that it is unified at 80 per cent, there will be complication to a small extent owing to the retrospective nature of the tax, and unless there is a determined effort in the Departments concerned to get these questions settled there will be very much unnecessary delay in the production of those balance sheets and statements of accounts which the shareholders of the companies concerned are entitled to have. I desire to ask that some attention may be given to this particular matter so that the grievance, not a very serious one but still a very real one, may be mitigated as much as possible.
    Major HAMILTON: May I ask the Chancellor of the Exchequer whether it is a fact, as stated by the hon. Member for the West Toxteth Division (Mr. Houston), that farmers do not pay either Excess Profits Tax, Income Tax, or Super-tax? The case that I have just quoted is that of a farmer whose name is published in the Press, and who at one sale of potatoes made an excess profit of £10,000. Potatoes are the food of the people, and, if the Food Controller cannot prevent excess profits of this sort being made, is it not possible for the Chancellor of the Exchequer, when he actually sees from the Press that such a profit has been made, to ascertain from his officials whether Income Tax, Super-tax, or Excess Profits Duty have been collected? I hope the right hon. Gentleman will give us an assurance that he will go further into this matter. The reason given, that farmers do not keep books and that therefore it is impossible

    927
    to tax them, is not one the country will accept. The country knows that a great many farmers are making enormous and unjust profits by holding up potatoes and other cereals, and I am sure they want the Chancellor of the Exchequer to give an undertaking in the House that he will see what the experts can do to prevent such excess profits. I keenly support the Bill for fixing the remuneration of farmers, and think it is a just Bill, but I do think that excess profits such as those made last week at a sale of potatoes in Scotland should be taxed, and I am sure the right hon. Gentleman will be meeting the wishes of the country, as well as securing a large sum for the Exchequer, if he will meet the point that I have raised.
    Mr. HENDERSON: I have always been a supporter of the Excess Profits Duty so long as it is properly and fairly administered. I know that it is difficult to administer it, but we started wrong. We started at the wrong date, and the result is shown in some cases that I hold in my hand. I take the concrete periods of September, 1914, December, 1914, March, 1915, and June, 1915, and the result is that the man who began the first accounting period in September, 1914, will have paid up to September, 1917, 135 per cent., the man who began in December, 1914, will have paid up to December, 1917, 140 percent., the man who began in March, 1915, will have paid up to March, 1918, 145 per cent., and the man who began in June, 1915, will have paid up to June, 1918, 150 per cent. There is, therefore, a difference of 15 per cent, on these periods. My right hon. Friend opposite (Mr. McKenna) will remember that we had a long debate upon the question of starting the Excess Profits Duty from the commencement of the War, but he would have it, and he justified himself by saying that those who were first in would be first out. Those first in and first out, however, will pay much less by reason of the rise. I do not object to the figure, but my right hon. Friend opposite said that the first 50 percent, would produce £30,000,000 and that the second 60 per cent, would produce £64,000,000. That was all wrong. The first and second accounting periods have produced;£l40.000,000. They are not any thing like done yet, and before they are completely done it will be £200,000,000. I
    928
    do not object, but if £30,000,000 and £60,000,000 were all that were wanted, 30 per cent, and 40 per cent, for the first and second accounting periods would have been sufficient. If the 80 per cent, produces so much more proportionately, we shall have a very large sum indeed. I do not grudge it, but at the same time the Treasury take no reckoning what the sum is going to be when they have got it.
    The Treasury are also apt to forget that a great number of firms paying large Excess Profits Duty have been entirely diverted from their ordinary business. I know engineering shops which have been converted into shell-making factories and so forth, and which for three years have not done a. stroke of their own work. When the War is over they will have to revert to and get back their own business, and I am quite certain that a large amount of the excess profits which they have been able to make will be more than swallowed up in their endeavour to get back to the position in which they were before the War commenced. Machinery will have to be replaced and goodwill brought back, and I am certain that a very large sum indeed, if not the whole of their excess profits, will be swallowed up in re-establishing their business. I am bound to say that the Government arc inclined to be very fair. A good deal has been laid out in plant, machinery, and stock. Heaven knows, what it may realise, and firms stand at a very considerable risk. I should like the right hon. Gentleman to meet these difficulties. It should not be forgotten that machinery which could be repaired before the War for £50 will cost £150 after the War, because the cost of this work has gone up very much. I want him when dealing with the other Clauses referring to repairs, renewals, and depreciation to bear these things in mind remembering that the 80 per cont. is going to bring him a very great deal more money. The 50 per cent, and 60 per cent, brought more than was expected, and the 80 per cent, will bring in more proportionately.
    Mr. HOLT: I am one of those who always said that this tax was a bad tax, and I say so now. It is only defended by the right hon. Gentleman on the grounds of a highway man who says that he must have money. The right hon. Gentleman in a very fair speech told the Committee that the thing which is not sufficiently appreciated is that in a War like this the

    929
    industry of the country must be seriously damaged. There is no way out of it, and the sooner we make up our minds to that situation the better we shall get on. Under the terms of the Act farmers were originally exempted, and they were exempted for the obvious reason that it was quite impossible to make them or anybody else amenable to the Excess Profits Tax when they do not keep books, because you cannot fix on any pre-war standard at all. It is absolutely impossible. I would press upon the Chancellor of the Exchequer whether steps cannot be taken to make the farmers as a class pay precisely the same tax as other people in the same situation. I do not believe it is good for any trade to be told that they are not to be taxed on the same terms as other people because they have got no books. It would be very much better for the farmers if they were made to keep books. We have been told that wages have got to be increased because the purchasing power of money has gone down. It is equally true of everybody else. If a person is only making his pre-war standard of profit he is not making anything like what he was making in pre-war times, and this heavy taxation puts him as regards purchasing power actually in a worse position than he was in before the War. He has not got the same power for repairs, renewals, and extending and developing his business while prices remain what they are to-day. I do not think that consideration has been put before the Committee, but it is a real consideration, and it is just as applicable to the man who is parrying on a large business, because he is just as much affected by the fall in the value of money, as it is to labour. It affects him in precisely the same manner.
    The other consideration I want the Chancellor of the Exchequer to bear very carefully in mind is that, to my knowledge and to the knowledge of everybody engaged in business, this tax is producing the most appalling waste. The fact that the man who controls expenditure is only going to get 15 per cent, out of the expenditure, because 80 per cent, is paid by way of Excess Profits Duty and 5 per cent, in Super-tax, does produce a very bad spirit throughout the country, a spirit of wastefulness and a readiness to chuck away money on all sorts of people who ought not to have it. There is a great deal of harm done as a result of this extravagance. We have all to pay
    930
    for this War, and I am bound to say that the people who feel most strongly the injury that is going to be done to trade by this very heavy taxation had better begin to consider whether the true remedy is not to bring the War to a close and not proceed with this taxation.
    Mr. G. TERRELL: I understand the Chancellor of the Exchequer to make a request that the new Clause, which is down in my name and the names of other hon. Members in regard to the valuation of stocks, should be postponed until the Report stage, and that he stated he would issue a White Paper which would be in the nature of alternative proposals. I quite agree to that arrangement, but it ought to be quite clearly understood that we are not in any way prejudiced by delaying the consideration of this matter. We would like to have an interval of time before the Report stage to understand what the alternative proposals are. It would be only fair that we should have some reasonable notice as to when the Report stage will be taken, so that if we are dissatisfied with the proposals put forward by the right hon. Gentleman, we may be prepared, as we are to-day, to carry the matter to a Division and take the sense of the House upon it. If that is the right hon. Gentleman's intention, I am quite prepared to withdraw the new Clause standing in my name.
    Sir J. D. REES: I desire to ask the Chancellor of the Exchequer a question very much to the same effect as that put to him by the hon. Member for Chippenham (Mr. G. Terrell). The necessity for it is emphasised by what passed yesterday. Upon that occasion a Clause was passed and there was some sort of an understanding that only an attenuated discussion was to be expected on Report, allowed or approved upon a new Clause which was to takes the place of an Amendment designed to effect a certain purpose with regard to double Income Tax. I hope it will be made quite clear that those who vote for this Clause now will not be prejudiced in any way as regards the new Clause which will come on subsequently, providing that the Excess Profits Duty shall be assessed upon actual profits after proper allowances have been made for depreciation and obsolescence of assets, the tax at the present time, owing to faultiness in this respect, being a tax upon working capital. There is another new Clause dealing with valuation, and

    931
    I hope also that those interested in that who vote for this Clause will not be in any way prejudiced.
    The CHAIRMAN: Perhaps I may assist the hon. Member by saying that I have marked the Clauses to which he refers as being in order as new Clauses on Report. The danger arises from hon. Members themselves. If they torpedo their own vessel the responsibility will not be mine. What I mean by that is, if they anticipate, at this stage, what will be in order on the new Clauses as they stand on the Paper.
    Sir J. D. REES: I hope I shall not be torpedoing any vessel by entering a caveat. If entering a caveat is a torpedoing operation I will immediately cease any such operation. It is a fact that the Chancellor of the Exchequer said yesterday—I understood' with your approval, Sir, because the matter came before you several times, and there was a long discussion as to the alternative methods of dealing with the matter by way of new Clauses or Amendments to the Clauses in the Bill—that there was an agreement that there was to be only a short discussion on the new Clause in regard to the double Income Tax. I hope it is understood that no such understanding exists in regard to this matter. The Chancellor of the Exchequer cannot have had me in his mind yesterday, for I strove to protect him against an avalanche of extra-mural Saturday morning oratory against the double Income Tax. Every manufacturer in my Constituency is immensely interested in this new Clause, and I hope there will be an understanding that there is to be a full discussion.
    Mr. TERRELL: May I make the matter quite clear? I understood that the Chancellor of the Exchequer merely referred to the new Clause relating to the valuation of stocks, but that the new Clause as to depreciation will be proceeded with when it is reached in the ordinary course to-day.
    Mr. BONAR LAW: That was my intention. It was only a- recommendation to the Committee, who are perfectly free, as I understand it, to take whatever discussion they like when they come to the Report stage.
    Mr. ARTHUR RICHARDSON: I should like to put a question to the Chan-
    932
    cellor of the Exchequer in regard to the case mentioned by the hon. and gallant Member for the Altrincham Division (Major Hamilton)—the case of a farmer who made a profit of £10,000 on potatoes. I would ask the right hon. Gentleman whether he will cause inquiry to be made into this case? It is a specific case and a public one. I think he will find that this farmer or tradesman does keep books. If the right hon. Gentleman finds that he is paying Income Tax and that he does keep books and has made a profit of £10,000 on these potatoes, I trust he will charge him with Excess Profits Duty.
    Major G. COLLINS: I hope the Chancellor of the Exchequer will reconsider the Excess Profits Duty before the Report stage. Several points have been put before him this afternoon and on the earlier stages of this Bill in regard to the matter. I have been asked to bring before him certain cases where businesses were started immediately before the War, and in regard to which the 80 per cent. Excess Profits Duty is a very heavy burden upon the partners. Various points of view have been placed before the right hon. Gentleman, and I only wish to ask him to consider the whole subject before the Report stage is reached.
    Mr. CURRIE: I wish to ask the Chancellor of the Exchequer two simple questions. I am not quite aware whether his promised White Paper is to cover the question of depreciation?
    Mr. BONAR LAW: No; only stocks.
    Mr. CURRIE: The other question is what is the legal position of the farmer who made the profit to which reference has been made in regard, not to Excess Profits Duty, but to Super-tax. If he admits that he made £10,000, he is of course liable for some Income Tax, but what about Super-tax?
    Mr. BONAR LAW: He is liable to pay Super-tax and Income Tax in another form.
    Mr. CURRIE: Will this particular farmer be assessed for Super-tax?
    Mr. BONAR LAW: I did intend to verify the case. Of course, I could not put a tax upon an individual. I do intend to have this case investigated. I should imagine that the man who sold the potatoes was a dealer and not a

    933
    farmer. As regards Super-tax, a farmer is only liable to Super-tax under the system upon which he is assessed.
    Sir SAMUEL ROBERTS: As one of the Members who put down the new Clause mentioned by the hon. Member for Chippenham (Mr. G. Terrell), I entirely agree with what the Chancellor of the Exchequer has proposed, namely, that the matter should stand over till the Report stage, and that he will, in the meantime, issue a White Paper. It would be a convenience to the Committee at this point if the Chancellor of the Exchequer would tell us what his position will be when the Clause with regard to depreciation comes on. This is a very important matter. I am not without hope that an agreement may be come to upon it. If the Chancellor of the Exchequer is in a position to make any statement as to his views on that Amendment, it would be convenient if he could make it now.
    Mr. W. RUTHERFORD: I should like to ask the Chancellor of the Exchequer whether he has given further consideration to the difficult position in which young undertakings and companies are placed in the working out of the Excess Profits Duty?
    The CHAIRMAN: May I repeat that I am a little afraid of hon. Members torpedoing their own vessel? There is a new Clause—I think more than one— dealing with these very questions. Would it not be better to get on to that point, and to raise them specifically on those proposals, rather than to anticipate them now?
    Mr. RUTHERFORD: I quite agree that that would be the most convenient course. Our difficulty in passing this Clause, which deals with the duty, is that we do not know what attitude the Government is going to take upon this particular point. It is all very well to be asked to pass this Clause as it stands in Committee, and to say that we can discuss these points on some future occasion, which, in fact, may never arise. We do not know what the attitude of the Government is going to be in respect of them. I intended to-day to point out that in the collection of the Excess Profits Duty the only real unfairness or injustice which, so far as I am aware, has come to light is that which arises from the fact that a very
    934
    large number of companies and undertakings only came into reasonable profit in the accounting period. I suggest that we are entitled to a little more light before passing this Clause, rather than that we should be referred to new Clauses which private Members have had to put down in the hope of doing something to mitigate the unfairness which undoubtedly exists. We are entitled to ask the Government for some general pronouncement on a subject of that kind when we are passing this Clause. During the last twelve or eighteen months my attention has been called to a large number of cases in which inequality and difficulty have arisen. The Board of Referees have had no power to do anything except fix a hard and fast percentage on capital, and, inasmuch as the capital of all kinds of undertakings bears, as between one company and another, too real relation to the value of the undertaking, the amount of the percentage of pre-war profits which the Board of Referees has been able to give has proved in many cases hopelessly inadequate, and as between one company and another hopelessly unfair to the concern which is only just coming into something like profit. If we understood that by passing the Clause the Government were prepared to do something—it does not matter what, so long as it is something of a substantial and real character—towards removing this class of grievance, it would help us, perhaps, to withdraw a number of those Clauses which have been put down and to substitute something of a character that would meet with the approval of the Government. All I am asking at this stage is if the Government can see their way to give some general indication as to whether they will be prepared to entertain this subject in a sympathetic manner, and if they tell me they are I believe it will very much shorten our discussion when we come to the new Clauses purporting to deal in some degree with these questions.
    Mr. P. A. HARRIS: As one of those who strongly believe in the principle of the Excess Profits Tax, I am glad that the Government have taken a strong line in regard to this question. But I think some concession is due to the small businesses that came into existence just before the outbreak of war. Only to-day I came across the case of two brothers in business. The elder brother inherited an old-estab-

    935
    lished concern which, before the War, was bringing in a very large income—some thousands of pounds annually. That income has remained stable, no doubt, by ingenuity in charging up many expenses not necessarily to be charged to profits, and it has consequently not become liable to the Excess Profits Tax at all. But, on the other hand, the younger brother, who did not come into an established business, but started on his own account a year or two before the War and never made a penny of profit before the outbreak of war, getting but a very small return on the capital he had invested, has been able, since the War, to considerably develop his business, and now the whole of the profits have actually gone in Excess Profits Tax because the profits accruing in the accounting period before the War were practically nil. I think if the ingenuity of the Chancellor of the Exchequer can be brought to bear upon this matter before the Report stage and if he can find some way of making a concession to those businesses which showed no profit before the War, but which are now made liable to the Excess Profit Tax, he would add a great deal to the popularity of this tax. The hon. Member who brought this Amendment forward has done considerable service. I entirely agree with the attitude of the Chancellor of the Exchequer that you cannot possibly have taxes dealing with special and exceptional cases. But I can assure the right hon. Gentleman that this is not an exceptional case at all. Whether he is prepared to introduce the principle of making farmers liable for Income Tax as well as the Excess Profits Tax, is no doubt a big question. I very much doubt whether this Government or the Chancellor of the Exchequer can sec their way to take such a strong measure as that. At any rate before the War this Government had the courage to tackle the principle, and there seems no reason why farmers should not be dealt with in this way. Still, I do not think we can expect the Government to deal with the main principle at this stage. I should like to point out that farmers in the last year or two have not been confiding themselves to their legitimate trade of growing produce for the market. It is quite common knowledge that in recent years farmers have gone in for buying and selling without placing goods on the market, in very much the same way as business is done on the Stock
    936
    Exchange. It is, in other words, "profiteering." It is quite a common thing for farmers, in addition to making money by selling their own produce, to go to the market and deal in cattle which are never transferred to their land, and never, indeed, moved by them from the marketplace. I suggest the profits made in that way should come within the purview of this tax, and I think it might, perhaps, under the Defence of the Realm Act, or by some other means, be made imperative that this sort of trading should be declared to the Revenue officers and become liable to Income Tax. If we are to get to the bottom of profiteering, then the Chancellor of the Exchequer has here the best instrument in his own hands. We do know that in many industries, owing to this tax, prices have been kept down because it has not paid the manufacturers to put on the full profits as they would have done in the ordinary way, because they knew the great part of the benefit would go not into their own pockets but into the pockets of the Chancellor of the Exchequer. If profiteering is carried on by farmers by way of buying and selling produce without its actual transfer to their own holdings, then I say it should be made subject to Income Tax, and the result of so making it, if it did not very much discourage the practice, would be to provide a useful source of revenue.
    Sir FRANCIS LOWE: Many of us are very anxious to know what the Chancellor of the Exchequer is going to do with regard to the valuation of stocks. But there are two other matters on which the minds of traders and manufacturers are very-much exercised at this moment. One is with respect to the allowance to be made for obsolescent assets, and the other is the question of young companies which were making no profits before the War. It would seem, from statements I have received from various traders, that in this matter they have a very genuine grievance, which certainly requires to be met in some way, and if the right hon. Gentleman can give us some assurance that he is prepared to some extent to meet that grievance it will afford very much satisfaction.
    Sir WILLIAM PEARCE: I also should like to refer to the anxiety which is felt on the three points which have been mentioned by a very large number of traders who are anxiously awaiting an announce-

    937
    ment from the Government on the subject. I think such an announcement would expedite matters very much.
    Mr. BONAR LAW: With regard to the first of the three points—valuation of stocks it has been agreed that the consideration of that should be postponed. As regards depreciation, we have been in constant communication week after week with the heads and representatives of firms concerned, and we have come practically to a decision on the matter which we hope we shall be able to get through.
    Sir F. LOWE: Are we to have a White Paper on it?
    Mr. BONAR LAW: The matter will be fully explained when we reach that particular Clause. As regards young companies, I think my hon. Friend has forgotten Clause 22, which attempts at any rate to deal with this question. If my hon. Friend wishes to raise the case of particular industries, he can do so when we come to the Clause, but I cannot hold out any hope that we shall be able to give special treatment in such cases.
    Mr. FRANCE: Can the right hon. Gentleman say if the arrangement to which he has referred has been made public, and, if not, will he take steps to inform the House what it is?
    Mr. BONAR LAW: When the subject comes up for discussion the position will be made clear.
    Question, "That the Clause stand part of the Rill," put, and agreed to.

    CLAUSE 18.—(Increase of Bate of Excess Mineral Rights Duty.)
    Section forty-three of the principal Act {which relates to Excess Mineral Rights Duty) shall have effect as if eighty per cent, of the excess were substituted as the rate of duty for sixty per cent, for any accounting year commencing on or after the first day of January, nineteen hundred and seventeen, or, in the case of an accounting year which commenced before that date but ends after that date, as if eighty per cent, were substituted for sixty per cent, as respects so much of the excess as may be apportioned under this Act to the part commencing on that date, and any additional duty may be recovered accordingly.
    Mr. CURRIE: I beg to move, at the end of the Clause, to add,
    "Provided always that no person shall be liable to pay or shall have been deemed liable to pay as Excess Mineral Eights Duty in any accounting year any larger sum than—

    (a) fifty per cent, of the excess rents or lordships actually received by him in the accounting years to which Section forty-three of the principal Act, 1915, applies as compared with the rents or lordships actually received by him on the average of the pre-war years selected by such parson in terms of the provisions of the said principal Act;

    (b) sixty per cent, of the excess rents or lordships similarly received by him in the accounting years to which Section forty-six of the Finance Act, 1916, applies as com pared with the foresaid average; and

    (c) eighty per cent, of the excess rents or lordships actually received by him in the accounting years to which this Section applies as also compared with the foresaid average."

    The Chancellor of the Exchequer, on the Second Reading, gave us a sort of promise that he would look into the position of this burden on mineral rights before the Committee stage of the Bill. The object of the tax is to extend the same treatment to men engaged in this business as to other traders. It is well known to the Chancellor of the Exchequer and the Treasury that I am not in the habit of advancing extreme pleas on behalf of landlords in any way whatever. But according to the system of reckoning the tax the pre-war rent value is the sum payable as rent in each of the three pre-war years, arrived at by applying the lordships past average price of coal in these areas to the output or sales in the accounting year. It will be observed that the excess is only hypothetical, or may be only hypothetical, and the result of the practice is that a mineral owner actually suffers loss of income, yet, on the theory of the Inland Revenue interpretation of the Act—which I think is technically correct—he is, nevertheless, liable to pay the Excess Mineral Rights Duty. May I give some figures to show what has really occurred? In one case there was a pre-war output of 10,000 tons on which' the lordship payable was an average of 1s. per

    939
    ton. The pre-war rent or value therefore came to £500. But the output in the accounting year is reduced to 5,000 tons and the lordship payable on that is 1s. 6d. per ton, thereby providing a rent on the accounting year of £375. The landlord consequently suffering an actual loss in rent of £125. He nevertheless has to pay the Excess Mineral Rights Duty according to the Inland Revenue theory. The output in the accounting year was 5,000 tons which, at 1s. per ton, gave £250. But the same output at 1s. 6d. per ton produced £375, thus showing an excess of £125, and on that there is now payable to the Government 60 per cent, as Excess Profits Tax, or £62 10s. In that way it comes about that the mineral owner suffers an actual loss in two ways—in the first place there is a reduction of rent of £125, and in addition to that on a purely hypothetical assumption he has to pay the Government an excess tax of £62 10s., a tax which, under this Clause, will be even more than that. That was never the intention of the Act. There are, it is true, only a few of these cases. I do not seek to challenge either the tax or the basis or method of calculation, but I do propose that a mechanical bar should be placed at a certain point. I think the Chancellor of the Exchequer will see that the present practice is tantamount to telling a man that although his income is decreased he must pay an Excess Profits Tax. Surely the right hon. Gentleman might be content with leaving the man his old income and not reducing it by making a claim for excess profits on a hypothetical profit. The very fewness of the cases strengthens the claim for justice because these people are not in a position to raise an agitation. The answer made last year was that the coal was there and it would be all the same a hundred years hence. But I do not think that that is an answer which the Treasury are entitled to return, and I hope the Chancellor of the Exchequer will do something to meet those cases.
    5.0 P.M.
    Sir G. YOUNGER: I think the whole complaint arises from the fact that the ordinary person assumes that an Excess Profits Tax is meant to be a tax upon some profit actually realised and not upon a purely hypothetical construction of the Clause by officials of the Inland Revenue. No doubt they probably knew quite well when the Clause was passing through the
    940
    House that they intended to construe it in. this way. But surely no one else did, and it seems rather an absurdity that a man whose income is actually reduced owing to the fact that the output of coal is very much less should have to pay excess profits because the royalty upon the coal in the present year is 2s., while the royalty upon it in the pre-war was 1s. If on 10,000 tons raised in pre-war days he paid 1s. a ton and he now pays 2s. a ton on the 5,000 tons, obviously his income is the same; yet the Treasury think they are entitled to say that because he gets an extra shilling on the 5,000 tons he ought to pay an excess profit. That is the complaint which arises, and is the reason for the Amendment of my hon. Friend. It is impossible for an ordinary layman to construe these Clauses. We pass Clauses in this House very often on the assumption that they mean what they do not mean in the least in the eyes of experts. We have assurances that they mean a certain thing, and we find very often afterwards that the officials construe them to mean something entirely different. I have no doubt this is a Clause of that kind. No doubt my right hon. Friend the Chancellor of the Exchequer has been deluged with papers in regard to this, and I am quite sure he is desirous to be fair in what is done.
    Mr. BONAR LAW: I have not been deluged with papers about this, and indeed I think my right hon. Friend opposite (Mr. Currie) is right in saying that whatever case there is is based on the justice of the position. I am very unwilling to reopen a subject which is not affected by this Budget The point was discussed last year, and I know that there was great difficulty in dealing with mineral rights. The Committee will see that it would not be fair to deal with it in the ordinary way simply of a profit. It is not as if only a very small sum were allowed for depreciation. I do think, however, taking the principle of the Excess Profits Tax, there is a hard case when a man has to pay when he has no excess profits. I will promise—not definitely promise—to look into the matter, and unless there is something stronger against the view which I have just expressed than I believe to be the case I will put in a Clause dealing with it on Report.
    Mr. CURRIE: I beg to thank the right hon. Gentleman, and, with that promise, withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Clause ordered to stand part of the Bill.

    CLAUSE 19.—(Special Provisions as to Deficiencies and Losses of Shipping Concerns.)
    In computing the excess profits duty of any trade or business which consists wholly or partly of the business of shipping the provisions of Sub-section (3) of Section thirty-eight of the principal Act (which relate to the repayment or setting off of duty on account of deficiencies or losses) shall not apply in relation to any deficiency or loss in any accounting period commencing on or after the first day of January nineteen hundred and seventeen, and in the case of an accounting period which has commenced before that date but ends after that date, shall not apply in relation to so much of the deficiency or loss as may be apportioned under this Act to the part commencing on that date:
    Provided that—

    (a) where it appears to the Commissioners that the shipping business is carried on merely as ancillary to the principal trade or business, the provisions of this section shall not apply; and

    (b) where the trade or business carried on does not consist wholly of shipping, and the part which does not consist of shipping is not, in the opinion of the Commissioners, merely ancillary to the business of shipping, such apportionment of any deficiency or loss shall be made by the Commissioners as may be necessary to limit the application of this section to such part of the business as consists of shipping.

    Mr. L. JONES: I beg to move, to leave out the word "shipping" ["the business of shipping"], and to insert instead thereof the words "carrying by sea for hire, cargo, or passengers."
    Mr. HOLT: On a point of Order. I want to ask whether this Amendment is in order. The financial Resolution on which tins Clause is founded contains the words
    "Excess Profits Duty on any trade or business deriving profits from shipping."
    It is a somewhat ambiguous form of words. The words in the Bill are
    "Excess Profits Duty from any trade or business which consists wholly or partly of the business of shipping."
    942
    I think there is no doubt whatever that the business of shipping is the business of an exporting merchant. I have discussed the matter with people conversant with the subject and I have not met a single person who has any doubts whatever that in ordinary commercial parlance the meaning of the words "business of shipping" is the business of the export merchant who is a shipper. His business is described as shipping and I think there can be no doubt that the business of shipping is the business of an export merchant. Under these circumstances I submit it would not be in order for the right hon. Gentleman and probably not in order for the Government to move an Amendment, the object of which is to transfer the burden from the exporting merchant, whom it is proposed to tax by this Bill, to the owner of ships, who is a trader of a totally different character. I submit that this is an Amendment which it is not competent for my hon. Friend to move. If there is a real difference of meaning between the words "business of shipping" which is introduced in this Bill, and the terms which my right hon. Friend proposes to insert, one of two results happen; either the Clause as originally drawn is not in accordance with the financial resolution, or the Amendment will not be in accordance with the financial resolution. In that case either the original Clause must be wrong or the Amendment is wrong. It is not possible to alter a Clause by way of an Amendment, even if the Amendment were within the terms of the Financial Resolution. It that case it would have to take the form of a new Clause.
    Mr. BONAR LAW: Perhaps I might assist in coming to a decision. My legal advisers tell me that my hon. Friend (Mr. Holt) is quite wrong in his definition of what shipping means.
    Mr. HOLT: The business of shipping.
    The CHAIRMAN: I appreciate the point, which I think is this: The hon. Member claims that the words of the Clauses in the first place, and the words of the hon. Member for the Rushcliffe Division (Mr. L. Jones) in the second place, both would tax the persons who are not taxed by the Ways and Means Resolution.
    Mr. HOLT: No; we say one or either of them—the Amendment or the Clause.
    The CHAIRMAN: I will take them both together, and what I have to say will deal with both. I perfectly understand the point. In commercial parlance the hon. Member states that by the business of shipping is usually meant the business of a person who exports or imports goods.
    Mr. HOLT: Who exports goods.
    The CHAIRMAN: Who exports goods, and not a person who owns the ships on which those goods come. The point I consider it is my duty to look at is this: Was the Committee under any misapprehension when it passed the Ways and Means Resolution? If the Government have slipped into the vernacular instead of adopting a trade term I do not know that it is in my province to criticise them on that point, but I have to guard the rights of the subject in the matter, and I cannot bring myself to think the Committee, in view of the discussion which then arose, and in which the hon. Member took considerable part, was in any doubt as to who was the subject of taxation when the Ways and Means Resolution was passed. Therefore I am bound on that point, I think, to give my ruling that no point has arisen which calls for my interference.
    Mr. RUTHERFORD: If that is your ruling, is not the Amendment entirely unnecessary?
    The CHAIRMAN: It is another kind of definition, corresponding to some extent to the words which the Government have given notice to insert.
    Mr. L. JONES: On the point of whether the Amendment is necessary or not, I think the Government have recognised that some Amendment is necessary, and the point of Order raised shows that it is exceedingly desirable we should at any rate at this stage make perfectly clear who it is that we intend to tax. I agree, if I may venture to say so, that the House was under no misapprehension as to who the Chancellor of the Exchequer intended to tax when he produced his financial Resolution. But I do think both the Resolution and the words in the Bill have left the point exceedingly vague. It has been the custom of the trade, according to all the testimony I can get together, to treat the business of shipping as meaning the business of an exporting merchant. The people whom my right hon. Friend
    944
    intends to tax, and whom the House intends to tax in the Resolution, are shipowners. The hon. Member will see the meaning of the definition which I have put down. Charterers of ships must he included, and I think all the cases whom he intends to tax are covered by the words of my Amendment. "The business of carrying by sea for hire, cargo, or passengers." I think if the Chancellor of the Exchequer will look into it, that Amendment is preferable to the one he has put on the Paper. It shows that the business of shipping means the business carried on by the owners of ships. But this very Clause with which we are dealing says that more than one business may be carried on by the owners of ships. He himself points out that in some cases the business carried on by the owner of ships is merely ancillary to another business which the same person may be carrying on, and yet under the words of this definition, as far as I can make out, we shall be taxing the whole business. But perhaps the proviso would take it out. But that is putting the thing in in order to take it out again, whereas I submit the more logical and sensible way is simply to define exactly what the business is that you mean to tax. I submit that is completely done by the words which I suggest, "carrying by sea for hire, cargo, or passengers."
    Mr. BONAR LAW: I am sure my right hon. Friend does not wish either to dispute or take up time about what is simply a question of definition, but I think ours is better, and I hope he will be convinced of that by my pointing out to him one simple fact, that this definition was put down by a shipowner, and our definition is also a legal one.
    Mr. RUTHERFORD: It would also leave entirely out the case of the men who have made very large sums of money by becoming the owners of ships and parting with them to other people.
    Mr. HOLT: I think this question of a definition is one that must be taken seriously. It is quite true that it is only a question of words, but it is absolutely necessary to express on the face of the Act without any possible doubt exactly who the people are upon whom the tax ought to fall. I do not think anyone would dispute that proposition; therefore the question of definition is a matter of very serious moment. I think we must

    945
    discuss the whole question of definition now instead of waiting to have a separate discussion later on. Let us Bee what the Government definition is.
    It is the business carried on by the owner of a ship. What does that mean? What is the business carried on by the owner of a ship? There is no standard business carried on by owners of ships, and his own Clause recognises that in paragraph (a). If the definition of shipping business is the business carried on by the owner of a ship the principal trade or business is, by the definition, part of the shipowning business, because it is carried on by the owners of ships. If you take the Government's definition any single thing which an owner of one ship docs is shipping business. I really do not think it can be seriously controverted that that would be the effect of inserting the words proposed by the Government, that every single thing done by any person who owns one ship in the matter of business would be the business of shipping. I should like to point out some of the businesses which to my knowledge are carried on by owners of ships. There is marine insurance, there is acting as a shipbroker, moneylending, the ownership of docks and railways, general merchant's business, co-operative societies, ship chandlery and soap manufacture. Sunlight soap is carried on by the owner of a ship. I take it that under this definition the whole business of Sunlight soap would be affected. I think I have made good my case that the Government definition is quite a hopeless definition. It defines nothing at all. I think I am also entitled to say this is a matter of the most serious moment, and I press the Government, if they will not accept my right hon. Friend's words, to come forward with a definition which has some real meaning and sense in it.
    Mr. HOUSTON: I think this Clause ought to be redrafted. I entirely agree with the remarks of the hon. Member (Mr. Holt), and I could amplify them. The right hon. Gentleman (Mr. Leif Jones) is only going to bring in the business of carrying by sea cargo or passengers, but there is a very great business done in livestock, which is neither cargo nor passengers, and he would have to introduce the word "livestock." But I think the Amendment of the Chancellor of the Exchequer is perfectly hopeless. I should like to see them all roped in. He suggested that I was like the fox who had lost
    946
    his tail and wanted to see others without their tails. I should be glad to see this done.
    Mr. BONAR LAW: I hope we shall not waste time over this. No definition by the greatest draftsman who ever lived would cover every possible case. This definition is plain common sense, and it is that when we say shipowner we mean shipowner. Later on in the most careful way the meaning is defined so as to show in what respect people carrying on other businesses connected with shipowning will be dealt with. That is an entirely different thing. You cannot possibly get every single case, but for all practical purposes this is quite good enough, and it is really taking up the time of the Committee to discuss it further.
    Mr. PRINGLE: It is a most extraordinary doctrine which has just fallen from the Chancellor of the Exchequer that it is a waste of time to consider the exact definition of the persons whom you desire to tax. The definition which the Government has put on the Paper in its absurdity only equals the looseness of the reasoning upon which this Clause is based. The arguments which have been put before the Committee by my hon. Friend (Mr. Holt) show how absurd the definition is. If it be that the business of shipping is the business carried on by an owner of ships, the whole Canadian Pacific Railway would come within the business of shipping because that is a business carried on by the owners of ships. Surely it is the duty of the Legislature m passing Acts of Parliament to see that they use words which will carry out the purposes they have in view. It is not simply a matter for the Chancellor of the Exchequer, but he has able technical advisers who should enable him to place in the Statute words which are intended to convey his meaning. In this case you began by using in the Resolution a popular term without any legal significance, and having used it in the Resolution you then use it in the Clause. Now being faced with the difficulties, the right hon. Gentleman endeavours to meet them by putting in a hopelessly absurd definition. It seems to me that the definition proposed by my right hon. Friend (Mr. Leif Jones) is far better than that of the Government. After all, carrying by sea cargo and passengers for hire is something which is known to the law at

    947
    present. It is the general description of the whole of this business, which is treated of in all legal text-books dealing with this branch of the law. You have, therefore, a definition of a business which is at present known to the law. That is the definition which my right hon. Friend seeks to put into the Bill. In place of that, the Chancellor of the Exchequer put forward a definition which reduces the whole thing in my opinion to an absurdity. If, indeed, the matter ever came to be decided in the Courts, it seems to me that the judge would have some very satirical observations to make upon the competence of the Legislature.
    Mr. McKENNA: Undoubtedly the Chancellor of the Exchequer will agree that the actual words proposed are not sufficiently definite to make it clear what is the particular class which is to be taxed. But in paragraph (b) he seeks, so far as it goes, to answer both the objections taken by my hon. Friend (Mr. Holt). May I therefore suggest that if, when we have discussed paragraph (b), reasons are brought to his mind to show that it does not really cover the whole case, he will keep an open mind as regards reconsidering the definition on the Report stage?
    Mr. BONAR LAW: Of course I shall be most ready to fall in with that suggestion. If it is found later on that our definition does not meet the case, I am quite ready to reconsider it.
    Mr. LESLIE SCOTT: The use of the word "shipping" is very undesirable. Shipping is, in the minds of the commercial community, wrapped up with the idea of shippers and shipping goods. The common use in the Press of the word "shippers" to mean not what it in fact means, namely, merchants who export or import from the other side, but shipowners, is simply a misuse of language, but it is very common. The business in question which the right hon. Gentleman is taxing here is the business of shipowning. In this Clause he should use the word "shipowning" instead of the word "shipping."
    Sir F. BANBURY: I do not think that would quite meet it because of the cases of very large businesses which own a few ships, and under the definition, as I read it, the whole of the business could be taxed in addition to the ships. What is
    948
    really wanted is words to show that profits arising from owning ships shall be taxed in a peculiar way.
    Mr. BONAR LAW: That is done in another Clause.
    Mr. L. JONES: I do not intend to press the Amendment in the face of what the right hon. Gentleman has said and the discussion that has taken place, but I do not think he has justified his own Amendment or has satisfied the Committee that that is really a sufficiently apt description of what is intended. It may be that my suggestion does not cover every case, but it was drafted in conjunction with men who certainly knew the shipping industry very well, having in mind, as they thought, the people whom the Chancellor intended to tax. It is more comprehensive than has been allowed. I really urge on the right hon. Gentleman that before the Report stage he should see whether he cannot find words to describe exactly the people whom he intends to tax. It would be far better to do it now than to fight the matter out in the Law Courts afterwards, when all the ingenuity of the hon. and learned Gentleman (Mr. Leslie Scott) and other lawyers will be brought to bear to determine, not what Parliament intended, but what Parliament in fact said. We know what we intend. Is it not possible that we should say it clearly so that the intervention of lawyers will not be necessary?
    Amendment, by leave, withdrawn.
    Mr. HOLT: I beg to move to leave out the words,
    "(b) where the trade or business carried on does not consist wholly of shipping, and the part which does not consist of shipping is not in the opinion of the Commissioners merely ancillary to the business of shipping, such apportionment of any deficiency or loss shall be made by the Commissioners as may be necessary to limit the application of this Section to such part of the business as consists of shipping."
    The meaning of the paragraph is that where a person owns ships which constitute something less than half of his business this particular provision is not to affect the ships which he owns. There are one or two Argentine railway companies which own their own ships for the purpose of carrying coals to the Argentine and bringing back grain, and

    949
    they compete with vessels of the ordinary British tramp class. Do I understand that it is the intention of the Government that such an institution as the Buenos Aires Great Southern Railway, which owns ships sailing to and from this country, should be placed as regards taxation in a more favourable position than the ordinary Englishman who is the owner of ships pure and simple at Newcastle or Cardiff? Is that really the intention of the Government? There are Messrs. Lever Brothers, the great soap manufacturers, and there is a firm of Liverpool merchants who trade with West Africa, who both own ships and compete with regular traders. There is another set of people, and that is the Co-operative Wholesale Societies, who have their own ships, which run in competition with other traders. It seems to me that any such proposal is extremely unfair, and if this provision is to be carried into law it ought to apply equally to every one who owns a ship in respect of that ship. The distinction between a business which is ancillary, and a business which is not ancillary cannot be justified. So far, I have never heard anyone attempt to justify it, and I defy the Chancellor of the Exchequer to do it now.
    Mr. BONAR LAW: I do not think, having regard to the general difficulties of the Excess Profits Tax, that the Amendment moved by the hon. Gentleman could be accepted. In all taxation of this kind you have to take broad, general lines. It is quite obvious that in doing what we propose we cannot possibly act as the hon. Member suggests, and say that we should take every ship whatever the nature of the, business and deal with it as if it were a ship belonging to a shipowner pure and simple and treat it in this respect. Take, for instance, a big gasworks which has, perhaps, one ship, which plays an absolutely infinitesimal part in its business. No method exists of finding out what is the profit and loss on that, because it goes in with the general business. There are three classes of cases. There are cases where the shipowner carries on a ship-owning business pure and simple. There are cases where the ship employed is absolutely unimportant and an infinitesimal part of the business, and there are cases on the border-line. What we propose is that in all cases where it is really absolutely unimportant it should be left
    950
    out altogether, and in the latter case it should be left to the Commissioners to decide under which category it falls. I see there are Amendments down dealing with the question of the Commissioners, and if the view is taken that it is not fair to leave this decision entirely with the Commissioners, I am prepared to meet that and to say there should be an appeal to Special Commissioners in a case of that kind. Beyond that I do not think it is possible to go, and any attempt to do what my hon. Friend suggests in his Amendment would mean that we could not carry out our proposal.
    Mr. HOUSTON: I am sorry, but I am not satisfied with the explanation of the Chancellor of the Exchequer. I am afraid the right hon. Gentleman does not quite look at this matter with knowledge of these things. Take a foreign railway company which has eight or ten steamers and uses them for carrying coal for the use of their railways abroad and for cargo inwards. These ships carry foodstuffs and general cargo, and are directly in competition with other lines of steamers that are running backwards and forwards to these ports. It would be very unfair if these competing steamers were placed on an advantage over and above the ships owned by shipowners pure and simple. I do not think there can be any difficulty in excluding these ships and bringing them under the same conditions as ships belonging to other shipowners. For instance, we have Lloyd's List, in which the names of ships are entered and above the lists of the ships is the owner's name. These ships as mentioned and enumerated in Lloyd's List could be eliminated altogether from the business of a railway company or of a great soap manufactory or of a gas company, or anything of that sort. I do not think that there is any difficulty such as the right hon. Gentleman suggests, and I hope my hon. Friend will press his Amendment. I could say more on this point, but I do not wish to keep the Committee on a matter which to me is perfectly clear.
    The DEPUTY-CHAIRMAN: Does the hon. Member withdraw the Amendment?
    Mr. HOLT: No.
    Amendment negatived.
    he DEPUTY-CHAIRMANThe next Amendment is in the name of the Chancellor of the Exchequer.
    Mr. HOLT: I have an Amendment.
    The DEPUTY-CHAIRMAN: There is a manuscript Amendment by the Chancellor of the Exchequer which has exactly the came effect as the one in the name of the hon. Member (Mr. Holt). Therefore, I call upon the Chancellor of the Exchequer.
    Mr. HOLT: May we not be informed what is the manuscript Amendment put in by the Chancellor of the Exchequer?
    The DEPUTY-CHAIRMAN: That is what I am about to do.
    Mr. HOLT: There may be other Amendments on the Paper in front of it which we wish to move.
    The DEPUTY-CHAIRMAN: It is my desire to preserve the privileges and rights of the Committee.
    Mr. BONAR LAW: I do not think there is any mystery about my manuscript Amendment.
    Mr. HOLT: What is it?
    Mr. BONAR LAW: I beg to move, in paragraph (a), to leave out the words, "it appears to the Commissioners that."
    That is exactly my hon. Friend's Amendment. It is necessary to omit these words in order to put in later the words which I said we were willing to insert.
    Amendment agreed to.
    The DEPUTY-CHAIRMAN: The subsequent Amendments are covered by the decision which has been arrived at. The next Amendment is to leave out the words "in the opinion of the Commissioners."
    Mr. HOLT: I have an Amendment which is not by any means covered by the decision that has been taken. I beg to move, in paragraph (b), to leave out the words, "and the part which does not consist of shipping is not, in the opinion of the Commissioners, merely ancillary to the business of shipping."
    The paragraph says,
    "Where the trade or business carried on does not consist wholly of shipping, and the part which does not consist of shipping is not in the opinion of the Commissioners merely ancillary to the business of shipping."
    We have got the exact reverse of the proposition put forward before. I think these words ought to be omitted. It is very unfair that a shipowner who is
    952
    carrying on other businesses should be penalised as compared with his competitors who are not carrying on those businesses. A great many shipowners insure their own ships and carry their own marine insurance. If a shipowner who insures his own ships is not to be put in the same position as a shipowner who insures otherwise it will be unfair. Is he not allowed to have his marine account separated in the same way as an under-writer? The effect of this proposal is to make it to the advantage of every person to split up every business he has got into little separate watertight compartments. It hits the man who is carrying on what is the right system at his own risk, and it gives an advantage to the man who covers his own risk with someone else. It hits the man who is a shipowner and carries on the business of a shipbroker. If his broker's business is destroyed by the action of the Government he is prevented from recovering the losses on the brokerage business while his neighbour next door may be put in an advantageous position.
    Mr. BONAR LAW: That is the reverse effect of what is really done. I think my hon. Friend has mistaken the Sub-section. The meaning of the Sub-section is, I think, to the advantage of the shipowner.
    Mr. HOLT: The meaning of the Sub-section is quite plain—
    "Where the trade or business carried on does not consist wholly of shipping, and the part which does not consist of shipping is not in the opinion of the Commissioners merely ancillary to the business of shipping."
    There is no doubt that they will rule that it is really ancillary. Of course they will. Surely "ancillary" means something which is not wholly independent, but which is a minor operation adopted to facilitate the main business. I think the right hon. Gentleman will agree, for instance, that the business of carrying on an hotel by a railway company is ancillary to the business of carrying passengers by train. That is what people generally understand by "ancillary," and I imagine that is what is in his mind in regard to "ancillary." If that is what "ancillary" means it is very unfair, for instance, that if a shipowner possesses a dock and is not able to use that dock and his ships are prevented from going into the dock that he should not be entitled to get consideration for his losses in respect of that dock, but if that dock

    953
    belongs to someone else its owner would get the losses back again. Take the case fof a ship chandler—
    Mr. BONAR LAW: My hon. Friend has not read the passage or he would not make that speech.
    Mr. HOLT: I have read it quite clearly, and I am quite satisfied that an ancillary business is a business which is generally carried on by somebody else, but which for the sake of facilitating the main business is carried on by the person who owns the main business. That is, I take it, what "ancillary business" means. If that is so, the business of carrying on the main business will be penalised when the ancillary business is carried on by a shipowner and not when it is carried on by the shipowner's rival who does not carry on that ancillary business.
    Mr. L. JONES: I think the Chancellor of the Exchequer has not quite realised my hon. Friend's object in leaving out these words. He seems to forget that in this Clause we are dealing with the making up of losses in trade. My hon. Friend's point is that a shipowner who has, say, the business of a dock ancillary to his shipping business, and he makes losses in the working of that dock owing to the action of the Government, he ought to be allowed to include those losses as part of his losses to be made up out of any funds that may be available when this Clause is passed. It is from that point of view, the making up of losses, that this Amendment does become of some importance, and I think it is an Amendment the importance of which the Chancellor of the Exchequer has not quite realised.
    Mr. BONAR LAW: I do not see it now. The position is as I explained it on the previous Amendment. There are cases where the owning of a ship is so small a part of the business that it cannot be taken into account at all. There are other cases where shipowning is not the whole but a considerable part of the business. This Section makes an arrangement whereby in the case referred to, where the shipowner also runs the business of a dock, the owner of the dock would have the right to set against the profits the losses on the dock.
    Mr. McKENNA: I think the misunderstanding, which is a very real one, arises from the similarity of the language in paragraphs (a) and (b), which refer to quite different matters. In paragraph (a) we
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    are dealing with a particular trade or business which is not a shipping business but to which shipping is ancillary. We have all got cases in our mind in which we can properly describe shipping as ancillary to the principal business. For instance, take the case of a railway company which owns a passenger steamer. There the passenger steamer is ancillary to the business of the railway company. When you get to paragraph (b) you are dealing with the principal business, which is a shipping business, and a subsidiary business which is not shipping. The wording in paragraph (b) is to be read in a sense exactly opposite to that in which it is read in paragraph (a). You get there a shipping business which has got ancillary businesses. It is quite clear in my judgment that my hon. Friend is right in thinking that those ancillary businesses ought not to be brought under this Clause. A shipowner in one case, for instance, may carry on business as a shipbroker and as an insurance broker for himself. In both those cases the insurance and the brokerage are ancillary to the ship business. Why should the shipowner in that case not get the relief which either the insurance broker or the ship-broker would get? I would ask my right hon. Friend if in further discussion of paragraph (b) he finds some ground of difference between us he will reconsider the question of differentiation under this Clause. It is so true in the case of a shipping business, where it is the principal business, that you may have a large number of subsidiary ancillary businesses which ought not to be brought under the operation of this Clause, that I am sure that upon reflection my right hon. Friend will agree that there is substance in this point, and while I am not quite sure that the Amendment proposed by my hon. Friend is the right Amendment, still there is a distinction to be drawn between the case where shipping is the principal business and the case in which something else is the principal business. I hope that, if my right hon. Friend is unable now to accept this Amendment, he will keep it in mind between this and the Report stage of the Bill and will inquire further— although he knows better than I do; still, I have had to make some inquiries in the matter—as to the large degree in which shipowners do carry on businesses which are ancillary to shipowning and which ought not in fairness come under the operation of this Clause.
    Mr. LESLIE SCOTT: I desire to support my hon. Friend's Amendment. It really raises in a rather critical form what in my opinion is the essential vice of this Clause, namely, differentiation in taxation between one industry and another. I for one, though this is not an appropriate place to go into the reasons, am strongly opposed to the form of taxation which picks out one industry and taxes it while leaving other industries untaxed. The Chancellor of the Exchequer is saying to the Committee, "I agree that the practice of averaging profits against losses which is embodied in the Finance Act of 1915 is a just practice as regards every industry except shipowning, and I do not propose, therefore, to apply this to any industry at all except shipowning." We shall hear the reason why he applies it to shipowning possibly presently. Let me assume for a moment, which I doubt, that he has good reasons for applying it to shipping, the effect of this Sub-section (b) as it stands is this: Suppose a company like the Peninsular and Oriental Company owns a very large fleet of steamers and takes all its own marine risk, the insurance on its own underwriting account of the hull and machinery of that fleet is a tremendous business, but in every grammatical sense of the word it is ancillary to the shipowning business of the Peninsular and Oriental Company. It is conceded by the Chancellor of the Exchequer that it would be wrong to take from the underwriting business as a whole the right to average its profits. But under this Clause he says, "If I find a business which is not ancillary in the proper sense of the word to the shipowning business, then however big the other business may be, however great its loss may be, I will not allow an average." I am taking the Clause as it is drafted. The result is that the shipowner, who has by this proposal taken from him the right to average for excess profits, makes, we will say in the next year, a small profit on his ships, which, as the Chancellor has told us, on account of requisitioning, will be possibly small, and on his underwriting account he makes a big loss. Then, according to the drafting of this Clause, that big loss is brought into a general account of his business. I just want to satisfy the Chancellor that that is so. As the business is ancillary, no apportionment, such as is provided for in paragraph (b), is to be made. The whole of the profits and losses of the whole business are to be put into one com-
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    mon pot, and the net result may be a loss, whereas there would be no loss if the separate business were taken separately. This is an illustration of the fundamental vice of taking a particular industry and saying, "I will tax that," because you are always up against a question of where you will draw the dividing line between that which is ancillary and that which is not, and the result will be to leave a rankling sense of injustice in everybody. I strongly oppose the Amendment.
    Mr. HOUSTON: I understood the Chancellor of the Exchequer to say that there would be a right of appeal from the Commissioners. I would ask him to put in words to that effect. I would also ask him to whom would the appeal be?
    Mr. BONAR LAW: I am not going to say anything more about this. I think it is perfectly plain, and I think that the only point as to what my hon. and learned Friend has said is that it is another method of saying that he objects to the whole principle of this Clause. But, admitting the principle, there is nothing whatever to object to.
    Mr. RUTHERFORD: Before we go to a vote on this point I would like to know from the Government whether the allegations made by the various speakers are well founded, and whether the effect of the Clause if these words are left in is going to be that, say, in the case of half a dozen steamers coming into Liverpool month after month, two or three of those are going to have certain profits or certain taxes cast upon them which the others are going to escape? If the effect is going to be a differentiation between one taxpayer and another, and that because a man has got a very considerable business in ships they are not to be taxed, and if he has got a very little business and the same number of ships they are—because the word "ancillary" applies first in one direction and then in another in regard to each of these two cases—if the effect of the Clause is going to be unfair as between one owner and another, then personally I shall object strongly. It seems to me that the shipping trade ought to be all treated alike. If a big railway company happens to be running half a dozen steamers, why should the railway company escape certain taxation which the man who runs half a dozen similar steamers and does not run a railway has to pay? On the other hand, if

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    there are to be certain advantages and allowances made to the owner of half a dozen steamers provided that he has got a little insurance business, or something of that kind, and those are all going to be denied to him if he has not got such a business, then I think that a case is made out for the alteration of the Clause. What we should try to do is to satisfy the taxpayer that every taxpayer is treated fairly and squarely and given the same measure of justice and the same proportion of taxation. I have listened very carefully to this Debate, and I have not been satisfied that the Clause does that. We have had allegations from people who are in this business, the hon. Member for Hexham and others, that the effect of the Clause, if we leave these words in, is to cause unfairness and differentiation. I would like to know whether that is or is not a well-founded statement.
    Mr. HERBERT SAMUEL: The explanation given by the Chancellor of the Exchequer does not appear to me, at all events, to be very convincing. He says that this Amendment really strikes at the principle of the Clause.
    Mr. BONAR LAW: The arguments advanced in support of it.
    Mr. SAMUEL: As I understand, this Amendment does not raise the point of differentiation as between the shipowner and the manufacturer. It only raises the point of differentiation as between one shipowner who has a business ancillary to his shipowning and another who has not. I do not see, therefore, that the right hon. Gentleman's argument is any answer at all to the case that is made. As I understand it, the case is this: You have two shipowners who have, let us say, the same number of ships of the same value which make the same profits. But one of them does a certain amount of shipbroking, which is a business ancillary to his shipowning, and the other does not. He insures his ships outside and goes to an outside shipbroker. These two men, under this Clause, will be subject to quite different taxes because the ancillary businesses are not allowed to be excluded from the shipowner's accounts when you are dealing with the excess profit under this Clause. That may be right or wrong. I do not see on the face of it how it can be right, but if it is right I think the Chancellor of the Exchequer ought to give us reasons to
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    show that it is right and not merely to declare that those who put this point are opposed to the Clause as a whole.
    6.0 P.M.
    Mr. L. JONES: I am convinced that there is a real misunderstanding, and I want to try to expound it. Again, the Treasury Bench has not understood the point put from this side by four or five of us, and I will try to make the point clear. No one on the Treasury Bench seems to take the point, and they absolutely seem to say that it is stupidity on the part of Members on this side to suggest that there is any point of misunderstanding at all. I am perfectly convinced that the Chancellor of the Exchequer has not understood the point which we have tried to make. We want to be allowed to distinguish between an ancillary business and the business of shipping. As pointed out by my right hon. Friend the Member for Cleveland (Mr. Herbert Samuel), two shipowners may be differently taxed because the businesses are differently managed, and because the shipowner does his own insurance. That cannot be the intention of the Government, yet we believe that is the effect of the Clause as drafted.
    Sir F. BANBURY: I said in the few words that I spoke that I desired that people making profits out of the owning of ships should be subject to this particular tax, and I suggested words to confine the tax to profits made out of the owning of ships as likely to meet the case. If this Amendment is carried the result will be exactly what I outlined. My right hon. Friend said it is met by Sub-section (b) of the Clause, which would read, if amended, "where the trade or business carried on does not consist wholly of shipping, such apportionment of any deficiency or loss shall be made by the Commissioners as may be necessary to limit the application of this Section to such part of business as consists of shipping."
    Mr. BONAR LAW: That is the meaning of the Clause.
    The SOLICITOR-GENERAL (Sir Gordon Hewart): I am not at all confident that I shall be able to throw further light upon this Clause, but, to the best of my ability, I will endeavour to remove what seems to me a mere misapprehension. May I first refer to the Clause itself which is to contain this proviso? The Clause provides that in computing the Excess Profits

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    Duty of any trade or business which consists wholly or partly of the business of shipping the provisions of Sub-section (3) of Section 38 of the principal Act, which relate to the repayment or setting-off of duty on account of deficiencies or losses, shall not apply in relation to any deficiency or loss in any accounting period commencing on or after the first day of January, 1917, and, in the case of an accounting period which has commenced before that date, but ends after that date, shall not apply in relation to so much of the deficiency or loss as may be apportioned under this Act to the part commencing on that date. So far, that is perfectly fair. Then comes the proviso the whole object of which is to make more certain what is the intention of the Clause itself. The proviso has to deal with two contrasted cases in which shipping may not be the only business. There may be a further business which is clearly ancillary to the shipping, but, on the other hand, the further business carried on may be such that the shipping is ancillary to that business. The Bill deals fairly as between one state of affairs and the other. First of all, the proviso says that where the shipping business itself is merely ancillary to the principal trade or business, the provisions of this Section shall not apply. Why? Because in substance and in fact the business with which you are dealing is not a shipping business.
    Then comes the contrasted case. It is in proviso (b) to which the Amendment is proposed. That is the case where ex hypothesi shipping is the principal business, but there is a part which is not shipping, and is not merely ancillary to the business of shipping. Accordingly proviso (b) provides that where a trade or business does not consist wholly of shipping, and the part which does not consist of shipping is not, in the opinion of the Commissioners, merely ancillary to the business of shipping, then these provisions are limited to the shipping part of the business. That implies that if the ancillary or subsidiary part of the business is really part of the business of shipping, it is to be so treated. [HON. MEMBERS: "Why?"] Because it is the business of shipping. [An HON. MEMBER: "No. That is the point!"] My hon. Friend says that is the point. If that be indeed the point, it is not a point of construction at all, it is a
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    point of fact. Be it so. But let us for one moment look a little more closely at the scheme of this Clause as a whole. What is this scheme? Its object is to take away in regard to shipping business a particular kind of relief, namely, the relief by repayment and setting-off. The question is what is a shipping business. The Clause must, if it is going to deal with all shipping business, deal with a business which is wholly shipping, and deal with a business which is partly shipping. If the business is wholly shipping, obviously no difficulty arises. If the business is partly shipping, a further question does arise; Which is the real business — the shipping part or the other part? The first proviso deals with the case where the shipping business is purely ancillary to some other business. As to that, I gather there is no complaint. The second part of the proviso deals with the case where there is a shipping business, the shipping being the principal part, and some other business is being carried on. That other business may or may not be purely ancillary to the shipping business. If it is purely ancillary to the shipping business, this Clause treats both as if they were a shipping business. If it is not purely ancillary to the shipping business, then this Clause does not apply to that separate business.
    Mr. McKENNA: May I put a question to my hon. and learned Friend? As a matter of fact, a considerable number of shipowners insure their own ships, and a large number of other shipowners do not insure their own ships. If the shipowner insures his own ships, then is that business of insuring the ships ancillary or not? Whatever alternative the hon. and learned Gentleman takes, he gets into a difficulty. If he deals with it as ancillary, then he is acting unfairly to those shipowners who insure their own ships. If he does not, then the necessary thing to do is to accept this Amendment.
    Mr. BONAR LAW: I quite understand the right hon. Gentleman's point, and I now see that the objection is to treating a business of the kind which is referred to in the same way as other businesses. The point is, that in any case, however small the other part of the shipping business may be in relation to the shipping, we should not take any proportion on that. I think there may be something to be said for that view, but I will make inquiries

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    and see if it is possible to meet the right hon. Gentleman's point. If the Committee will accept that view, I will undertake to make inquiry into the matter.
    Mr. LESLIE SCOTT: Under the Fourth Schedule of the principal Act of 1915, Rule 7, subsidiary companies, of which the capital is controlled by the parent company, are not to be treated as separate companies for the purpose of the pre-war standard. Will the right hon. Gentleman consider whether that does not affect this question of ancillary businesses, and whether the result may not be that, although the business is in the hands of a separate company, if that company is a separate company, yet in that case it will be treated as one business? That is a very common thing in coaling companies.
    Mr. BONAR LAW: I promise to look into the whole matter.
    Mr. HOLT: I beg leave to withdraw my Amendment.
    Amendment, by leave, withdrawn.
    Amendment made: In Sub-section (b), leave out the words "in the opinion of the Commissioners."—[Mr. Bonar Law.]
    Mr. BONAR LAW: I beg to move, at the end of paragraph (b), to add the words
    "And (c) if in any such accounting period as aforesaid there has been a loss or the profits have not reached the point which would have involved liability to Excess Profits Duty if the percentage standard had been adopted, the same amount shall, as respects the deficiency or loss or so much thereof as is affected by this Section, be repaid or set off under Sub-section three of the said Section thirty-eight as would have been repaid or set off if the percentage standard had been adopted."
    I do not consider it advisable on this Amendment to make a speech dealing with the general principle, but I have no doubt I will have an opportunity of doing that. I, therefore, simply move the Amendment, the effect of which is that the arrangement which I announced, and the reasons for which I explained—I do not think I am able to add anything further to the explanation—is to deal with the trade of the shipowning business. My experience does not agree with that of my hon. and learned Friend opposite as to shipping businesses; on the contrary, my experience has always been
    962
    that it means persons owning ships. At all events, that is my view. The Amendment deals with cases of real hardship. There are particular cases in which the shipowner may find that owing to exceptional circumstances he is actually making a loss this year. Undoubtedly the Government never intended to apply the provisions to a case of that kind, and the Amendment has this effect—that it allows the shipowner to take the standard rate of interest of 6 per cent., and to take also any loss he has made in the current year, and, putting the two together, he would come under the arrangement by which he would get 80 per cent, of the two so put together. I think it really meets cases of hardship. I am not giving up the principle for which I contended. Though I do not expect that those who take the ground that you have no right to treat shipping or any other trade under this Finance Bill differently from other trades will be satisfied, I do feel that we are endeavouring to treat the shipowners as a class as fairly as we possibly can under the circumstances.
    Sir F. BANBURY: I do not quite follow what is the actual meaning of this. Supposing I made a profit in the year 1916–17 of £20,000 excess profits on which I paid Excess Profits Duty and in the year 1917–18 sustained a loss of some thousands, what would happen?
    Mr. BONAR LAW: You could put 80 per cent, of that particular profit against the loss you had, and, in addition to that, you have the right to set off the duty on 6 per cent, on your capital, and that I think makes it certain that in no case will you actually have a loss.
    Mr. L. JONES: The effect is to substitute the 6 per cent, pre-war standard for any other standard you may have.
    Amendment agreed to.
    Mr. HOLT: I have given notice of an Amendment to add at the end of the Clause the following paragraph:
    "(c) applications may be made under Section forty, Sub-section (3), of the Finance (No. 2) Act, 1915, if a taxpayer to whom this Section applies in respect of any past accounting periods notwithstanding the fact that all duty has already been paid by him without any such application having been made and relief may be given to a taxpayer on any such application by way of repayment of duty already paid by him."

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    I think that the Amendment made by the Chancellor of the Exchequer will meet the point. I will not now move this Amendment, but will reserve my right to bring it up later if it should be necessary to do so.
    Further Amendments made:
    At the end of the Clause, add the words,
    "In this Section the expression "business of shipping" means the business carried on by an owner of ships, and for the purposes of this definition the expression "owner" includes any charterer to whom a ship is demised."
    After the words last inserted, add as a new Sub-section:
    "(2) Any appeal under Sub-section (5) of Section forty-five of the principal Act on a question arising, under this Section shall be to the Special Commissioners."— [Mr. Bonar Law.]
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Mr. L. SCOTT: This raises the whole question of the proposal of the Government to take from shipowners, and from shipowners alone amongst the commercial classes in this country, a benefit that was given to all who were subject to the Excess Profits Duty under the Act of 1915. The objections to the Clause that are felt by, I believe, many in this House, and certainly by a large number of business men as well as those who are engaged in the business of shipowning themselves, are very deep. I cannot help thinking that the Clause would not have been proposed by the Government but for the amount of talk there has been in public about the profits made by shipowners, coupled with the suggestion that the shipowners' profits are a large cause of the rise of food prices in this country. I do not want to say much on that subject, but I think it is important in considering this question and the position of the shipowners of this country in relation to the national necessities to bear in mind what are the facts about those prices. Shipping freights have not led to a rise in the price of the quartern loaf of more than ¾d. and to sugar of more than ½d. per 1b. and to meat of more than 1d. per lb., and those who talk about shipowners' profits being responsible for the increase of food prices in this country are talking nonsense. [An HON. MEMBER: "Tea !"] The world does not depend, for-
    964
    tunately, on tea. I am reminded that I exaggerated the case against the shipowners in saying that a 1d.,¾., and a ½d., respectively, were the proportions for which shipowners might be regarded as responsible in the rise in prices. That was wrong. That is the total portion of the cost price of those articles of food attributable to the cost of carriage to this country, but out of that you must take such portion as is due to pre-war freights.
    I am sure this Committee would like to consider these things not from the point of view of any popular attack against the shipowners or any popular odium against the shipowners, but from the point of view of the national interest. On that there are two main points, and the first point to which I attach importance in this way is this. The Act of 1915 was introduced in this House by the Government with a promise to the business community as to the method by which the tax would be collected during the War as a whole. When the proposal was under discussion bitter opposition to it was made on the very ground that if you took one year by itself, as was the proposal of the Bill, you might have a large Excess Profits Duty in that year followed up by large losses in the next year without any recoupment of the tax. It was pointed out that one year should be averaged with another and it was on that basis of an average for a period of years that this House accepted the proposal of the Government for Excess Profits Duty. The Committee will remember that the Section of the Finance Act of 1915 (No. 2), dealing with this matter is Section 38, and Sub-section (3) of that Section provides:
    "where a person proves that in any accounting period his profits have not reached the point which involves liability to Excess Profits Duty or that he has sustained a loss in his trade or business he shall be entitled to repayment of such amount paid by him as Excess Profits Duty in respect of any previous accounting period, such an amount as will make the total amount of Excess Profits Duty paid by him during the whole period accorded with his profits or losses during that period."
    That is the bargain. What was it that was said by the representatives of the Government at that time? The then Chancellor of the Exchequer, the right hon. Gentleman the Member for Monmouthshire (Mr. McKenna), said, speaking on the 13th of October, 1915:

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    "It is not proposed to take an average of the three preceding years, but it is proposed to give the subject the choice of any two out of the three preceding years. Then, again, it would not be possible that a shareholder would be deprived of the whole of his profits for a very simple reason. In the first place lie cannot be charged a tax twice in the same year, and if in the second year the company in which he is concerned makes a loss he is entitled to set off the loss against the profits and to recover the proper amount from the Treasury."—[OFFICIAL REPORT, 13th October, 1915, col. 1408, Vol. LXXIV.]
    That was repeated time after time by the representatives of the Government in this House, and it was upon that fact that the business community of this country submitted on the action of this House to the payment of the Excess Profits Duty. It is perfectly true, as the Chancellor of the Exchequer will tell the House, that under the Amendment he proposed this afternoon the Clause will not operate pecuniarily so severely against the shipowners as it would have in the form in which it was introduced in the Bill, not nearly so. It may be that it will not operate to any great extent, and on that point I hope the Chancellor will tell the Committee what pecuniary result he anticipates from this Clause in the way of Excess Profits Duty being paid. I want to know just how much, roughly, he expects will result to the Exchequer from the Clause as it stands. I think it will be very interesting to the Committee to know what would have been his figures had that Amendment not been accepted by the Committee. It would throw a great deal of light on the position and enable the Committee to discuss realities instead of what may be to a large extent hypothetical or theoretical questions. It might mean a large amount or little, but, whatever it means, there is one principle that I venture to think is of supreme importance, and that is that when the Government has given what is in fact a promise to the community at large or to one section, and it applies even more so where the promise is made to a section, that promise ought to be kept to the letter. The promise made in this House was put into the Act by an Amendment in the clearest possible language and accepted by the business community. Why?—Because they knew that everybody was going to be treated alike. The effect of Clause 19 unaltered is to put one class in a different position from all other business classes, and, so far as they are concerned, to withdraw the promise that was made to them as well as to others.
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    I do submit that that is a principle or the highest importance to be observed in this House. Let me refer to another case to illustrate the matter. There is a case that will be coming up soon in this House—the case of a promise of the Prime Minister made in this House to the farming community of this country, upon the basis of which they proceeded to put forward their very best endeavours to increase the cultivation of grain in this country during the current season. There has been talk, though I am satisfied that the Government intend to carry out their promise, in certain quarters of the possibility of that promise not being fulfilled to the full. I know they will fulfil it. That is an illustration of the extreme importance of carrying out promises which are given. What did the shipping community do? Very shortly after the Bill became law the shipping community had an interview with the then Chancellor of the Exchequer; the right hon. Gentleman the Member or Monmouthshire, on the question of shipbuilding. We all remember at the beginning of 1916 that the common sense of this House and of the country at large was that it was of vital importance, in view of the submarine losses, that we should do as much shipbuilding of mercantile tonnage in this country as possible. A large deputation of shipowners, when the Government had invited them to do so, came to the then Chancellor of the Exchequer, and said: "Unless we know what our position is, we cannot possibly afford, at modern prices, to build ships "—the cost of building ships being something-like three times or more what it was before the War. What did the Chancellor of the Exchequer say? The reply of the right hon. Gentleman to that statement— when they said it would be impossible for them, as prudent business men, to build at the then War prices unless they could meet the extra cost out of war earnings— was a definite pledge. The Chancellor of the Exchequer said:
    "As soon as the value on a peace basis could be ascertained of the vessels they built or purchased at war prices they would be allowed out of their war earnings; is a whole the difference between the price so paid and such assessed value."
    This Amendment, if it has any substance, is an Amendment which is going to take from the shipping community a substantial part of their War earnings which the then Chancellor of the Exchequer promised they should have, subject to the then Excess Profits Duty, to pay for the

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    cost of building. How can the retractation of that promise be justified? Does it matter whether the deviation by the Government from that promise is a big or a little deviation? The honour of the Government was then pledged by what had passed in this House, and that Clause was put into the Act, and by the answer of the Chancellor of the Exchequer to the deputation. It is of primary importance for the honour of the system of government that we have in this country that the commercial community should know that the Government will meet its own Bill. That is the broad question of that principle of a pledge being given to which I ask this Committee to attach the very deepest importance. Now comes the question as to why shipowners should be differentiated against as a trade. What is there the national position? The national position in regard to the shipping industry is this: That before the War we owned 46 per cent. of the total tonnage of the world. During the War neutrals have paid no Excess Profits Duty, no Income Tax, and no Supertax; they have been running their ships at a substantially less cost than British shipowners. They have had a substantially lower percentage of losses from war risks. They have been piling up enormous reserves of capital, filling up every neutral shipbuilding yard with orders for something like eight years ahead. After the War, with all these enormous reserves of capital, with all the, orders placed, they will be in a position in which they will be a tremendous handicap against the British Empire in competition for the maritime supremacy of the world. That is the national aspect of the matter.
    It is perfectly plain. From the national interest point of view the moment the War is over it will be of enormous importance that the shipowners of this country should have money enough to put into new ships. It is absolutely essential, from the national point of view, to make up the losses which have taken place up to date and that may be anticipated as likely to happen during the rest of the War. That being so, it being essential— you cannot exaggerate the degree to which it is essential—for the nation to maintain the supremacy of its mercantile marine; that being so, what answer is it to say, "Oh, but some shipowners, or most shipowners, or all shipowners, have, during the War, made large profits!" It is no
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    answer at all. I submit that it is, from a national point of view, important that the shipowners should be allowed to accumulate reserves rather than that they should be singled out for special taxation. I could understand perfectly the attitude of the Government introducing the Act of 1915 into this House when all industries were to be treated alike and all were to pay Excess Profits Duty. That is intelligible. But why turn round now at this particular moment when, on account of the submarine campaign since the beginning of this year, our shipping losses have been much heavier than before, and say, "I am going to single out the shipping industry and tax you more than other people"? There is only one more point—that is this: The reason I want the figures as to the effect of this Clause is that if, from the Clause, as amended by the Chancellor of the Exchequer, the result to the Exchequer is not going to be large, I say, "Why break your promise to the shipowners for twopence?" If it is going to be large, I say, "It is grossly unjust, it is a breach of faith, and it is contrary to the national interest to deplete the reserves of the shipowners of this country."
    Mr. L. JONES: On the Second Reading of the. Finance Bill I addressed myself very fully to the subject of discrimination against shipping and the shipowners. I do not propose to-day to repeat what I said then, except to say that nothing that has happened since has led me to change my views, and that the discussion to-day has only deepened my conviction that the Government are making a great mistake in discriminating against shipowners. It is a very easy thing for them to do. Shipowners have made, I believe, very large profits. The Government are deliberately trading upon the popular clamour in regard to those large profits to treat unjustly a particular class of traders in the community. I said on the Second Reading that the proposals of the Government were a breach of a pledge. I still think they are a breach of a pledge given by the late Chancellor of the Exchequer when he set up the Excess Profits Taxes. If there was one thing clear about the Excess Profits Tax from the beginning it was that it was to be treated as a tax running for the whole period of the War, that the losses and gains were to be balanced one against the other for that period, and that the words "excess profit" did not mean excess profit in one accounting period, or

    969
    single year, or even two or three years, but that it meant excess profits during the whole period for-which the tax was running. The Chancellor of the Exchequer has made no answer to that charge, and I do not think there is any answer to be made. The point is perfectly clear, and it remains that the present Government have deliberately broken a pledge which was made by the late Chancellor of the Exchequer, which was put into an Act of Parliament by the then Chancellor of the Exchequer, and by this House, and which before it became operative is taken out of this new Act of Parliament in regard to a particular class of traders. The Chancellor of the Exchequer may get his money by so doing, but I venture to say to him that he will lose more in the long run by shaking the confidence of the traders of this country in the bargains which they make with the Chancellor of the Exchequer. The right hon. Gentleman himself is very sensitive in regard to his own bargains—no man more so. There is no one whom I could more rely upon in this House once he made a bargain scrupulously to fulfil that bargain; and I say that he ought to be as scrupulous to fulfil the bargain made by his predecessor in office. It is a very ill omen for his future conduct of the finances of this country that in his first Budget he, as it seems to me, deliberately breaks a pledge very solemnly given by his predecessor. He does it, not on the facts of the case as he told them to us; it was, he told us, because the man-in-the-street thought that the shipowners had made too large profits. I have not got the words of the right hon. Gentleman, but he mentioned the man-in-the-street, talked about popular opinion, and I think he made it very clear that it was the popular opinion, the man-in-the-street, and the daily newspapers which had made a great impression upon the Government.
    Mr. BONAR LAW: What I said was that I was, I thought, a good judge of the man-in-the-street and of the House of Commons, and what I expected was that I should be attacked for not going far enough instead of being attacked for going too far. That is my recollection of what I said.
    Mr. JONES: I accept what the right hon. Gentleman says. Whatever his motives were he is really not going to say that it was facts on which he based his opinion or his reason for this serious de-
    970
    parture from the intentions of his predecessor? My hon. and learned Friend in his speech has given the figures as to the effect of freights upon high prices. I recognise as fully as anyone the great suffering in this country from high prices on common articles of consumption, but it is a popular error, and, really, the Chancellor of the Exchequer ought not to endorse it, to suggest that the greater part of those high prices, or indeed any substantial part of those high prices, are the effect of the rise in freights. The freights in practically every one of these articles of popular consumption is a very small proportion of the whole price. Even the great increase in freights which has taken place does not really produce any substantial rise in the price of the article. All the criticism practically which has come from the man-in-the-street and from the newspapers, as to the profits of the shipowners has been based upon that error, that it was the high freights which had led to the high prices. I do submit that the Chancellor of the Exchequer, of all people in this country, ought not to allow popular errors of this kind to prevail against him. I ask him to-night to endorse what has already been said by my hon. Friend, that freights, high as they are, are no substantial part of the rise in prices that have taken place in food or in articles of common consumption. The truth is that the price of food is high, and freights are high from the same cause, and that is the simple operation of the common laws of supply and demand. The Government must know that as well as anybody else.
    What I feel about this tax, what really arouses my anger, and what has made me interested in the question—for I have nothing to do with shipping—is that from the beginning it seemed to me amazing that the Government of this country, of this island country, which is dependent upon shipping, should of all trades in the world discriminate against shipping. It is the very last trade that I should have expected the Government of this country would treat differentially to its disadvantage. I could have understood it if the Government had suggested special advantages for ships and shipowners, had suggested special bounties to the people who built ships, had they encouraged such people to build ships. But no! This Government, knowing what is the primary need of this country at the present moment—the building of ships, and after the War the building of ships, ships, ships,

    971
    ships, ships, as the Prime Minister has said—this Government, knowing that thoroughly well, having said it in public, have gone out of their way in the Budget to draw a distinction against shipping which places it in a worse position than any industry in the country. What is the meaning of the German U boat campaign? It is partly directed against our food. That is part of our supplies. That part of it, I hope, is going to fail. But it is in large measure also directed against the supremacy of our mercantile marine. I am not so sure that that part of it is failing, and I am confident that what the Government are doing in this Budget is really to help the German campaign against British shipping.
    I want to read to my right hon. Friend an extract which I have here from a Danish newspaper to show what the Germans are doing in regard to shipping at the present time. A neutral, a Dane, paid a visit recently to Hamburg, and had an interview with Herr Ballin, the head of the Hamburg-America Line, and in this Danish newspaper there is an account of what Herr Ballin said to him in regard to what the Germans are doing about their ships. I do not take all he said, necessarily, for gospel truth, but, at any rate, it shows what they wish us to believe, and I think it shows, too, what is going on in Germany at the present time. It is published in the "Berlingske Tidende" of 30th June, 1916. [An HON. MEMBER: "A year ago!"] Yes, but it shows what the Germans were doing then, and I have no reason to think they are doing less now. I have no means of finding out the latest information from Germany, but this is what Herr Ballin says:
    "You know the German's point of view; we are fighting so that the freedom of the seas, and our position as a colonial Power, may be such that we no longer need ' to live as lodgers with England.'…We German shipping people are not sitting quietly doing nothing. The Hamburg-America Line is at present building the 'Bismarck,' the world's largest vessel, which measures 56,000 tons: further the turbine chip ' Tirpitz,' of about 30,000 tons, and three other ships, each of 22,000 tons. At the Vulcan shipyard in Bremen we have no less than nine ships under construction, of which four, with a carrying capacity of 18,000 torns each, will be the largest cargo boats in the world. At the Flensburg shipyard, where there are already three large passenger and cargo boats under construction for us, we ordered a few days ago two ships of 13,000 tons each. Two cargo boats of 17,000 tons each for traffic through the Panama Canal are being built for us by Tecklenburg in Geestemunde. The Hamburg-South America Line is building the ' Cap Polonio,' a considerably improved sister vessel of the 'Cap Trafalgar.' known as an auxiliary cruiser. The Norddentache Lloyd is building at Danzig two large fast vessels, 'Columbus' and 'Hindenburg,' of 85,000 tons each, also 'Munchen' and 'Zeppelin,' of 16,000
    972
    tons each, and about twelve vessels of about 12,000 tons. The Afrika Line is building six, the Mansa Line eight, and the Cosmos Line ten ships, whose size varies from 9,000 to 13,000 tons."
    That is the policy which the German Government are pursuing in regard to the mercantile marine of Germany, and that at the very time when our Government, instead of facilitating the building of mercantile ships, are penalising shipowners, taking from them money which ought to be expended in building new ships, though, if they chose to leave shipowners to get whatever would come to them by leaving undisturbed the bargain made by my right hon. Friend they could earmark that money for shipping purposes, and there would be no difficulty at all. What they are doing really is to cause shipowners to sell out as fast as they can and to go off with such profits as they have realised. Instead of encouraging them to remain in business and build ships, the Government action is driving them out of the business, and, though the Government take their taxes, they are really taking them from shipbuilding in the future. I believe that to be a most dangerous course, and if my hon. Friend will go to a Division I shall certainly go into the Lobby with him against this proposal. I sincerely hope we may divide against it, because I will not be a party to discriminating against the shipping industry, which I regard as the very life-blood of our commercial strength and which it ought to be the first duty of our Government to safeguard and to maintain.
    Mr. HOUSTON: I am mainly concerned in defending the reputation of the shipowner against the charges which have been made against him so freely of being a profiteer and being the principal villain in the rise in the price of the people's food. I mentioned earler in the Debate that I would endeavour later on to defend the shipowner from those charges, and I will now endeavour to do so. The shipowner has been held up in the Press—and principally in that portion of the Press which has supported the Government—as being a rapacious profiteer, and in one paper in particular—a Sunday paper, which usually expresses the views of the Government— the most offensive cartoons have constantly appeared from week to week showing the shipowner to be a sort of bloated villain. The Government know perfectly well that the shipowner is not responsible for the great rise in the price of food, and

    973
    yet they have done nothing during the whole of this period to tell the people of this country the truth. Questions have been asked in this House, but no satisfactory replies have been given. It was only the other day I asked a supplementary question of the Secretary of the Board of Trade, as to whether it was a fact that during the whole period of the War the total freight on meat had never risen above 1d., and in many instances was considerably less, and that the freight on wheat from the United States to this country carried in British bottoms only represented an equivalent of ¾d. on the 4-lb. loaf? He replied to me that we now have the word of a shipowner for that. The Government ought to have known perfectly well that those were facts, and that, as I pointed out, so far as meat is concerned, it is carried for a total freight of ¾d. to 1d. a lb. from the Argentine and from Australia, and yet we have seen increases to the extent of 1s. That is not due to the shipowner, who must be exonerated from that charge, and I call upon the Chancellor of the Exchequer to tell the truth on this occasion so far as the shipowner is concerned.
    With regard to the freight on wheat, for some considerable time past the Government have been directing freights in all directions, or requisitioning ships at Blue Book rates, and the result is that freights in every direction have been controlled by the Government Now we have had a freight of 8s. per quarter of 480 lbs. on wheat from the States to this country, carried in British ships, and if it takes 4lbs. of wheat to make a 4-lb. loaf the freight on a 4-lb. loaf is represented by ¾d., and I hope the Committee will consider, when they talk about the enormous rise in the price of food due to freights, that a freight of £5 per ton only represents a shade over ½d. a lb. Freights have been high, and why? It is duo to the action of the Government. We know perfectly well that after the outbreak of the War there was no increase in freights for some months, and it was not until the Government embarked upon the Dardanelles Expedition and other side-shows, such as Mesopotamia and Salonika, and all that sort of thing, that freights began to advance; and it is also due to the laches of the Government, and not to the shipowner, that freights are high. The Government had neglected for years the building of light cruisers,
    974
    with the result that when war broke out they had no light cruisers to defend our trade routes, and they had to call upon our merchant shipping, and they took away the fast passenger steamers of great tonnage—a very wasteful and a very dangerous action for those ships. Futhermore, when tonnage became scarce, and when they had to employ British tonnage not only for our own requirements in our warlike operations, but when they handed over so much of our tonnage to our Allies, then we had a shortage of tonnage, and the Government had to fall back on neutral tonnage, and it is largely due to the chartering and the employment of neutral tonnage by the Government that the cost of food is so high. I have already said that the Government freight is 8s. per quarter by British ships from the United States to this country, but by neutrals the freight is 42s. 6d. to 45s. per quarter. It will, therefore, be seen why food is high. That money is not going into the pockets of the British shipowner, who is not responsible for those freights. Then, again, the British Government is chartering or requisitioning at Blue Book rates British tonnages, which, so far as the tramp class of steamer is concerned, works out at about 6s. per ton deadweight per month, and at the same time they are chartering neutral steamers at anything from 30s. to 55s. per ton. So you will, therefore, see what an immense amount of British money is going into the pockets of foreign shipowners, and, as my right hon. Friend said, these foreign shipowners are building up enormous reserves which they will be able to use against us at the termination of the War.
    7.0 P.M
    If the Chancellor of the Exchequer will turn to his speeches, he will see that when he introduced the Budget he said it was the popular opinion that the British shipowner had been making too much money, and in a later speech, I think, he will find he did refer to the man-in-the-street. Perhaps, it would be as well for the Committee to understand how British shipowners have been making profits without affecting the price of the people's food. I have already pointed out that the Government have had to employ the large, fast, passenger steamers as armed cruisers, and, taking into consideration that some of these fast, large, passenger steamers go up to 40,000 tons gross register, and that under Blue Book rates the Government pay something like £l to 25s. per ton on that gross register, and on a form of

    975
    charter known as the demise to the Crown form, which means that the Government have to pay all expenses of crew, coal, and stores, one can understand how some of the big passenger lines have been making very considerable profits without in any way making those profits out of the food of the people. Again, some tramp owners have done very well indeed, and those who have done well are those tramp owners whom my right hon. Friend described as owning the well-managed ships—well managed to this extent, that they have managed to evade the clutches of the Admiralty for a considerable period, or they have been able to get released, for we all know kissing goes by favour. I have no doubt the Chancellor of the Exchequer will describe the shipowner who manages to employ his ships in commercial trades instead of having them requisitioned as a very good manager, but there are cases of shipowners who have not made any excess profits at all for the simple reason that they have not earned any.
    They have been running at freights which have not been raised over pre-war rates, with the result that they have not paid anything over the pre-war datum line. The Chancellor of the Exchequer has described those as badly managed because they have not made profits. I have had innumerable complaints on this subject from shipowners throughout the country. I know the case of a man owning three steamers, all of them requisitoned for the whole period of the War by the Admiralty, and he could not show any excess profits, and, as a matter of fact, he could only show losses. He complained to me that his neighbour in the same port also owned three steamers, none of which were requisitioned by the Admiralty, and I presume it will be claimed that those ships were well managed. This Clause inflicts a good many hardships and anomalies in addition to those caused by the action of the Government. Requisitioning at Blue Book rates two ships which in dimensions are exactly the same, but which in gross tonnage are not the same, makes an enormous difference. For instance, the difference between a ship with a shelter deck measured in the gross tonnage of exactly the same dimensions as another ship which has not her shelter deck included in the gross tonnage may represent a difference one over the other of £l,500 to £1,800
    976
    per month. That is one of the hardships of requisitioning, and that is a result which shows itself in this special Clause.
    The point I want to make is that by introducing this special form of legislation against shipowners, picking them out from all others by legislation which is penal in its character, and which penalises them because they have made profits in the past, is altogether unfair, and is opposed to the sense of justice which ought to animate and actuate the Chancellor of the Exchequer. The right hon. Gentleman has not done what he might have done to make it perfectly clear to the Press and others that the British shipowner was not the harpy which he is supposed to be, and if he had done this public, opinion would not have been used and brought to bear upon the Chancellor of the Exchequer to cause him to introduce special legislation for the shipowner. It will be noted that during the period that shipowners have been paying a very heavy sum of money as excess profits those profits have been inflated by the Government themselves. For instance, shipowners, for some considerable period, have not been allowed to repair their ships or carry out their surveys, but they have been compelled by the Admiralty, under requisition, to simply execute temporary repairs and put off surveys, with the result that the ships have been worked at the highest pressure and knocked about, and consequently they have earned more profits than they would otherwise have done if they had utilised the time for repairs and surveys and if they had spent the necessary money upon those surveys. The Government have taken 60 per cent, of those inflated profits, and now they propose to take not another 20 per cent, but the whole of the profits over Blue Book rates. Having done that, the shipowner is to be left to carry out all those necessary repairs at his own cost, and he will have to bear the loss of time while those ships are being repaired.
    It appears to me that the Chancellor of the Exchequer, if the shipowner is the criminal which he is treated as being by this penal legislation, is in the position of being worse than a thief because he is the receiver, for, after having collared 60 per cent, of these profits, he now puts the criminal in the dock, having given false evidence against him, and proposes to take another 20 per cent, from 1st January and afterwards practically the

    977
    whole of the profits. I think the right hon. Gentleman ought to stand by the shipowner and not treat him like he has done. This is not so much a question of money as a question of making it known to the public in this country that the shipowner is not the villain he has been held to be by the Press and the man in the street, and that he is not responsible for the increase in the cost of food, and I trust the Chancellor of the Exchequer will take this opportunity of saying so. The shipowners do not want to be relieved of the burden. They are only too anxious to bear their burden the same as anyone else, but they object to being selected and put upon a pedestal of discredit or put into the pillory. The right hon. Gentleman said he would like to stand in the pillory with me, but I am sure he would not like to be accused of profiteering and grinding the faces of the poor. It is not a question of paying money, because we are prepared to pay, and there is no class of the community who have done more voluntarily than the shipowners have done.
    The right hon. Gentleman admits that they subscribed more freely to the War Loan than anyone else, and he must know-that much of the money they subscribed was paid to them as insurance for ships lost. That money was put aside in order to build new ships after the War and the money invested in the War Loan would be as good as cash. Another thing the Chancellor of the Exchequer must be aware of is that many shipowners have made the great sacrifice, either in their own persons or in the persons of their sons. I know several who have made the great sacrifice, and it is unfair that shipowners should be held up as harpies and villains who only think about making profits and nothing else. I ask the right hon. Gentleman to realise how vital to this- country is the shipping interest. The country would not have been able to carry on the War for one day but for the merchant shipping of this country. That shipping was provided by individual effort, and owes no thanks to the Government, in fact, the Government has done everything it could do in the past to hamper British shipping. It is remarkable that during the period when the Government is doing everything it can to hamper shipping, our Allies are doing everything in the contrary direction. Italy has exempted shipowners from all taxation during the War and for five years
    978
    afterwards, and she is also giving them subsidies. France has been doing the same, and everything has been done in those countries to encourage shipbuilding.
    A great deal is being said about what America is doing. She is certainly building largely, but it must be borne in mind when this War is over that the whole of the shipping which escapes loss will be used for trade purposes, and used against us in trade. The same with Japan. Japan is capturing our trade in the East, and at the present moment, owing to the action of the Government, British trades with foreign countries, which have cost years of work and hundreds of thousands, in fact, millions of pounds, to build up, are being taken away from the shipowners by the action of the Government and handed over to foreigners. The Government have taken away all British ships from this foreign trade, and they are using them in the home trade to carry food to this country. All this, after the War, rather points in the direction of the loss of British maritime supremacy. This country is an island and more dependent upon her merchant shipping than any other country in the world except Japan, and everything ought to be done to increase the building of merchant ships, which we shall badly want after the War. Probably we shall want it badly before the War is over, owing to the-great losses in shipping now going on.
    Where the profits made by shipowners are paid away in dividends the Chancellor of the Exchequer should tax them, heavily, but where money was being put to reserve for building ships it should not have been subject to this tax. I agree with the Chancellor of the Exchequer that if shipowners have been making a big profit and paying a big dividend they should have been heavily taxed, because that is a waste of capital, but capital which is put into a reserve fund and earmarked for building ships should not have been taxed. The Chancellor of the Exchequer cannot fail to take into consideration the position of Spain and Holland when they ceased to be great maritime powers, and if once we lose our maritime supremacy we shall sink to the level of a second-rate power. My reason for raising this subject is not that it is a question of money, but I wish to protest against the charge made against British shipowners, and I ask the

    979
    Chancellor of the Exchequer to do them an act of justice and relieve them from those charges.
    Mr. BONAR LAW: My greatest regret at the moment is that there has not been a larger House to listen to the woes of the shipowners as depicted in the speech to which we have just listened. My hon. Friend (Mr. Houston) appears before us not only as a victim of injured innocence in his own person, but he represents a trade which, he declares, the Government is doing its best to destroy, and he holds us up as guilty of deeds of infamy which it seems to me to be impossible that any Government could do and survive. He does all this because, after very careful examination, the Government have concluded that the shipping trade, in the interests of the country, should be dealt with in a particular way. I have already said I am sorry that there was not a large House to listen to his speech, but I was pleased with one remark which fell from my right hon. Friend opposite, for he indicated that a Division would be taken on that point. I sincerely hope it will, for there is nothing upon which I would like more to have the sense of the House taken than the proposals of the Government upon this question.
    Sir J. WALTON: Will you allow the House to give a free vote?
    Mr. BONAR LAW: I think it will do.
    Sir J. WALTON: Without the Government Whips being put on?
    Mr. BONAR LAW: This is a Government proposal contained in the Finance Bill.
    Sir J. WALTON: If you allow a free vote you will be defeated.
    Mr. BONAR LAW: I do not think so. I am going to put to the Committee the real case, and not the imaginary case to which we have just listened. In the first place, we are told that what we are doing is a breach of a pledge made by my right hon. Friend (Mr. McKenna). I do not think that what we are doing is a breach of any undertaking. It is easy to make these charges, but I shall ask the Committee to consider exactly what is the position. In the first place, it is obvious that every Finance Bill is for the year alone, and technically at least, and to a large extent in reality, no Chancellor of
    980
    the Exchequer can seriously bind the decision of the House of Commons in the following year. I was a Member of the same Government as my right hon. Friend, and I wish to carry out any pledge that may have been made. He was dealing with the Excess Profits Duty as a whole, and I do not believe that there is any Member of the House who doubts that if at that time the question had been put to my right hon. Friend whether he would be precluded from dealing in a particular way with any particular trade he would have given the answer that he gave. Obviously, he could not have done so, because the whole history of what has since happened shows that we do deal with particular trades differently. In letter, of course, we are dealing with the shipping trade in an exceptional manner, but in essence it is only what is done in thousands of cases where prices have been fixed for purchases by the War Office or other Departments. Supposing, for instance, there was a large boot and shoe manufacturer who at one time was selling boots to the Army at competitive rates; suppose later on the Government had stepped in and said, "No, you are to sell them at this rate," and suppose we had cut down their profits in that way. In spirit that is precisely the same thing as if you dealt with them by the taxation of excess profits.
    Mr. HOLT: May I put the difference to the right hon. Gentleman? In spirit that is what the Government are doing with the shipowners with regard to the requisitioning of ships, but it is not the same in spirit as what they are doing in respect of the Clause under discussion.
    Mr. BONAR LAW: That does not in the least alter the matter. The effect on the individual is the extent to which you lower his profits, and whether you do it by lowering his prices or taxing his excess profits the result to him is exactly the same.
    Mr. PRINGLE: The Government do not requisition the boots for all the civilian population, but they do requisition the ships for all the civilian population.
    Mr. BONAR LAW: What difference does that make? In spirit by interfering with particular trades, or if you like particular individuals, you are dealing with them in a special way, and it does not much matter what particular form that dealing with them in a special way takes.

    981
    I have not here the exact words, but the pledge of my right hon. Friend the late Chancellor of the Exchequer, as read out, was that they would be entitled to set the loss of one year against the profits of another year. It was really with a view of meeting, as far as I could, this kind of objection that I put down the Amendment which appears to-day, and the result, after all, so far as lost profits are concerned, is that they are entitled to set the loss of this year against the profits—
    Mr. L. JONES: The pledge was a perfecly clear one. My right hon. Friend definitely said that a datum line would be drawn along the whole period for which the Excess Profits Tax ran. Anything above that datum line would be treated as profits and anything below that datum line as losses, and the one would be deducted from the other.
    Mr. BONAR LAW: The exact words really do not matter. I am dealing with the principle, and my defence is that the promise given does not preclude us from dealing with a particular trade in a particular way. The way in which you deal with it, so far as the individual affected is concerned, does not matter. According to the speeches which I have heard, we should have been perfectly entitled to deal with the shipowners much more unjustly, provided we had dealt with them in another May. As a matter of fact it was suggested to me—and it was carefully considered—that we should take the shipowners out of the Excess Profits Duty altogether, and that we should fix a definite standard and say, "You are to have no profits beyond that." I suppose that would have been keeping the pledge, but as a matter of fact it would have been dealing much more harshly with the shipowners. My whole point is that no pledge that was given or that ought to have been given in my opinion precludes us from dealing with a particular trade in a special way, if we think it is in the national interest that it should be done. I ask the Committee to consider it from that point of view. It is assumed that we are treating shipowners especially badly, largely because they have made excess profits. That is not the main reason. My hon. Friend who has just sat down said that we had pilloried them in all sorts of ways.
    Mr. HOUSTON: Oppressed them.
    Mr. BONAR LAW: I certainly do not think so. I have said more than once that
    982
    in my opinion the Government ought not to have allowed shipowners to make the profits which they did make, and since my hon. Friend has dwelt upon it I shall give some indication of what these profits are. It was really very wrong of the Government to have allowed such profits to have been made. That is my view, but I said at the time I expressed that view before that I did not attribute the blame to the shipowners. They have done precisely as other traders have done, and the fault, if fault there be, was the fault of the Government which allowed such profits to be made. I wish the Committee to understand the real ground on which this change that we are now proposing is necessary. When this Government was formed my right hon. Friend the Prime Minister in this House, and after consulting me because as Chancellor of the Exchequer I would be affected by it, made this declaration as to the policy of the Government:
    "I think my right hon. Friend has already indicated to the House what we propose to do with regard to the shipping. It was never so vital to the life of the nation as it is at the present moment, during the War. It is the jugular vein, which, if severed, would destroy the life of the nation, and the Government felt that the time had come for taking ever more complete control of all the ships of this country.… so that during the War shipping will be nationalised in the real sense of the term."
    Then comes the other point. It is really very important, and it is not merely an appeal to prejudice:
    "The prodigious profits which were made out of freights were contributing in no small measure to the high cost of commodities—"
    That is true, though it is not the main cause—
    "I always found not only that, but that they were making it difficult for us in our task with labour Whenever I met organised labour—"
    I have had the same experience—
    "where I would persuade them to give up privileges, I always had hurled at me phrases about the undue and extravagant profits of shipowners."—[OFFICIAL REPORT, 19th December, 1916, cols. 1345–6, Vol. LXXXVIII.]
    That in not merely prejudice. The fact that the Government does not allow profits of such an undue character to be made is itself an argument when you appeal to other classes to make sacrifices for the carrying on of the War. These are real facts. When we came to consider in what way we should best carry out that undertaking, it was done by requisitioning ships and by controlling freights in the few cases where the ships were not requisitioned. I suppose no special fault will be found with that. Then we came to deal with the curious fact that ship-

    983
    owners are in a different position from any other trade, because the standard rate of profit is very excessive compared with the normal rate of profit. It so happens that the years which come under review in estimating the standard rate were years of excessively high profits; they amounted, I think, on the average, to about 15 per cent. The high profits made have a direct bearing on our policy with regard to shipping, because on account of the high profits made in the previous years it was certain that there would be a fund to make good any deficiency in this year. The result of that, if we had allowed the usual course to be continued, would have been that it would in essence have meant that we should have guaranteed a profit of 15 per cent, to the shipping trade at the very moment that we were saying we were controlling them and preventing them from making undue profits. I say that to have allowed that would have been to have broken the promise we had made, and it would have been utterly impossible to have carried out the policy on which we had entered.
    It is quite true that we might have done it in another way. We could easily have made it much more harsh for the shipowners. We could have lowered the shipping rate, with the result that losses would have been made all round. I had to try to deal with it in the fairest way I could. I have done so, and I do not believe that there is any fair-minded man in the country who will contend for a moment that an arrangement with a trade which is vital to this country, which we have decided must be dealt with in a special way, an arrangement which allows them to get back all their losses this year, with the probability that at the worst they will make some profit is a bad arrangement from the point of view of equity. When we come to the other argument addressed to us, that this does not raise the cost of commodities, I am quite willing to do what my hon. Friend wishes to the extent of saying that there has been a great exaggeration as to the effect of freights on prices. But do not let the Committee suppose that it is negligible. My hon. Friend, for instance, took the case of wheat. He gave the freight from America, the nearest point, and showed what that meant in the cost of the loaf. You cannot do that. There are other markets from which wheat
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    comes, and the freight from the larger markets comes into play, too. If you take into account the freight from Australia the effect is greater than if you take merely the freight from America. There are many commodities where these excessive freights have had a direct adverse influence, particularly in cases where the freight is very high in proportion to the value. Therefore, while we must not exaggerate it in one direction we ought not to exaggerate it in another. Let us take the other argument. My hon. Friend says that other countries are offering money for the building of ships. If these excess profits are allowed to continue, what guarantee have we that they will be spent on the building of ships? We have no guarantee.
    Mr. JONES: The Government could exact it.
    Mr. BONAR LAW: Yes, by treating shipowners much more favourably than other people! As a matter of fact, there would be no guarantee. A great deal of the shipping is owned by shareholders who have nothing to do with the management, and merely receive the dividends. They will not put money into ships unless it is going to pay. In the same way even shipowners, if they are wise, will not invest money in ships unless they think it is going to be a good investment. Therefore, what is suggested is that we should allow shipowners to keep these enormous profits in the hope that when the time comes they will be employed in the building of the ships necessary for the life of this country. At the present time they cannot build ships or the money cannot be employed in that way to any large extent. The Government themselves, in the national interest, are using the yards to build ships for the nation's need. In that way the shipowners cannot employ the profits now. I really think it is strange that I, personally, should be regarded as an enemy of shipowners, or, indeed, as an enemy of any trade whatever. I have certainly tried—I ask the Committee to believe me—to make an arrangement which I believe to be the fairest in my power in the circumstances of the case.
    I am going to give the Committee the effects these excess profits have. I say it advisedly, that if we have allowed profits of this kind and on this scale to go on, the more it became known among all classes of the community the more useless it would have been to make claims upon

    985
    anybody to make sacrifices in carrying on the War. My hon. Friend who has just sat down asked me to tell the truth. That is not an unusual habit of mine, I hope. I am going to do it now. I rather dislike giving my own experiences in shipping, and I will tell the Committee one reason why I dislike it—I am really ashamed of it ! It is utterly disgraceful that, in a time of war, any class of the community, while others are suffering every kind of privation, should be able to make profits such as I am now going to point out. I do not say it is the fault of the shipowners—I think it was the fault of the Government —but it is absolutely disgraceful that it should have been allowed. My hon. Friend suggested- it was a curious thing, and I was surprised he made the suggestion— that perhaps my experience was duo to some special favour on the part of the shipowners with whom I have invested some of the money I have. I do not think that is true in any ease, but, at all events, it would be curious, for this reason: that I invested in fifteen different shipping companies under the management of seven different owners. I admit they are all tramp steamers, and it may be possible that they did better than liners. I am not sure, but I have no experience of liners. I have no reason to doubt from the fact that these companies were managed by seven different owners that this is a fair representation of the profits of the owners of tramp steamers during the War. Now I am going to give the Committee the figures. I gave them in percentages the other day, but I do not think the Committee quite realise what they meant. The sum of money I had invested in shipping, spread over these fifteen different shipping companies, was £8,100. Five per cent, interest on that, which in ordinary times, I should have been glad to get, would be £405. For the year 1915, instead of £405,I received £3,624, and for the year 1916 I received £3,847.
    Mr. C. DUNCAN: Good Lord !
    Mr. DENNISS: Was that after paying Excess Profits Duty?
    Mr. BONAR LAW: Yes.
    Mr. HOGGE: What about Conscience Money?
    Mr. BONAR LAW: I said it was a risky business to bring these figures before the Committee, because I felt quite certain there would be a suggestion that I should pay Conscience Money to myself. That
    986
    does not end the matter. I agree it is a great advantage to the country that there should be money put into ships if necessary, but prudent managing shipowners do not divide all the profits. There is something to come to me later. One of these steamers has either been sold or sunk, I do net know which. Either way, she has been turned into money for me. In that ship I had £200, and after the very handsome dividend which I received, on liquidation I received a cheque for a little over £1,000. That is not my only experience. There was another shipping company in which I invested £350. The other day I received a letter from the managing owners of that company, saying that because the cost of building was so high and was likely to continue high, it was not probable they would wish to invest the money in ships for a long time to come; therefore, they were going to make a division out of the surplus capital. For that £350 capital, on this division, I received a cheque for £l,050. That is the trade we are ruining ! I say at once that the mere fact that the Government have allowed shipowners to make these excessive profits. is no reason for treating them unjustly now—it is not their fault—but I do say, in view of the profits they have made in the past, that for us to consent to an arrangement which would practically guarantee them 15 per cent, profit after we had taken control and after we had said we were going to limit their profits, would be unfair to other industries and to the taxpayers of this country.
    Mr. McKENNA: My right hon. Friend has made a statement which for convincing candour I do not think I have ever known its equal. I am sure that the whole Committee will agree that, accepting his premises and assuming his objects are effected by this Clause, he has acted extremely wisely. For myself, I accept, for the sake of argument now, all his premises. I am prepared to agree with him, for the sake of argument, that it would have been wise if all shipping had been taken over at the beginning of the War, but I am not at all sure that it would have been practicable to do so. For the sake of the present argument, I am prepared to assume that we ought to have taken over all the ships, that the profits ought to have been limited from the first, that it is not the fault of the shipowners that they have made these big profits, and that we ought, if we can in reason, to take back from them a cer-

    987
    tain amount of the profits they have made. Assuming the whole case, therefore, as put forward by the right hon. Gentleman, in my judgment we have only two points to consider: First, are we precluded from acting as the Government proposes by any pledges that have been given—that point has been raised; and, secondly, does my right hon. Friend, by his Clause, substantially effect his object? As regards pledges, so far as I can gather, I am the person most concerned. I gave certain pledges in regard to the Excess Profits Tax. The first was that the period of the tax should, after the conclusion of the War, be treated as one taxing period, that we should then re-examine the whole of the accounts, assuming that we did not levy the tax each year, but that we took the whole of the excess profits over the whole period, and then charged to the taxpayer what he would have been liable to pay. The result of that is that if in any year lie had a loss, or did not reach his pre-war standard, in taking the whole of the profits for the whole period together the taxpayer would get an allowance for that loss. The second pledge was that any person, firm, or shipowner who ordered or built a new ship during the War at the present high war-rates, should be entitled, at the close of the War, to write down that ship to the post-war value. The effect of that writing down would be, of course, to cause him a very serious loss in the last year of the operation of the Excess Profits Duty, and he would then, under the first pledge, be entitled to set off that loss against previous profits.
    Those were the two pledges I gave. If it had rested there, it would have been a mere matter of Ministerial pledge, and I should have been, and I think my colleagues would have been, bound by the pledge we had given. But those two pledges were incorporated in an Act of Parliament. They were accepted by this House, and this House took responsibility for them. From that moment the special Ministerial responsibility ceases. The responsibility for making the pledges and for keeping or varying the pledges is a responsibility which rests upon the House, and no longer rests upon Ministers. The House at that time approved the action of Ministers, and took over their pledges. As my right hon. Friend has said, it is a cardinal principle that this House can never bind itself against the future The
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    primary duty of this House is to consider every proposition anew from the point of view of public interest. Therefore, I am undoubtedly inevitably driven to the conclusion that this House is absolutely free to reconsider the Act of 1915 and to vary it, quite regardless of any Ministerial pledges which were given, provided those Ministerial pledges were adopted by Parliament. There is a great distinction between a pledge which is endorsed in an Act of Parliament and a Ministerial pledge which is not so endorsed. The Minister who has given a pledge, unless he is absolved there from by the general assent of those to whom it has been given, is bound to stand or fall by that pledge. Parliament cannot be so bound; it would be contrary to the public interest. Parliament must, therefore, approach the consideration of this question quite apart from any pledges that were given.
    Now we come to the question whether it is in practice expedient for Parliament not to adhere to the provisions of the Act of 1915, or whether it is public policy that Parliament should now break its promise. The objection to quick changes in public policy is that you thereby create a great sense of insecurity in trade and industry. There is no doubt at all. I know of cases myself—that, on the faith of the Act of 1915. a number of people have invested capital, at very high prices, in building ships, with the object not of making profits, because the ships were already at the time being so largely commandeered by the State that the prospect of profit was very small, but in response to Ministerial requests that they would build the ships in order to assist the national trade. In these cases it is unwise for Parliament to break a pledge which has been given. It creates doubt as to whether hereafter Parliament can be trusted to see to the end the promises it has given. I do not, however, dwell upon that point. It is not a question of moral right or wrong; Parliament must be absolutely free. It is merely a question for the consideration of this House whether, in the circumstances, it is expedient to make the change. Now I come to my second, and much stronger, point, the real gravamen of the question—namely, does this loss affect my right hon. Friend's object? Let me put it to him. He has read to us very interesting figures of profits which he has made, and which he regrets having made—
    Mr. BONAR LAW: I do not say that.
    Mr. McKENNA: Regarding which he regrets the circumstances that made it possible for him to make those profits. He has read to us certain figures, and he suggests that if this Clause becomes law he will be called upon, or may be called upon, to disgorge some of those profits. If that is not so, then I do not follow the ground for his giving us the figures.
    Mr. BONAR LAW: I will explain to my right hon. Friend. Owing to these high profits, everybody engaged in shipping has such a reserve to his credit that if Clause 19 is not put in the Bill it will mean that I and everyone else are guaranteed the pre-war standard of 15 per cent.
    Mr. McKENNA: That is so, but always under one condition. My right hon. Friend having made these profits can immediately secure to himself the permanent benefit of those profits. How? By selling his interest in the ships. That is so. He has made his profit, and he can keep his profit. He will then say that the effect of this legislation will be to drive down the value of the ships, and that he cannot sell ships for as much as he would otherwise be able to do. What does that mean if we come to consider the operation of this Clause? It means that it will pay a shipowner not to use his ships, that if a shipowner keeps his ships in harbour and does not employ them, although that employment is absolutely essential to the State, it will pay him because he will keep all these enormous profits he has already made, and at the close of the War he will have his ships intact. My right hon. Friend may say to me, "Yes, but he will not be allowed to keep his ships in harbour; he will be directed to use them," and he is compelled to use them. But there is a very different method of using ships. I am quite sure of this, that notwithstanding this tax and notwithstanding anything that may be done, shipowners will use their ships in general to the utmost of their ability for the benefit of the State, but I put it to this Committee that it is very unwise to pass legislation which puts a premium on an inefficient, lax, management of your property; because, although shipowners may be directed to use their ships, they retain control of the management.
    Mr. BONAR LAW: It does not do that. I am sure the right hon. Gentleman is mistaken.
    Mr. McKENNA: I hope so.
    Mr. BONAR LAW: They have the incentive—because they can get in this year excess profits—which applies to other people.
    Mr. McKENNA: No, that is not so under the present arrangement. I am sure we are at issue on questions of fact, but under the present arrangement, at the present rate at which a ship is requisitioned, it is impossible for a shipowner to run it at a profit. When I speak of a profit, I mean a profit in excess of the standard profit. At any rate, I have understood that that is so. I have understood that, generally speaking, a requisitioned ship cannot be worked to-day at a profit in excess of the standard profit. If that be true, it must follow that all employment of a ship by a shipowner will result, if not in a loss, in a profit less than the standard rate of profit. Consequently, this Clause operates injuriously to him if he uses his ship. It is so, because if the shipowner does not use his ship—assuming that he cannot be compelled to use it— he will retain all the gross and excessive profits he has made in the past, and will at the close of the War have his property intact. If he uses his ship, and uses it at a loss, then that loss, instead of being made good to him, as was the case under the original Act of 1915, falls upon him. Consequently, if the requisitioning has the effect, which it certainly has in many cases of causing shipowners to run at a loss, there is a premium paid to shipowners not to employ their ships. I think that it is worthy of the thought of this Committee. There have been, since these profits were made in 1915 and 1916, immense sales of ships. Whole fleets, as the Committee know, have been sold. The profits, therefore, for 1915 and 1916 were made by the shipowners who then owned the ships. They have walked away with those immense profits, and have taken also with them the immense prices at which they sold their ships. They no longer have any interest in the business. If there are persons who are to be condemned for having received very high profits, those are the persons because they have not only received high profits for working their ships but they have received high profits on the sale of their ships, and those are the people who will not be touched for one penny under this Clause. Who is it then that is affected by the right hon. Gentleman's

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    proposal, and to whom his argument is directed? It is those shipowners who have refused to sell, who while they have had good times have to bear the brunt of the bad times in the future. I put it to my right hon. Friend I am not in the least refuting a single argument he has brought forward. I agree with him that it has a most pernicious public effect to see any industry making extravagant profits; I agree that you cannot keep up good feeling in the country when large numbers are losing and others are getting immense advantages out of the War; but let the right hon. Gentleman's remedy apply to the disease. He lets out all those who have sold whole fleets and he leaves the burden to be borne by those who have continued, as I think, to do their duty and run their ships efficiently.
    Mr. DENNISS: Are they not mostly amalgamations?
    Mr. McKENNA: No, out-and-out sales, very largely. My right hon. Friend has said that there were other and harsher ways of dealing with shipping. If he likes, and the Government choose, to apply discriminating taxation, I have nothing to say; there is plenty of precedent for it. The land taxes and the munitions levy are both examples of discriminating taxes. Whether they will be remunerative is another matter, but at any rate we have plenty of precedents for discriminating taxation. If my right hon. Friend found himself, on the argument that he has addressed to the Committee this afternoon, choosing to deal with the shipping industry in a special way, I for one would be perfectly willing to give a general support to such proposals as he might make, but my objection to the present proposal is, first of all, that I think it unwise to allow a feeling of insecurity to arise from so quick a change in Parliamentary policy as that which is disclosed here between the Act of 1915 and the present Act; and, secondly, that my right hon. Friend's present proposal is not a remedy for the disease. My right hon. Friend intimated earlier that he would regard a vote upon this Amendment as a Vote of Confidence in the Government. So far as I am concerned, I should be most unwilling to give any vote at any time in war on a Finance Bill which the Government have put forward as their final proposals for the year, and I should not for myself think of going into the
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    Lobby against the Government on a definite proposal of this kind which they have put forward as essential for their annual finance. We may, nevertheless, make an earnest appeal to my right lion. Friend to reconsider whether the present proposal is a wise one in the whole circumstances of the case. I am sure that its general effect is going to be far more pernicious in its influence upon the shipping industry than he is going to reap benefit from the satisfaction that it may give to those who think that shipowners have enjoyed too high profits. Shipowners are not the only ones who have enjoyed high profits. We shall pass from industry to industry. We are now putting on a discriminating tax without inquiring into individual cases. There are many shipowners who have not made extravagant profits. There are those who I have already described as having cleared out and gone away with their profits. The natural desire to avoid and to take away these extravagant profits will not stop here, and I would appeal to the Chancellor of the Exchequer, if he wishes to deal specially with this trade, that it should be by a more considered scheme, which will really hit the evil at which it aims, and not by a proposal which, in my judgment, must be injurious, and which will not, in fact, raise very much revenue.
    8.0 P.M.
    Mr. PRINGLE: I am not much concerned with the controversy which has taken up a large part of the Debate this afternoon on the question of pledges. The hon. and learned Gentleman the Member for the Exchange Division of Liverpool (Mr. L. Scott) first raised this question as if it were a novelty for the Government to break pledges; but if he were in more frequent attendance in this House, he would have found that the complaint regarding breaches of pledges was one of the most commonplace things during the past two years. I wish, however, to deal with the case that has been put forward by the Chancellor of the Exchequer. He told as that he was going to put up the real case and not the imaginary case, but in essence the argument which he has put before us on behalf of his proposal this afternoon has been twofold: First of all, it is justified by public opinion; and, secondly, it is justified by his own investments. I think this is the first time that any Chancellor of the Exchequer in this country has justified financial proposals on such

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    strange grounds. It is true there has been a large amount of prejudice, ill-informed prejudice, as to the effect of shipping freights and the consequent profits of shipowners upon the price of commodities commonly used by the mass of the people, but the statements of fact which have been made in the course of this Debate by the hon. Member for West Toxteth (Mr. Houston) and other Members have conclusively proved that shipping freights have been a comparatively small factor in the increased prices of commodities. I think, therefore, that the Chancellor of the Exchequer's rather grudging withdrawal of the charge against shipowners—a charge made not only by the Press, but by himself and the Prime Minister—is hardly worthy of the occasion in view of the facts which have been disclosed. It is all the more strange in view of the speeches which the Prime Minister during the last week-end has been delivering in various parts of the country. We have still the same stale and exaggerated statements regarding profiteering on the part of shipowners. No doubt there has been a large amount of profiteering in this country during the War, but at the present time, when prices are highest and when the increase in price has been going on at a quickening pace, it is obvious that none of that can be laid to the charge of the shipowners. What is going to be the effect of this? The Chancellor of the Exchequer and the Prime Minister are going to find themselves in this position, that, having taken this action in regard to the shipowners as a result of a popular cry, they will be driven to do similar things and to take similar measures in relation to all other industries. We have been told that the withdrawal of the pledge, as it is called, which was given in the Finance Act, affects only one industry, because of the favoured position of that industry, and other interests have been lulled to sleep on the belief that only this specially favoured interest was concerned. If these arguments are to prevail, this principle has to be extended far and wide. We are going to see what the Government will do in regard to the fanners. My hon. and learned Friend the Member for Liverpool waxed eloquent about the pledge given to the farmers in the Corn Production Bill—a pledge covering a period of years, a guarantee which he feared would be broken.
    Mr. L. SCOTT: No, no !
    Mr. PRINGLE: The tone in which he spoke rather indicated he had some suspicion as to the intentions of the Government.
    Mr. SCOTT: Not at all !
    Mr. PRINGLE: The case and the figures which have been given reveal the farmers as the greatest profiteers. I do not know whether the hon. and learned Member— I hope he will spare me a little of his attention—has been paying any attention to the sales of early potatoes. I see he represents an agricultural constituency, and I have no doubt he has, but if he looks at the sales he will find that the average price for 1917 is exactly 100 per cent, per acre above the average price for 1916. One farm was quoted by the hon. Member for Altrincham (Major Hamilton), in which from 200 acres, the price per acre, represented an excess profit of £10,000. I think that was the figure. The total profit was £10,000. Nineteen hundred and sixteen was not a bad year for potatoes, and if we are going to go back to the pre-war standard, which would be the right thing to do, it would be very interesting to find out what popular opinion would be as to the exemption of farmers from Excess Profit Duties and Income Tax and from Super-tax, and last, but by no means least, as to what their opinion will be of the guarantee which is to be given to them for a series of years. When all these facts have sifted into the popular mind, when they see the basis on which this exceptional legislation is being justified in respect to shipowners, they will say, "Why give this guarantee?" and this Government which is so susceptible to popular clamour will, as they have done in other cases, bow to the storm and my hon. and learned Friend's constituency will be deprived of their guarantee.
    Mr. DENNISS: My learned Friend represents Liverpool.
    Mr. PRINGLE: My humorous and Oriental Friend does not appreciate my form of humour. The farmer is not the only person who has received special favours from this Government. There is also the question of the munition firms. We all know that special terms were made in regard to these munition firms under the Munitions Act. It was represented when the original Munitions Act was being passed that a special charge was being imposed upon them in return for privileges which were being surrendered by the

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    trade unions and others. That was represented as a bargain, but now we discovered that, instead of having a special charge imposed upon them, these people during the years in which the Munitions Act has been in operation have been in a specially favoured position. It is true a compulsory charge has been imposed upon them, but the amount which has been paid into the Treasury in respect of excess profits is only a beggarly sum of four or five million pounds out of these munitions undertakings. Everybody knows that they have earned far more in excess profits than that. Some of the representatives of firms during these two years engaged in munitions have been allowed to retain sums of money in their pockets while shipowners have been paying out, and not only so—and this is an important point in view of the claims which shipowners make—that if they earmark certain of their profits for the purpose of building new ships consideration should be given to that. We have to remember in regard to the munition works that there is special provision in regard to depreciation under the rules for assessing excess profits, and, not only so. in a large majority of cases the munition makers have been enabled to put up new plant on exceptionally favourable terms. All that is taken into account, and in spite of these things they have at the same time for two years been escaping payment of excess profits. All these things will be borne in mind when the public read the justification which has been given by the Chancellor of the Exchequer of this Clause. He has told us once more, in some great detail, how tremendous a criminal he has been in exploiting the public as a shipowner. We are deeply impressed by it, but I think that his arguments from his own personal experience do not necessarily prove that the cases he quotes are representative of the industry as a whole. There are undoubtedly many cases where the profits earned do not reach anything like the figures quoted by the Chancellor of the Exchequer, and I think it extremely unfortunate, from the point of view of this particular industry, he should have been such a lucky investor. Apparently some of the ships in which he was interested have been sold, and that has also been to his individual benefit. But we must remember, as has been pointed out, that in the case of sales it is impossible to get at the beneficiary through this Clause. I remember having
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    a conversation with a high personage in the Admiralty who was a relative of a shipowner and this distinguished gentleman told me that his relative had had an offer of purchase for his ships in the early stages of the War, and his relative asked whether he should accept the offer. The answer of the distinguished Admiralty official was that it would be a most unpatriotic thing to do. Now the legislation passed in this Bill is going to have the effect of penalising the patriotic shipowner and to let off the unpatriotic shipowners, a situation which I think the Chancellor of the Exchequer, in this country in a time of war, should do everything he could to avoid. From every point of view the case of the opponents of this Clause is overwhelming. The Chancellor of the Exchequer has not shown that he is going to make any considerable profit out of it. There is going to be a small profit to the Exchequer and a loss of moral credit to the Treasury by entering upon a measure of this kind, and a loss of moral credit to the Government, if indeed the Government can lose any more moral credit than it has already lost. It is somewhat bankrupt in that respect. There is that distinct loss to the Treasury without any appreciable gain to the Exchequer. The Chancellor of the Exchequer is simply endeavouring to quiet some popular clamour. Indeed, I have heard another explanation, that this is part of the bargain which was made on the celebrated day in December when the Labour Party was bought and sold at the War Office.
    Mr. W. THORNE: We have not been bought and sold any more than you have.
    Mr. PRINGLE: I have not been to Petrograd.
    Mr. THORNE: Do not make insinuations.
    Mr. PRINGLE: I have not made insinuations.
    Mr. THORNE: Yes. you have.
    Mr. PRINGLE: The position of the Labour Party on that occasion is known to the world. It is known that the assent of the Labour Party was essential to the formation of the present Government, and they were able to exact certain terms, and it was because those terms were exacted on that occasion that this provision now appears in the Budget. That accounts also for the poverty of the argument on the part of the Chancellor of the Exchequer in defending his case to-day.
    Mr. HOLT: I am rather surprised at the right hon. Gentleman's doctrine on the subject of pledges inserted in the Bill because it seems to me to carry him a very long way. Take the Corn Production Bill. He proposes to pay a guarantee for five years, just in the same way as the original Finance Act made the stipulation with regard to excess profits for the duration of the War. Do I understand that it would be quite right at the end of two years for a new House of Commons to say, "We cannot be bound by our predecessors. We are going to repudiate the whole of this guarantee, and having paid it for two years, there is nothing more to be paid." That appears to be an analogous case, and I really do not think anyone would regard that as a proper thing to do, and I cannot believe the farmers would consider that they had been fairly treated by the House of Commons if anyone took that action. Now the Chancellor of the Exchequer has proposed and carried an Amendment which very materially affects the operation of this Clause. I do not know how far the Committee really understands the exact effect of the Amendment, but I think I can tell it. The Treasury substitutes a percentage standard of profit for the pre-war standard when it comes to repaying losses. That is the whole effect of the Amendment. We have to see what that means. Naturally there is nothing whatever in this Clause that affects the making of large profits by shipowners. It has nothing to do with anything whatever the repaying of losses. Let the Committee and the public get that in their minds.
    How did a man get a high pre-war standard of profit? First of all he must have been a man who built a very good and useful ship. He must have been a good judge, he must have put intelligence and ability into the design of the ship. Then he must have made a good bargain with the producer in the matter of prices at the time. He must have managed his ship well, he must have sailed her with safety, carried on business in an intelligent manner, been a person who got on well with his customers — attracted custom—and served the public usefully, and by all those qualities, which I believe to be good qualities, he has obtained a high percentage of profit. That is the only way in which you can obtain a high percentage of profit, and primâ facie, and leaving out of account accidents which
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    always happen anywhere, speaking generally, the man with a high percentage of profit is a better man than one with a low percentage of profit, because he has shown more intelligence and skill in the conduct of his business. There seems to be some ridiculous idea abroad that there is something meritorious in getting a low percentage of profit on your capital. Nothing of the sort. It is the business of everyone to get as high a percentage of return on his capital as he possibly can, and it would be a very bad day for this country if anyone supposed it was the duty of anyone to coerce an industry to carry it on inefficiently. Who is the man who has a low standard? He is the man who buys a white elephant at an excessive price and then mismanages it. That is how you get a low standard of profits. The man who is going to be penalised under this provision, as the thing stands, is simply the man who before the War carried on his business with exceptional efficiency. He is to be put in a worse position than the man who carried on his business so poorly that on the whole a 6 per cent. standard was better to him than the pre-war average rate of profit. That is the effect of the Amendment. It is a very trifling one, and I think from the point of view of the Government it is a very unworthy thing to put people who manage their business well on a worse footing than people who manage it ill.
    As regards the Clause as it stands even now, who are the people against whom this discrimination is made? We are discussing this Clause. We are not discussing the whole of this policy of requisitioning, which is not before the Committee at all. The man who still continues to make a profit and finds that requisition rates pay him handsomely and give him an excess profit—and in my opinion there will be many such persons—is not affected by this. The only man who is going to be affected by this is the man who carries on his business unfortunately, and, owing to the arbitrary action of the Government, makes a loss. As far as I can make out, that is not likely to happen to anyone except the man who has a small number of ships, and is therefore liable to an exceptional run of bad luck. I do not think it can happen to a person of reasonable capacity, who is in a position to average out the chances. I think it a very small and very paltry proposal to put before the Committee. It is not now

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    suggested that shipowners have done anything wrong. The Chancellor of the Exchequer himself said they had done what every business man would have done in the same position—taken an advantage and an opportunity which was thrust down their throats, and what he had done himself and benefited by. It has also been admitted that freights are not to any appreciable extent responsible for the rise in prices. That is proved up to the hilt, and is not contested.
    Mr. DENNISS: The Chancellor of the Exchequer contested it.
    Mr. HOLT: The Chancellor of the Exchequer, I think, did not contest it. He said that if ships had not been requisitioned the freight of wheat from Australia might have risen to a very high figure. What freight on wheat would it take to make the price of bread rise appreciably? Supposing you were to charge £10 a ton on wheat, which is far more than anyone is charging, you would be charging just about 1d. a lb., so that the whole amount of rise in the price of bread which could at the outside be attributed to a rise in freights which have been Id. in the lb. That is the maximum which, by any stretch of the imagination, could be attributed.
    Sir J. WALTON: Fourpence a loaf.
    Mr. HOLT: Fourpence on the four-pound loaf, and that is on wheat from Australia. That is the whole case which has been made out. The Government itself, having taken possession of ships, has not reduced freights, but is rather trying to keep them up in order to get the profit. What they are after is to get the profit which the shipowner was getting before.
    Another consideration which has not been touched upon is the extent to which the goodwill of the shipowner's business is being taken from him. He is losing an intangible asset which, certainly as regards anyone who is running a regular line, is of the very greatest value. The whole of his business connection has been broken up and has been handed over by the Government to his most dangerous competitors our very keen and skilful Allies, the Japanese, who all over the East have been put in a position from which I do not believe for generations they will ever be removed. What the shipowner will have to pay in the way of meeting losses from competition, if he is to get back to
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    the position he was in before, for years after the War is over, I do not think anyone has the slightest idea. I believe the Amendment proposed by the Chancellor of the Exchequer now gets rid of the bulk of the financial hardship which was imposed, but if that is true it means that the Clause ceases to have any financial value to the Treasury at all. It is an argument which cuts both ways. What remains is the insult. There is no other word for it. It is an insult on a class of traders who have done their duty as honourably and as successfully as any other section of the community, neither more nor less. They have shown as much patriotism as anyone else. That is the effect of the Clause as it stands now. It has another effect, and that is a warning to all classes of the community that they have no security that similar treatment will not be meted out to them, and that the security on which they expect to invest their money is greatly endangered. We do not propose to divide against the Clause, but I desire once again to protest in the strongest possible manner against this differential treatment.
    Mr. J. M. ROBERTSON: I understand that no estimate has been offered of the probable yield of this tax. That, I believe, is rather unusual. We are usually told what the Treasury expect the tax will yield. The arguments of my hon. Friend (Mr. Holt) seem to me to give overwhelming proof that it will yield next to nothing. Can my hon. Friend (Mr. Baldwin) tell us-whether or not that is, roughly, true? If my hon. Friend is incorrect, will he give the House something like an estimate of what the yield is expected to be? A proposition has been put to the effect that this tax, which apparently is going to yield nothing, is imposed to carry out an arrangement made between parties behind the back of this House—I do not say it in an offensive way—and on which there was no discussion in this House. Can we be told whether a worthless tax is being carried through because an undertaking of that sort has been given? I put this question very seriously, because earlier in the day the proposal to tax the excess profits of farmers was rejected on the ground that you would not get valuable results. The whole argument was not that it ought not to be done, not that there were not certain excess profits which ought to be got at, but that you would not got much result in revenue. If that is an argument against

    1001
    taxing the farmer, surely in the name of common sense and common honesty it is an argument against this tax. Of course, I am making certain assumptions which my hon. Friend (Mr. Baldwin) may be able to overthrow. If the Government's argument is that you must not tax the excess profits of farmers, or the profits of farmers in any way, because you cannot manage to get revenue out of it which will repay you for the trouble you have taken, how can they use that argument against taxing the farmers and throw that argument to the wind in this particular case of taxing shipowners? Is the position this, that the Government have been asked to put this kind of tax on shipowners not to get money, but simply because some previous pledge has been given, or is it that there is just another alternative?
    The right hon. Gentleman suggested that there was a great deal of dissatisfaction in the country with regard to the high profits on shipping. That is perfectly true. A great deal of ignorant outcry was raised in the Press at the beginning of the War. We often read in the Press and heard in this House that the high rates of shipping accounted for the rise in food prices. I can say something on that subject from special investigation, as I happened to be associated with the Committee on Food Prices. The high rates of freight had nothing whatever to do worth mentioning with the increase in the prices of food. These high rates undoubtedly affected certain commodities, and precisely as the Government went on requisitioning more and more ships' space for given objects, they limited more and more the articles on which freight could tell. If freight told heavily on certain articles in the end, representing a small minority of imports, and if high prices were made out of that, it was in the ordinary way of business, and the Government surely could not blame the shipowner for charging high prices for the small shipping space that was left to him for carrying cargo. He must put up the freight, as it were, to public auction or else give a particular privilege to some particular person, which would be corrupt. I defy anybody to invent a way of fixing freight for the limited freight space left except by taking what the market offered. If you told the shipowner to use the remaining freight space at low rates you were telling the shipowner to make a corrupt bargain.
    Mr. DENNISS: Surely that is not corrupt.
    Mr. ROBERTSON: It would be inviting them to make a corrupt bargain. The shipowner has got so much space in which to carry cargo. The rest of his space is requisitioned by the Government at Blue Book rates. For that remaining space he knows that there are people who are willing to pay very high freight. How could you make a selection among those men? There is no real or honest way of settling that freight except by letting the market regulate it.
    Mr. DENNISS: It is not corrupt for the shipowner to take the lowest bidder.
    Mr. ROBERTSON: Does the hon. Member suggest that a bargain of that sort will be made and carried out without corrupt consideration? You are opening the way to all sorts of underhand bargains. You cannot expect the shipowner to say, "There are twenty men claiming what is left of my ship room. I am going to give it to the one who pays the lowest freight." He might do that if he thought it was something to be carried in the national interest, but if there was anything the carrying of which was clearly in the national interest it was the obvious duty of the Government to requisition space for that also. The things that were left open to be carried by the, shipowner were things upon which the Government could make no decision as to their respective value from the point of view of national interest. The whole point I am contending for is that no kind of charge rests against the shipping freights. The right hon. Gentleman did not deal fairly and squarely with the matter by leaving it open to the old reproach, against shipowners of making high profits. What I want to know is whether this tax is being imposed solely because a certain party or certain sections in the country are angry at seeing shipowners making these profits. Is the tax to be imposed to yield a return worth nothing because of discontent outside? If that is so, then in view of the attitude of the Government with regard to the farmers they cannot come forward and say that it is perfectly monstrous that shipowners should be allowed to make the profits they are making, and that you are bound to put a tax on whether it yields a result or not. You can no longer make that answer. It is quite possible that my hon. Friend will tell us that the Government have estimated the yield of

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    this tax and that they can see it will be a good yield. If so, it will partly disarm my argument. If my hon. Friend cannot give us that assurance, will he tell us whether the tax is merely imposed by way of fulfilling some past bargain—a bargain made irrespective of the national interest and without regard to the national interest?
    Sir J. WALTON: If a Division were taken as to leaving out Clause 19 I should certainly vote for its being left out, because it involves in the first place a gross breach of the most important principle of the equal incidence of taxation. To penalise one trade only as compared with all other trades and industries in the country is a thing which has been unheard of in our Parliamentary annals before— that is, to do it deliberately. We have been told that shipowners have made such enormous profit that we arc justified in breaking a bargain that was made with them in 1915 and to which Parliamentary sanction was given. There is another view to take of the shipping interest in this country. It is a great national interest. Our prosperity before the War was largely due to the fact that we had nearly half the carrying trade of the world. Our ships are being sent to the bottom by submarines. What will be the position of our mercantile marine at the close of the War? Shall we then be in a position to do half the carrying trade of the world 1 I am afraid that we are going to have a great blow to our commercial prosperity by the enormous depletion of our mercantile marine and our inability to carry anything like the proportion of the trade of the world that we carried before the War.
    It is of the highest importance for the welfare of the whole nation that the shipping industry should be left financially in a position to replace the tonnage which has been sunk through no fault of the shipowners. To the credit of the shipowners, no steamer has ever refused to sail to or from a port by reason of the danger run through submarines, and the wisest policy of the Government would be to take care that the shipping interests are left in a position to replace lost tonnage as early as possible after the close of the War. The cost of replacing tonnage will be immensely higher—three, four or five times as much—than it was before the War. I am not a shipowner and I am only concerned for the best interests of the
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    country commercially after the War, for the best interests of the whole mass of the people, and I believe that it is of vital importance to maintain and develop our mercantile marine, and I am afraid that this blow which the Government are giving to confidence on the part of the commercial community will be disastrous to the best interests of the nation. Well has it been asked may you not say to the farmers, possibly two years after the corn production guarantee has been in operation, that that shall no longer continue, when two years after making this distinct legislative bargain with the shipowners you break through that arrangement? It is not the amount of money involved in this tax; it is the effect that it will have upon the future commercial interests of the nation, not only the shipping industry but other industries.
    I am interested in a trade that has been hit more severely than the ship-owning interests are going to be hit— that is, the coal trade. Not content with taking 80 per cent, this year of excess profits, a coal controller comes in, and, under the drastic arrangements of the Coal Controller, any question of excess profits will largely disappear. But I am not moving any Amendment in regard to the coal trade, because I do not approve of the principle of persons engaged in a particular trade advocating so largely as they do their interests in this House. I think that it is much better to leave it to other people to deal with these matters. It is only because I am not a shipowner that I am able to put my view of this serious new departure that the Government has made, because, of course, the seriousness of it comes in when we consider that the deliberate bargain made only two years ago, which has received not only the verbal promise of a Minister, but legislative Parliamentary sanction, is to be deliberately broken. I believe that it is a blow to confidence which must react disastrously on many trades. Why should such differences be made? Why should the controlled works have been allowed to go practically scot-free in the matter of Excess Profits Duty? Why should farmers, who are making higher profits than any other industry in the country, to-day be allowed to go scot-free? We had a case given of the sale of new potatoes—I believe I brought it under the notice of the House—by a farmer in Lincolnshire, who made £1,500 a year, on

    1005
    his sworn evidence, for the three years ending December, 1915, who also swore that he made £5,000 profit in December, 1916, because he was claiming compensation. And out of that £5,000 profit in 1916 all he paid was 3s. 6d. in the £ Income Tax on £900 a year rent—that is, £160 or £170 out of £5,000. No full Income Tax, no Excess Profits Duty, no Super-tax. How the Chancellor of the Exchequer can come forward and make the paltry proposals, so far as money is concerned, that he has made, which break the Parliamentary bargain, and yet at the same time let the farming interests go scot-free, passes my comprehension as to what is fair and just and equitable, and an approach to equal incidence of taxation ! This Committee ought to make the strongest possible protest on this occasion against this great breach of faith.
    General Sir IVOR PHILIPPS: I listened to the Debate during most of to-day, and the conclusion to which I have come is that the tax which is being proposed is one which is placed upon those who are losing money and not upon those who are making money. It is the most remarkable tax proposal that has ever been laid before this House. I never thought that I should live to see any body of Gentlemen sitting on that Front Bench who would propose to penalise shipping, and I cannot believe that the Labour party, who are supposed to have made this bargain — whether they did or not I do not know — really believed that they would benefit themselves or the country in any way whatsoever by attempting to penalise the shipping trade, on which we are dependent for our livelihood as a nation. In the past it was the shipping alone which enabled us to keep that balance of trade that has made us so prosperous and that induced a well-known Colonial Premier to say that we paid for all the wealth that came into this country by pouring out golden sovereigns. The shipping of the country is the cause of the prosperity of the country, and when the Government attempt to penalise the one industry upon which the whole prosperity of the country, whether in peace or in war, depend, it seems to me to be a most extraordinary procedure, and one which I could not at any time support were it not that we are at war and that I feel that it is every man's
    1006
    duty to support the Government which is in power. I am very glad, therefore, that the Movers do not propose to divide the House on this question. That does not alter the feeling which I am sure exists throughout the country, that any Government should have weakened to such an extent that it could for a moment consider the penalising of the great industry of shipping. Without shipping this country is doomed, and for the Government to encourage those ignorant persons who believe that by the destruction of shipping they can benefit this or any other country, is one of the most fatal proposals ever submitted to the House. I am very glad we are not being asked to divide on this question, for it would have been difficult for many of us to support the Government in this particular case.
    Mr. W. THORNE: I do not know that I should have intervened in this Debate had it not been for two remarks which fell from the lips of two hon. Gentlemen within the last ten minutes. One remark was made by the hon. Member for Lanarkshire, who charged the Labour party with selling themselves, bag and baggage, to this Government when it was formed. So far as I know, there was absolutely no bargain at all struck between the Labour party and the present Government. What we decided to do was to back up the Government, and if my right hon. Friend the Chancellor of the Exchequer had consented to form a Government, the whole of the Labour party, I believe, would have backed him up. 80 far as I know, the majority of our party do not care whether it is Lloyd George or any other George who is at the head of the Government, so long as that Government prosecutes to a successful termination this War. That is all that is wanted so far as the Labour party are concerned. I do not know why the hon. Member for Lanarkshire should have said that the Labour party had sold themselves, bag and baggage, any more than that 1 should say of him that he is a disappointed man because he is not a member of the Government. When he makes a charge of that kind against the Labour party, I might as well on my side make a charge against him that he is disappointed at not being roped in as a member of the Government. I have heard a number of statements about a bargain made between the late Govern-

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    ment in 1915 and the shipowners. As I understand, Parliament is the governing body of the country, and surely one Government has a perfect right to undo what had been done by another Government if it thinks proper to do so. Bills are brought forward at various periods, but whatever clauses may be inserted in an Act of two years ago, and whatever clauses may be inserted in the present Bill, surely are subject to revision on a future occasion if the adoption of such a course seems to be necessary. I cannot see that what we are doing now should necessarily have any force after another twelve months. The position I take up is that Parliament each year may revise or undo what has been done before if it deems that to be for the benefit of the country. As to the shipowners and the profits they are making, I want to say frankly that so far as meat is concerned they cannot be charged with being the cause of the extraordinary price at which it is sold at the present time. I think it is well known to everybody that the only extra charge due to shipping, so far as meat is concerned, is not more than ¾d. a lb.; at one time it was a ½d. a lb., and it was increased to ¾d. Therefore, so far as the shipowners are concerned, they cannot be blamed in regard to that particular commodity.
    What we have to consider is the total amount of profits made by someone. When the Chancellor of the Exchequer made his Budget in 1915–16 he anticipated that out of the excess war profits he would realise £82,000,000, and instead of that' he realised £840,000,000, and he realised that sum at 60 per cent. The other 40 per cent, therefore represents £95,000,000, which has been divided between somebody, which has been put into the pockets of some men, in connection with these excess profits. I am one of those who believe, and I have stated it on many public platforms, as well as in this House, that it is absolutely immoral for any man in this country to make more profits during this War than he was making in pre-war days. In the case of the mercantile marine, I do not think anybody would object for a single moment to a certain sum being set aside out of those profits for the purpose of building ships when the War is over. Everyone must know that in consequence of the submarine menace, which has been going on for a long time, and in consequence of
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    which a very large number of ships have been sunk, there is urgent necessity for the construction of merchant ships. For myself, I think that the Government would be acting wisely if, after the War is over, they employed the people now engaged in our shipyards, and factories, and dockyards, to build ships for the mercantile marine. They could easily do that, and I think it would be of great advantage. There has been a good deal of talk about farmers' profits, and only a few days ago the working classes, at a general conference held between organisations forming what is known as the Triple Alliance—railway workers, transport workers, and miners— passed a resolution declaring that it was time to commandeer wealth. That is a very large order. But I submit that the working classes are bound to be dissatisfied so long as they see people making huge profits out of the country from various sources. So far as the farmers are concerned, I think the Government would be quite justified in commandeering a field of potatoes and selling them in the usual way to the people. They could commandeer hay and wheat, as well as ships and other things. Why not, in the name of common sense, commandeer fields of potatoes and pay the farmer for them?
    Mr. ROBERTSON: It is the question of the Clause with which we are dealing.
    Mr. THORNE: I am not concerned about the Clause at all. What I am concerned about is the huge profits made by various people.
    The DEPUTY-CHAIRMAN (Mr. J. W. Wilson): The hon. Member can only introduce that point as connected with this Clause, and he must bring his argument to the Clause.
    Mr. THORNE: I listened attentively for a considerable length of time to talk about the farmers and their profits, and I submit that the only way of dealing with that topic is to commandeer their potatoes, their wheat, or anything else. I think the Government will have to consider these proposals, because I am perfectly certain that there is great dissatisfaction in the minds of the workers in all parts of the country in consequence of the huge profits made by shipowners and other people out of the circulation of commodities throughout the country. Unless something is done no one knows what might happen. A strike might occur at

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    some particular firm because of the huge profits being made, and a strike of that character might flash like lightning throughout the country, I do not want to see anything of that kind, and some of us who belong to the workers' organisations—men working under shipping companies or in munition works—are doing our level best to prevent anything like a serious outbreak taking place, because I think that would be the very worst thing that could happen to this country in the present struggle. I hope, therefore, that the Chancellor of the Exchequer will insist upon the Clause being carried out. What is going to be the effect of this Clause? I am relying on the Government, because I personally think that the Government are doing their best for the country, and I do not think the Government have any intention of either injuring the shipping companies or any other class. The Cabinet is composed of various men who have, I understand, surveyed all the interests of various concerns. Therefore, I should say without any hesitation they have thoroughly considered this Clause and what it means, and that they do not anticipate that it is going to do the injury to the shipowners that some people anticipate. I can quite understand Gentlemen interested in shipping kicking at this, and I dare say if I were a shipowner and j going to be hit in the same way as they are I should kick in exactly the same way against it, just the same as if the members of my own organisation attempted to reduce my salary I should kick against it. That is how I look at the situation. Therefore, we have got to survey not only the shipowner's profits, but all profits. I can assure the Committee, without any boast, that there is serious discontent in the minds of the wage earners in consequence of the huge profits made by shipowners and others, and in my humble judgment the Government would be wise to tackle this question and try to allay that discontent.
    Mr. BALDWIN: I rise to do my best to answer two questions which were put to me some little time ago by the right hon. Gentleman the Member for Tyneside (Mr. Robertson). The first question was how much money the Government may expect to make by this tax. I do not quite understand what the right hon. Gentleman means by the word "tax."
    Mr. ROBERTSON: The modification.
    Mr. BALDWIN: A tax it is not, although the phrase has been a good deal used this evening. The Government have no estimate, and, after all, no estimate for the purpose of the Government is necessary because, as I have already said, this is not a tax. The position, as has been clearly explained by my right hon. Friend the Chancellor of the Exchequer, is simply this, that, rightly or wrongly, the Government made up their minds to say to the shipowners, "We think the time has come when you have made enough in profits, and for the rest of the War you are going to be strictly controlled," and this method was chosen, coupled with the extension of requisitioning to achieve the desired end. It was felt, and I think rightly felt, by my right hon. Friend that he would put in that Sub-section he put in to-day, which would give some alleviation to what might be a hardship to some of the least successful businesses. I would repeat here that we must not regard this at all in the light of a tax or look at what the Chancellor of the Exchequer is going to get out of it. It must be looked on as a sign that the Government are prepared when they think that the occasion arises to say that the time has come to control more strictly the profits which are being made in a given industry.
    9.0 P.M
    The second question of my right hon. Friend was whether this tax was imposed to fulfil some bargain, of a base kind if he will allow me to insert those words there, because if there were such a bargain it would be of a base kind, between the Labour party and the Government. I have no knowledge of such a bargain. If there had been such a bargain, I doubt very much whether I should have had knowledge of it. My right hon. Friend assures me there has been no such bargain, and I did not think that there had been. I do not know whether it is strictly germane, but a great deal has been said in the course of the Debate about the farmer. There is only one word I wish to say on this point, and I confine myself closely to the question of his taxation. I do think that there is a certain risk of injustice being done by representatives of various industries slinging insinuations against other industries that they are doing a great deal better than they themselves are, and perhaps not over particular in the way they are doing it. I do not think a charge of that kind helps us

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    at all, and I am quite sure charges of that kind do a great deal of harm outside this House when people read some random remarks made here and take them as gospel. I think it is only fair to remember this. Whether farmers are making a great deal of money now or not, and that is beside the point of what I am going to say, remember this, that the House of Commons deliberately left farmers as well as other classes of individuals outside the Excess Profits Duty when that was first imposed. Eighteen months ago the position of the farmer was brought more into line with the position of those of other industries. Where heretofore on Schedule B he had—
    Commander WEDGWOOD: Escaped.
    Mr. BALDWIN: Paid on one-third of his rental as the basis for Income Tax that was changed to the whole of the rental value as the basis for Income Tax. Let me remind the House of this, that the one difficulty at this moment, the practical difficulty that exists against putting farmers into Schedule D in common with most members of the community, is the fact that during the War, when the shortage of staff throughout the taxing Departments is so severely felt, that it would have been perfectly impossible to have added under Schedule D so large a number of new members as would have been introduced had we put in the whole of the farmers of this country. I think it is only fair to mention that. I think I have answered the two points put by my right hon. Friend.
    Commander WEDGWOOD: This Debate is most illuminating. We have had political economy from all sides. What has interested me has not been so much the Debate as the proposal of the Chancellor of the Exchequer. How well do I remember, some seven years ago, the denunciation with which I, and I think even the Chancellor of the Exchequer of that day, were overwhelmed because we singled out a certain class for penalised taxation. I refer to those who advocated the taxation of land values. No words could be too violent in denunciation of us because we picked out that class of all others on which the country depends for special taxation, because we were not aware that we had got to consider not whence a man gets his money, but how much he gets when you assess him for taxation. Now we shall have a respectable precedent brought forward by this
    1012
    respectable Government for picking out the villains in the country and levying penalising taxation on them. This is the thin end of a very valuable wedge. As was indicated by a Labour Member who intervened so ably in the Debate, we can now watch who are the unpopular people in the country, who are the people—criminals !—who use interjections at Ministers' meetings, and then, seeing that they are unpopular, we will select them for special taxation ! The judges will come in for it on special occasions. Those over-swollen salaries will be obvious spoil for the new age to recover. Then, Mr. Wilson, the manufacturers of special smoke-bombs, or any other form of military necessity will come in—especially if they are few in number— for the genial attention of the Chancellor of the Exchequer.
    Although, however, these may be valuable debating points in future days, it must not be assumed for one moment that anybody who is well-grounded in political economy can approve of such a tax as this. It is not merely that it is an unjust; we all know it is unjust to pick out one class of the community for taxation. As the hon. Member for Liverpool quite clearly said, if you pick out the shipping industry for taxation you discourage British shipowners. Ships that would be built are not built and the ship-owning industry languishes for lack of capital which goes elsewhere. If you tax any particular industry you reduce the incentive to go into that industry, and that industry is bound to languish. I think that is perfectly clear, though perhaps old-fashioned political economy. The difference in the case of the land, I feel certain, is quite obvious to most hon. Members of this House. If you tax the shipowner the fewer ships are built. If you tax the land less land is not made, because it was made before, and is there. You cannot discourage the manufacture of land because it is not manufactured, whereas you can discourage the manufacture of ships which depend upon capital and labour to produce them.
    Mr. DENNISS: What about food?
    Commander WEDGWOOD: You manufacture food from the land.
    Mr. DENNISS: By the use of capital?
    Commander WEDGWOOD: Yes, by the use of capital on the land. If you put penalising taxes upon the production of food from the land you will have less

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    food. [An HON. MEMBER: "Keep to the point!"] I think I am perfectly in order in drawing attention to the distinction between the illegitimate selection of a particular class for taxation, such as this selection of a particular industry, which is bound to suffer, which is bound to become of less importance in our national economy, to the taxation of a particular subject, such as land, which is not manufactured, and which cannot be less valuable because taxes are laid upon it. That really is the reason why I and those who thought with me ought not to have been denounced seven years ago, and why the present (Government, which did the denouncing then, ought to get it now. This is not the last we shall hear of the Government method of penalising minorities. This will not be the last occasion on which the good sense of this House, or of the majority of this House, will be up against any such taxation, though it may unfortunately be on future occasions, as on this, that those people who know that it is wrong are going to let it go through unopposed.
    Mr. L. JONES: Before the Chancellor of the Exchequer leaves the House, I would like to put a question to him. He made a concession this afternoon in allowing the business of shipping to have a 6 per cent, standard instead of the Clause as it stands in the Bill. It is very customary to have an estimate of what such a concession made in a Finance Bill is going to cost the Exchequer. Has the right hon. Gentleman made such an estimate? If so, will he give it to the House? If such an estimate has not been made, will he have it made before the Report stage, so that we may know the result and effect of the concession which he has made? It would be a great advantage also if he would tell us what is the money value left in the discrimination which is made by Clause 19 against the shipping business. I suspect from the course of the Debate that what is left of money value of Clause 19 is very small indeed, and it would therefore, if that be so, be better to avoid this discrimination.
    Mr. BONAR LAW: That is a very natural question but I am sure my right hon. Friend, and the Committee, will remember the circumstances of the employment of the ships. What the effect of this will be will depend upon what the ships can make under the new conditions. I did ask whether an estimate could be
    1014
    made and I was told that it would be quite impossible, and so I am sorry it is not in my power to give the estimate. May I now make an appeal for us to get on with the Finance Bill? This subject has been very fully discussed; I think the Committee are thoroughly agreed, and I shall be very glad to get on.
    Mr. DENNISS: I have sat through the whole of this Debate and have listened very carefully to what has been said, I have only risen now to answer one of the arguments which has been put forward on behalf of shipping, to the effect that the people who would escape this tax under this Clause are the people who sold their ships and got increased prices for them. It is urged, too, that the shipowner who has held on to his ships all the time is now getting very low freights, and that, therefore, he should not be subjected to this tax or this modified tax. Those shipowners who have held on all the two and a half years have had enormous profits. Those profits have been so enormous that they are still able to pay even under the modification. I should like to give the House, in two or three sentences from the "Statist," the profits of shipping in 1916 compared with 1913. The "Statist" points out that the figures are well below the mark, so far as expert criticism knows. Whereas, says the paper, in 1913 shipowners owning ships of the capital value of £200,000,000 made only £20,000,000 of profit, in 1916 the same shipowners made a profit of £250,000,000, or over eleven times the amount of 1913. These shipowners may now be working at low freights, their ships having been commandeered by the Government, but for two and a half years they have been making these enormous profits, and they, therefore, have plenty of money to pay under this Clause. I think it would be of great public interest if these figures appeared in the ordinary Press. The gross earnings for 1916 were £410,000,000, as compared with £127,000,000 for 1913. In 1916 the expenses were only £160,000,000, as compared with £107,000,000 in 1913. The result in 1916 was a net profit of £250,000,000, as against £20,000,000 in 1913. The Excess Profits Tax was then deducted—that was £115,000,000. The then Chancellor of the Exchequer (Mr. McKenna) estimated the total amount of the excess profits for the trade of the country would only be £80,000,000; he got £115,000,000 alone from shipping. Deduct that from the

    1015
    £250,000,000 and there was £135,000,000 left, which went straight into the pockets of the shipowners. On that they declared dividends averaging 67½ per cent, all round on a capital of £200,000,000, as against 10½ per cent, in 1913 for the same companies. The man in the street wants to know who paid that £250,000,000 of profit? Who paid the gross receipts of £410,000,000? Who paid the £250,000,000 net profits? Of course it came out of the pockets of the people of this country, who bought the goods carried by these ships. Although the Allies bought some, the great bulk came here. These shipowners, who until recently have been in receipt of these enormous profits, ought not to squeal now that the Government puts on this very moderate taxation, in order to convince the people of the country that they intend, not only as regards the shipping interest, but all interests in this country, that this gross profiteering ought not to be allowed to continue.
    Mr. DUNDAS WHITE: I would like to express my satisfaction that the Government have taken this line in this particular case of profits. These profits seem to me eminently suitable for special taxation because they are profits which are not due to the increased industry of the shipowners, but to matters outside their control, which have had the effect of causing a shortage of tonnage and sending up freights so enormously. Therefore, it seems to me they may well be selected for this special taxation. With reference to this as a precedent for other taxation, the case of the shipowner and that of the farmer are very closely connected, because that which has caused a shortage of tonnage has caused a shortage of food, and enabled the price of agricultural produce to be raised in the very considerable way that it has. I therefore think, if it were for that reason alone, if they raise any question of extending the provisions of this Clause, the case of the farmer should be considered, and that it should be extended to him and to the landowner as well as to the shipowner. There is one matter I should like to mention with regard to what the Financial Secretary of the Treasury said. He laid special emphasis on the fact that a couple of years ago the farmer, who was assessed for Income Tax under Schedule B, instead of being taxed on one-third of his Schedule B
    1016
    assessment was taxed on the whole. That statement coming alone—I do not say it was so intended for a moment;—might lead people to suppose that the farmer up to then had always been assessed on one-third of Schedule B. As a matter of fact, for many years under the Income Tax Act, he was assessed under the whole of Schedule B. It was reduced to one-third of Schedule B in 1896, at the same time as the Agricultural Rates Act was passed. I feel sure the Chancellor of the Exchequer will bear me out when I say that. It was reduced in 1896 to one-third of Schedule B because of the depression then prevailing, and it was only common-sense that when those conditions ceased he should be once more assessed on the whole of Schedule B. There is, of course, the difficulty of applying this to any taxation under Schedule B, that Schedule B is really not a business schedule like the other. I want to point out that when we consider the farmer's assessment has been raised from one-third of his valuation under Schedule B to the whole of it, that is only reinstating what used to be the practice twenty years before, when the agricultural depression of the 'nineties led to it being reduced in the way stated.
    Mr. J. M. HENDERSON: I think there has been a great deal of discussion going on over very little money. This is not a tax, which some people seem to think, but a question of abatement of tax, and what is really perplexing the minds of shipowners and others of us who are not shipowners is really why this particular trade should be selected, not for an additional tax, but to be shut out of any abatement which is given to other traders. I believe there is very little money in it at all, and therefore, I think, except as an exhibition of virtue of its kind, the whole Clause might very well have been left out. I am quite sure it will do very little to augment the income of the Treasury, and I think in some respects it is unfortunate that this particular trade is selected. We all know what we owe to the merchant marine Without the merchant marine we should not be in the position we are to-day. Only to-day I met an official of a very large shipping company, and I asked him whether they had lost any ships lately. He said, "We are doubtful about one, but the most extraordinary thing about the captain is that, if this ship is lost, this is the fifth ship that has been sunk under him, and I am quite sure he will be keen

    1017
    to go to sea again." That, to me, indicates as great bravery as any exhibited by a holder of a V.C., and I do not think that is the particular trade to select for animadversion in your Finance Bill. Therefore, I think it is a great pity my right hon. Friend brought the matter into it at all. The shipowners are quite entitled to feel that a sort of stigma has been placed on them in this Bill, which, for all the money that is in it, could be very well left out.
    There is another reason why this trade ought to be encouraged, even if it has made these profits. We have lost 2,000,000 tons of shipping, and are losing tonnage every day. That could have been replaced very handsomely before the war at £10 a ton, but to-day it cannot be replaced under £50 a ton, so that if shipowners are to continue in the business it means that they have to find £100,000,000 out of the 20 per cent, left out of excess profits to replace them in the position they were in before the War. I think it is a very great pity that this question was raised at all, and for all that there is in it the proposal might very well have been left out. Last year this question of the shipowners came up in Section 43 of the Act of 1896, and there was an arrangement made in a Clause which was put in that Act which distinguished between the liability of the vendor of a ship and the purchaser. If this hits anybody hard it will hit the man who bought a ship at high prices last year and finds that he is not going to be entitled, as the Act would have entitled him, to succession, so that he could have averaged the profits with the previous years in which he made losses. Having regard to the amount at stake, I think it is a very great pity that this matter was touched at all. There is one other appeal I wish to make to the Chancellor of the Exchequer. He has spoken of the percentage standard, which we all know was 60 per cent., and under this Act he is raising it by 9 per cent. I think he might as a compromise make it 60 per cent.
    Mr. MONTAGUE BARLOW: I have the honour to represent a constituency where this subject has been very much debated, and I want to put the view of that constituency before the House. I have had the privilege, or shall I say the risk, of crossing twice to America to a port which shall be nameless, on board a troop ship, and I know something about the opinions of those who are employed on our ships. As far as those men are concerned, even if it was a question of extra taxation, I
    1018
    for one would always be on their side, but we are not dealing with the merchant seamen, but it is a question of the gentlemen who sit at home at ease making all these profits. This is a question of the managers and Shareholders. The argument that these shareholders and managers sitting at home employ these courageous fellows to go to sea seems to me perfectly childish. If you were devoting these large profits to paying the men who go to sea there would be something to be said for it. I have inquired whether the salaries of these stewards and seamen have been raised in consequence of the risk they are running, and I find that they have not been raised. The whole point with regard to this tax is that we are at war. We cannot apply the old reasons and economic considerations which apply-to refusing to differentiate now. As the-Chancellor of the Exchequer has assured us, and very courageously on more occasions than one, we are at war, and if those in authority in the Government find that certain members of the community have money, and that money is necessary to carry on the War, the State will take it. That is a perfectly feasible proposition to which I shall always give my hearty support. There happens to be a certain amount of money in the hands of certain parties and we are at war, and therefore the State is justified in using reasonable means to see that taxes are so adjusted to secure that that money shall pay its reasonable share. In Salford there is a large mercantile! community. We have in the centre of our constituency the docks with the whole of a large area in the North of England, and the Manchester Docks and the docks of the Manchester Ship Canal are in the centre of Salford. I have had appeals made to me from people representing capitalists and also from the artizan point of view on this question, and I have tried as carefully as I can to consider this case apart from prejudice and wholly on its merits.
    Two questions are involved. One is the question of differentiation, and it is said that it is an improper thing to do, and if we were in times of peace I should agree with that contention. In times gone by I occupied a chair of political economy, and one of the first principles laid down in taxation is that in the general conflict of principles one thing is quite clear that you should attempt to be fair to all parties in the community. If we -were in peace times I should be one of those disposed to dis-

    1019
    agree with any attempt to differentiate between class and class, but we are not in peace times, and I shall support the Chancellor of the Exchequer when he says, in the greatest crisis of our lives, "Here is an industry making large profits, and I propose that it shall bear a fair proportion of the burden of the War from the large profits which it is making." How anybody can contest that principle at a time like this I cannot understand.
    With regard to depreciation I think the arrangements made are perfectly reasonable. I agree that proper provision must be made for reserves and for depreciation, but I do not think the case made out on behalf of the owners of the industry is substantial, and therefore I propose to support the Government. It was urged by the last speaker that it was hard to tax this industry because the shipowners have to make good the losses made during the War. I have not heard it proposed that the shipowners are prepared to retain these profits to make good their losses. If they came forward with any proposal of that kind they might have been entitled to a good deal of sympathy, but as far as I have seen all the proposals from the managers of the industry concerned have taken the form of setting aside a certain amount as a reserve, and devoting the rest of the profits to paying enormous dividends. If they had come forward and said, "We are devoting these large profits, not to reserve or dividends, but to the repairing of capital losses, there might have been a good deal to be said for them, but, so far as my unaided intelligence goes I have not observed any proposal of that kind, and, therefore, under all the circumstances, and especially in view of the concession made, I hope that the Clause will be approved.
    Clause, as amended, ordered to stand part of the Bill.

    CLAUSE 20.—(Relief in Respect of Colonial Excess Profits Duty.)
    (1) His Majesty may by Order in Council declare—

    (a) that under the law in force in any of His Majesty's Possessions Excess Profits Duty is chargeable in respect of any profits in respect of which Excess Profits Duty is also payable in the United Kingdom; and

    1020

    (b) that arrangements have been made with the Government of any such Possession whereby, in respect of any profits, only the duty which is higher in amount is to be payable, and the amount of such duty is to be apportioned between the respective Exchequers in proportion to the amount of duty which would otherwise have been payable in the United Kingdom and in that Possession respectively.

    (2) Where any such Order in Council is made, then if the Commissioners are satisfied that any case is one which any such arrangements relate they may, in lieu of any relief granted under Rule 4 of Part 1. of the Fourth Schedule to the principal Act, allow or make such remission or adjustments of duty as may be necessary to give effect to such arrangements, so, however, that the effect of such remission or adjustment shall not be less favourable than the relief in lieu of which they are allowed or made.
    (3) The obligation as to secrecy imposed by Sub-section (8) of Section 45 of the principal Act shall not prevent the disclosure to the Government of the possession concerned of such facts as may be necessary to enable such arrangements as aforesaid to be carried into effect.
    Mr. DENNISS: I beg to move, in Subsection (1), paragraph (a), after the word "possessions," to insert the words "or in Allied countries."
    The Chancellor of the Exchequer has put this valuable Clause into the Bill so that the man who earns money in one of our Dominions and has that money remitted to him here does not pay both Excess Profits Duties, but only the higher of the two. We and our Dominions make an arrangement by which the sum collected is divided between the two countries in proportion to the size of the two taxes. Why should not that arrangement be extended to the Allied countries as well? A manufacturer makes a profit in France, and he has to pay 60 per cent. Excess Profits Tax. He therefore gets only 40 per cent, remitted to him in this country. That is subject here to Excess Profits Duty of 80 per cent., which takes £32, and leaves him with only £8. That again is subject to Income Tax to the extent of one-fourth, and that leaves him with £6. If the Chancellor of the Exchequer thinks it necessary, when a man makes money in the Colonies and has it remitted to him

    1021
    here in this country to see that he is not taxed twice and to see that everything is not taken from him so that he would be very much better off not to carry on his business in the Colonies but to put his money into the Five per Cent. War Loan, saving his time, his energy, and doing nothing, why should he not do the same with regard to our Allies? We are all fighting for the same thing. The object of the tax is to raise funds to resist German aggression, and there is no distinction and can be no distinction in justice to the individual between the two cases.
    Mr. BONAR LAW: I hope my hon. Friend will not press this Amendment. It is just one of those cases with which one has a good deal of sympathy, but as a matter of fact it is difficult to arrange to make the exception in regard to our own Dominions, so that the Excess Profits Duty in the one country should be taken into account in the other. There is only one way in which it can be done, and that is by a definite arrangement with the Government of the Colonies in question. It is not easily done. It is a very complicated thing to arrange. There is this further to be said. Up to the present the Excess Profits Duties in the Allied countries have hardly come into effect. A good part of this financial year has already gone, and I am sure, that it would not be wise to diminish our own revenue by attempting to make the arrangement at the present time.
    Mr. HENDERSON: My right hon. Friend has overlooked the fact that this is only to be done by an Order in Council. I do not know how an Order in Council is going to affect our Allies or bind them.
    Mr. DENNISS: I beg to withdraw the Amendment, and in doing so I wish to say that I brought this forward principally because this Clause is permissive. It is only if an arrangement can be made with our Allied countries that it would come into force at all. I do not think that there is anything in the object of my hon. Friend about the Order in Council.
    Amendment, by leave, withdrawn.
    Clause ordered to stand part of the Bill.

    CLAUSE 21.—(Further Provisions with Respect to Munitions Exchequer Payments)
    (1) The provisions of Section four of the Munitions of War Act, 1915, with
    1022
    respect to munitions Exchequer payments shall not apply to any profits arising after the thirty-first day of December, nineteen hundred and sixteen or apportioned under this Act to the period after that date.
    (2) Munitions Exchequer payments shall, after the passing of this Act, be assessed and collected, or if already assessed but not collected, collected, by the Commissioners and shall be computed by them in accordance with the provisions of that Act and the rules made there under, and the Commissioners shall for those purposes have all the powers of the Minister of Munitions, including the power of making rules.
    For the purposes of such assessment and collection, the provisions for the time being in force with respect to the assessment and collection of Excess Profits Duty (including provisions as to returns and penalties, but excluding provisions imposing any charge of duty or as to the computation of duty) shall apply, and rules may be made by the Commissioners accordingly.
    Any rules made by the Commissioners may specify matters which may be referred to the Minister, or to a referee or board of referees appointed by him, and prescribe the manner in which such cases are to be referred.
    (3) For the purposes of Sub-section (3) of Section five of the said Act, any establishments in which the same person has a controlling or. preponderating interest may, if the Commissioners so determine, be treated as belonging to the same owner.
    (4) Sub-sections (2) and (3) of Section forty-nine of the Finance Act, 1916 (which relate to the recovery of payments in respect of increased directors' fees), shall apply for the purposes of munitions Exchequer payments as they apply for the purposes of Excess Profits Duty, with the necessary modifications.
    The following Amendment stood on the Paper in the name of Mr. HENDERSON:
    At the end of Sub-section (1), to add the words "after which date all excess profits, whether of controlled or uncontrolled establishments, shall be subject to Excess Profits Duty only."
    The CHAIRMAN: I think the Amendment standing in the name of the hon. Member for West Aberdeenshire is dealt

    1023
    with by the following Government Amendment in a better place and in a better form.
    Mr. BONAR LAW: I beg to move, in Sub-section (2), after the word "payments" ["Munitions Exchequer payments"], to insert the words "arising on or before the thirty-first day of December, one thousand nineteen hundred and sixteen, or apportioned under this Act to the period down to and including that date." This Amendment is for the object which my hon. Friend has in view.
    Amendment agreed to.
    Mr. HENDERSON: The object of my Amendment was to have it clearly stated that the 31st December, 1916, finished the Munitions Levy, and that after 31st December we should have only one tax—namely, the Excess Profits Tax, for all companies, controlled or uncontrolled.
    The CHAIRMAN: Perhaps the hon. Member will raise the matter on the Report stage. We have now passed the Chancellor's Amendment.
    Mr. BONAR LAW: I beg to move, in Sub-section (2), after the word "accordingly" ["and rules may be made by the Commissioners accordingly"], to insert the words "and the provisions of Section forty-eight of the Finance Act, 1916, relating to the adjustment of Excess Profits Duty and Munitions Exchequer payment, shall 'apply subject to such modifications as may be necessary in consequence of the transfer of powers effected by this Sub-section."
    Mr. HENDERSON: I think that meets the point.
    Amendment agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    CLAUSE 22.—(Amendments of Law as Respects Accounting Periods ending After December 31st, 1916.)
    In the application of Part III. of the principal Act to Excess Profits Duty for any accounting period ending after the thirty-first day of December, nineteen hundred and sixteen, the following provisions shall have effect:

    (1) In ascertaining the deduction to be made from the profits of the accounting period in respect of increased capital,
    1024
    or the pre-war standard of profits in cases where there has not been one pre-war trade year, three per cent, shall be added to the statutory percentage per annum; and, accordingly, in Sub-section (1) of Section forty-one of, and Rule 4 of Part II. of the Fourth Schedule to, the principal Act, the expression "statutory percentage" shall be taken to mean the statutory percentage as so increased:

    (2) The statutory percentage shall, in the case of a trade or business not carried on or owned by a company or other body corporate, be taken to be eight per cent, instead of seven per cent.; and, accordingly, Sub-section (2) of Section forty of the principal Act shall have effect as though eight per cent, were substituted for seven per cent:

    Provided that nothing in this provision shall affect the amount of the statutory percentage for the purposes of Sub-section (2) of Section forty-one of the principal Act:

    (3) Any increase of the statutory percentage under this Section shall be in addition to any increase of the statutory percentage which has, before the passing of this Act, been made under Section forty-two of the principal Act:

    (4) Where the pre-war standard of profits of any trade or business does not exceed five hundred pounds, and the profits of the accounting period, after any adjustment in respect of increased or decreased capital, are less than two thousand pounds, Sub-section (l) of Section thirty-eight of the principal Act shall have effect as though for two hundred pounds there were substituted two hundred pounds with the addition of one-fifth of the amount by which the profits of the accounting period are less than two thousand pounds; so, however, that if there has been a loss in the accounting period, then for the purpose of ascertaining the amount of any re payment or set-off under the principal Act the addition allowed shall be such as if there had been neither loss nor profit, and that where the accounting period is a period of less than a year, this provision shall have effect as if there was substituted for two thou-

    1025
    sand pounds and two hundred pounds respectively a proportionately reduced amount:

    The foregoing provision shall apply where the pre-war standard of profits exceeds five hundred pounds, subject to this qualification, that the amount of the addition shall be reduced by the amount by which the pre-war standard exceeds five hundred pounds:

    (5) Where the Commissioners are satisfied—

    (a) that in connection with any trade or business two or more distinct and independent industries are carried on in separate establishments, and with books kept in such a manner that the profits in respect of each industry can be readily ascertained; and

    (b) that in any year by reference to which the pre-war standard of profits is calculated a loss has been sustained in respect of any one or more of such industries;

    the Commissioners may, if they think fit, in computing the profits standard, disregard that loss:

    (6) Where the Commissioners are satisfied that during the last six pre-war trade years, owing to trading losses, any former assets of any trade or business have ceased to form part of the assets of that trade or business, or the money borrowed in respect of the trade or business or the debts of the trade or business have increased, the Commissioners may, for the purpose of ascertaining the capital of the trade or business in any case where the percentage standard is adopted, compute the capital as though there had been no such loss of assets or in crease of borrowed money or debts:

    (7) Six years shall be substituted for three years in Sub-section (4) of Section forty-one of the principal Act (which provides for the adjustment of Excess Profits Duty in respect of un-remunerative capital).

    Mr. DENNISS: I beg to move, in Subsection (1), to leave out the word "increased" ["in respect of increased capital"].
    Nowadays anybody who has capital to put into a business can put it in 5¼ per cent. War Loan, and in an industrial company he can only get 6 per cent., and that
    1026
    6 per cent., as compared with pre-war times, is only worth about 4 per cent. The Chancellor of the Exchequer does not include all capital in business and assess it all at the same figure as in this Section.
    The Sub-section says:
    "In ascertaining the deduction to be made from the profits of the accounting period in respect of increased capital "
    an additional 3 per cent, shall be allowed. If a man puts money into a risky industrial venture, and especially if from patriotic motives he does so in war time, he ought to get a better return than he had before the War. Instead of that, he will get a worse return. He is getting what is really a 4 per cent. return now. If you put on the extra 3 per cent. he will be getting 6 per cent, or 7 per cent, for his money. That would be a fair thing for him. Why it should be limited to new capital I do not know, except that it is impossible to get any new capital into any of these businesses nowadays unless you give more than 6 per cent., or even 9 per cent. That is perhaps the justice of the plea why 9 per cent, should be allowed. It is the sum already allowed for capital now invested.
    Mr. BALDWIN: The reason for the increase in the rate per cent, given for new capital is partly because capital now is of more value than it was before the War, and partly because, naturally, when the Government arc proceeding with so stringent a tax as 80 per cent, wherever possible they want to introduce such alleviations as they may think to be both desirable and justifiable. The reason they do not think it wise to give that increase to any other capital than new capital is a very simple one. If they did, it would disturb the existing basis. We do not believe there is any reason for it. I should like my hon. Friend to remember that the increase of percentage applies equally to capital that has been lost, as well as to capital that is earning money. If you take the capital that shows a decrease on the pre-war time, and if you add 3 per cent, to it, you are increasing the profits of the firm by 3 per cent. We can see no reason at all for making this provision retrospective in its action, and I am quite sure the Committee will agree with us.
    Mr. DENNISS: I brought this Amendment forward on behalf of the London

    1027
    Chamber of Commerce, who thoroughly considered the matter and asked me to do so. I have done that, and I have received the answer of the Joint Financial Secretary to the Treasury, and although I do not quite agree with his agrument, I ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Sir WILLIAM PEARCE: I beg to move, in Sub-section (4), to leave out the words "two hundred pounds with the addition of one-fifth of the amount by which the profits of the accounting period are less than two thousand pounds; so, however, that if there has been a loss in the accounting period, then for the purpose of ascertaining the amount of any repayment or set-off under the principal Act the addition allowed shall be such as if there had been neither loss nor profit, and that where the accounting period is a period of less than a year, this provision shall have effect as if there were substituted for two thousand pounds and two hundred pounds respectively a proportionately reduced amount," and to insert instead thereof the words "five hundred pounds."
    What I want to do is to provide that £500 shall be substituted for £200 in the original Act, and to get rid of the complicated scale and the provision at the end of the Sub-section which will give rise to a good deal of trouble. I have been asked to move the Amendment on behalf of a large association of small traders. It will not very much affect the Revenue. It is very much simpler than the long Sub-section as it now stands. I believe the Committee generally has sympathy with the small trader. If my suggestion were accepted, there would be no Excess Profits Duty levied where the increase was not more than £500. The Sub-section provides that so long as the profits do not exceed £200, plus all sorts of additions, which may very easily come up to £500, the tax shall not be levied. The additions are not altogether fair in their application, in fact, it has been pointed out to me that under the last paragraph, if two men are earning now £l,500 and one of them had a pre-war standard of £500 and the other a pre-war standard of £l,200, the £500 man would get very much more than the £1,200 man, although they were both making exactly the same excess profits now. A good deal of value would be attached to the concession by the small
    1028
    traders, and in the interests of simplification, and because of general sympathy with the small trader who is not making very much profit, I hope the Government may be able to meet my suggestion.
    Mr. BONAR LAW: I should like to explain to my hon. Friend and the Committee exactly how this matter stands. When I first had it in my mind to raise the Excess Profits Duty, and it had been indicated here in a speech by the Prime Minister, I was asked to meet a deputation of the controlled firms. It was a very large deputation, and I recognised that in increasing the duty one should try to make whatever modifications one could without losing too much revenue. I felt strongly that the kind of case which suffers most is that of young firms making small incomes, especially those firms started just before the War. I promised the deputation that the Board of Inland Revenue would go into this matter, and, if they were willing, to go into it in consultation with them. They did so, and the result of that consultation is the proposal now before the Committee in this Clause. On the whole, it is an extremely good one, and really secures the result we all aim at much better than the proposal made by my hon. Friend. He pointed out, as an example of the disadvantage of our proposal that a man making £1,500 got a far smaller advantage than the man making only £500. That is precisely the object we had in view.
    Sir W. PEARCE: I took the case of one man with £500 and another man with £1,200 as the standard before the War. I believe they are both making £l,500 now.
    Mr. BONAR LAW: Even so, I think my point is good. Our object was to help the very small firms, and, therefore, the firm with a standard of £500 ought to get more than a firm with a standard of £1,500. Perhaps the Committee will understand better the effect of our proposal if I tell them what the result will be. If the suggestion were adopted and we had a fixed £500, it not only has the disadvantage to which I have referred, that it would not help, in as great proportion as our scheme does, the, man in a small way, but it has this additional disadvantage, that the man with a smaller income than £500 would actually get less than the amount he

    1029
    gets under our scheme. I have here tabulated the result of our scheme. If the standard was £200, and the total profit was £500, at present that would pay a duty on £100 in excess profits. Under our proposal that would not pay anything. If the profits were £800 at present they would be taxed on £400; under our proposal they will only be taxed on £160. At present, if the profits were £l,000, they would be taxed on £600; under our proposal they would only be taxed on £400. I would remind the Committee that not only has this been very carefully considered by the Board of Inland Revenue, but it has been decided in consultation with those best able to judge, and consequently, I think, the Committee will be well advised to allow our scheme to stand, and not to accept the Amendment.
    Sir W. PEARCE: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Mr. J. MASON: I beg to move, at the end of Sub-section (4), to insert the words,
    "In the case of any new business established since the fourth day of August, 1912, and before the fourth day of August, 1914, the standard of profits for the purpose of ascertaining the excess profits shall be taken to be the average profits of any two of the three years next ensuing after the establishment of the business to be selected by the taxpayer."
    10.0 P.M.
    This Amendment is designed to remove an injustice which is so glaring that I am sure it will have the sympathy of every Member of the Committee. It is a matter to which I have called attention on previous occasions, and I admit that some considerable difficulty arises in meeting the case, because I shall probably be told that the whole basis of the tax is affected by an alteration such as this. The injustice of the hardship involved in this case is, however, so great that I really must press very hard that the Chancellor of the Exchequer should endeavour, at any rate, to find some means of remedying it. The class of case is one in which the profits which are being taxed are not war profits at all, but are profits which arose entirely previous to the outbreak of War, and in many cases the business since the War has suffered very largely in consequence of the War. Yet owing to 1030
    accidental circumstances, which I shall point out, these pre-war profits are liable to taxation, whereas if it were not for the accident of the accounting period falling a few days after the outbreak of the War, these profits would have been brought within the standard period, and these businesses would not have been subject to any Excess Profits Tax at all. I must take one typical case to illustrate what my point is. The case which I will use as an illustration is that of a small business, a shop, which by accident happens to have been transferred from one person to another four or five months previous to the outbreak of war. This shop was simply given up in the ordinary course of business by the owner in April, 1914, and the business was taken over by two of his assistants, who formed a small company for that purpose with a capital of £1,200. This is a milliner's shop, selling ladies' hats and things of that kind, and it was evidently a very satisfactory business previous to the War. I may remind the Committee that the accounting period was arbitrarily fixed as 19th August, simply because it is a period in the year which for that class of shop is a slack period of business, and therefore suitable for stocktaking. This business was taken over by these two people in April, 1914, and up to the first accounting period of 14th August, a period of four months, they made a profit of £l,437. Had that business not changed hands in April it is quite evident that the large profits of the previous year would have been taken as the standard. But as the business changed hands in April the standard amount—a certain percentage, 7 per cent., I think, on the £1,200, plus £200—was, roughly, £300. That business, which was doing extremely well up to the outbreak of war, immediately declined, so that the profits for the year ending August, 1915, were less than the profits during the four months ending August, 1914. Again, the profits during the whole year ending 1916 were again less than half the profits of the previous year, so that the business had been steadily declining further than would be anticipated in a business of this kind. It is obvious that owing to the accident that the business had to change hands in April, and that the accounting period ended on 19th August instead of on 3rd August, in which case these high profits would have been the standard, and, therefore, there would never have been any

    1031
    question of excess profits at all, these people are liable to pay Excess Profits Duty amounting in the first period to £593, —the actual assessed tax is £593—that is before the War; during the second period they are liable to £422, and during the third period to £135. That is to say, altogether these people have to pay over £l,000 in Excess Profits Duty, which obviously—and I think it will be agreed—ought not to be chargeable if the tax is, as it is intended to be, a war tax. After all, this tax is proposed for the purpose of taxing war profits, and in these cases it is taxing profits solely made previous to the War owing to the two accidental causes which I have described. The right hon. Gentleman this afternoon told us that taxation should not be retrospective, but you cannot have a more gross case of a tax being retrospective than when you use a war profits tax for the purpose of taxing profits made previous to the War. Although I shall probably be told that it upsets the basis of the tax, and that all sorts of difficulties arise in making exceptions of this kind, the real fact is that there are a great number of small businesses like this. This is merely a very illuminating example, but there are a great many other businesses in the same position, and I do feel that such a gross injustice is being done that I must press very hard on the right hon. Gentleman to try, if this Amendment will not meet the case—as I am quite ready to believe may be the fact—to find some means of meeting an injustice so glaring as that I have described.
    Mr. PETO: The whole basis of this Excess Profits Tax assumes, from the very phraseology of the tax, the standard period, the datum level, and the like, a business which has had some continuity before the war period which can be compared with the war period or the immediate ante-war period as it was in the early part of 1914, in which excess profits may be held to accrue. The kind of business the hon. Member for Windsor (Mr. J. Mason) is dealing with is that which has started since the 4th day of August, 1912. As a matter of fact the Chancellor of the Exchequer collected excess profits in some cases very nearly for a period of twelve months prior to the War, and it is quite clear that businesses of so young a growth as those started since August, 1912, should have special consideration in regard to the standard on
    1032
    which excess profits is levied. The hon. Member for Windsor (Mr. J. Mason) asks that two of the three years after the starting of the business should be the starting point or datum level on which excess profits should be charged. That is obviously a fair proposal and one which is in accordance with the whole principle on which the Excess Profits Tax is based, and I could not believe that the Chancellor of the Exchequer, or the Joint Financial Secretary to the Treasury, would not accept the Amendment, because it is only putting these new businesses on a fair level. I have much pleasure in supporting the Amendment, because I am satisfied that it is in accordance wit I the whole principle on which the Excess Profits Tax is based.
    Mr. BALDWIN: I am afraid we cannot accept this Amendment. Of course it will have to be remembered that wherever one deals with cases by exceptional treatment you generally end by starting a fresh crowd of still harder cases. If my hon. Friend's scheme was started it would then only throw into higher relief the difference between the companies or firms that he would favour and those which had been started twelve months or twenty-four months before that, and he would get just the same kind of anomaly and you would be just as far from getting that perfect justice which we all desire to see and which we all know is perfectly impossible of attainment in a tax of this nature. I would like to point out for my hon. Friend's comfort that we have seriously considered the question of new businesses and we believe that we have gone some little way to meet their very legitimate troubles in two of the schemes of relief we have put forward in different parts of this Clause. We have first of all given an increase of 3 per cent, to the statutory percentage. We consider that this relief is quite worth having, and I think if my hon. Friends study the fourth Subsection, which contains a scheme for relief for businesses not making a profit greater than £2,000, they will find that for the kind of business they have in mind that Sub-section affords very substantial relief. I admit at first sight the plan we have selected looks a little complicated, but I have worked out a number of examples, at various rates of profit, and I can assure my hon. Friend that it gives a very substantial relief, and is graduated1 with some skill, so that businesses which are the most struggling and make the

    1033
    smallest amount of profit are those which benefit most. I am afraid we cannot undertake to go any further in the direction of giving any alleviation than we have gone in these two Sub-sections.
    Mr. LOUGH: I am very reluctant because of the amiable speech we have had from the Financial Secretary to press the Amendment and because we agree with him that the Chancellor of the Exchequer has really gone a good way in this Clause. There are important concessions made in each of the Sub-sections, and also concessions made elsewhere, and he is really assisting the expeditious passage of this very difficult Bill. But at the same time this ought not to prevent them looking at any proposals which come from any quarter, and all my hon. Friends have asked is that some care should be taken with regard to businesses which have not been affected by the War at all, businesses that were just newly established. The great hardship is the injustice to new and enterprising firms, and owing to the continuance of the War now for three years—we hope it may soon end, but it may go on for four or five years—it becomes very important to give fair consideration to small people who are displaying a little enterprise in startng new businesses. My hon. Friend only asks you should take as the standard of profit the pre-war period of profits which have been actually obtained during the last two years. I notice whenever the Chancellor of the Exchequer is not going to give anything away he puts up the Financial Secretary, but whenever he is going to make a concession he does it himself. If I were the Chancellor of the Exchequer— I am sorry he did not catch it.
    Mr. BONAR LAW: I apologise.
    Mr. LOUGH: If I occupied the position which he does I would always let my young Friend make the concession. I do not like pressing my right hon. Friend unduly, especially as I have another request to make, but I do think this is an extremely just proposal, and I would ask whether he could not reconsider the position with regard to it.
    Mr. POLLOCK: I desire to ask the Financial Secretary to look into this matter again before Report. The real difficulty of it is this: When we press hard cases the Financial Secretary says, "You have to select some particular date, and I
    1034
    admit there are hard cases, and we will try to do what we can, but hard cases there must be, and there may be others even worse." If there was any power reserved by the authorities to meet the hard cases in a matter of administration I should be more satisfied because it seems to me we might be able to meet hard cases by close examination of the facts when the case turns up, and then get the Inland Revenue Commissioners to say that in these particular cases we will not exact our full amount, we will cut it down to a lesser amount, because we see the hard ship of the case. They do not stand on their rights. But whenever one presses a case like that and brings it to the attention of the authorities they say "we are so sorry, but we cannot do it by administration, because we are tied by the Act of Parliament," and therefore one gets no assistance. The flexibility which ought really to belong to those who have to administer the Act does not exist, and the result is that the hard cases are left with an expression of sympathy and regret, and yet when they actually occur we find that those who administer the Act are unable to give any relief. The Financial Secretary says that if this Amendment were accepted a number of other hard cases will crop up. I daresay they would, but I should like to see him take some power so as to enable him to set aside, if necessary, and deal in a more flexible manner with these eases and others, and not to be compelled to impose that hard ship which he admits exists, and which may arise in this and a number of other cases which ought to be met by administrative flexibility.
    Mr. MASON: I am afraid I feel somewhat dissatisfied at the answer I have been able to extract from my hon. Friend. Might I ask him whether it would not be possible to consider before the Report stage the allowing of an alteration in the date of the accounting period in cases of this kind? The real solution, if my proposal is not the solution, must be in allowing those cases to remake up their accounts taking their accounting period at an earlier date before the War. In that way you would get the actual pre-war profits as a standard, and you would get the tax levied on war profits only, and that, I am sure, is really the desire of the Treasury if they can only carry it out. Might I ask the right hon. Gentleman whether before the Report stage he will go into the

    1035
    question and see whether it is not possible, by allowing the alteration of the accounting date, to get over the difficulty, which, of course, is a real one, but which I really feel ought to be faced and got over. In that way we might be able to come to some reasonable solution of the difficulty. The Financial Secretary made allusion to some figures which he had worked out, and it would be extremely interesting if he could in some way convey them to us, because a great deal which is in this Clause will not be very fully understood by many people who might be interested and would like to know how particular cases will work out.
    Amendment negatived.
    Mr. LOUGH: I beg to move, in Subsection (6), to leave out the words "during the last six pre-war trade years."
    There are altogether seven paragraphs, and I think each of them contains some useful concession, for which we are very grateful to the right hon. Gentleman. Probably one of the most useful is contained in this sixth Sub-section. The part to which I refer is where it allows the estimate of any capital which may have been lost by a firm to be reinstated, in calculating the pre-war capital, before any excess profit is charged. That is directly in accordance with the principles which were laid down when the Bill was carried, but it has a higher merit still. I put down a new Clause myself and handed it to the Financial Secretary in this sense, and really with one or two Amendments, of which that which I am now moving is one, the right hon. Gentleman will really have made his sixth Subsection just as good as my proposed Clause. That must be a very great satisfaction to him. Then look at the advantage he will gain I will not move the new Clause, and the progress of the Bill will be greatly accelerated. Besides he will have made a great concession to the principles of justice. It is quite unnecessary to drag in here the last six years. They were only put into the original Bill for the purpose of estimating profits, and not for dealing with these cases of loss at all. To show what injustice has been done under this tax during the last two or three years, I sent some cases to the Treasury in which the Commissioners of Inland Revenue, in cases where capital of £100,000 has been paid up and £20,000 has been lost, only allowed 6 per cent.
    1036
    on the £80,000, and they construed the Act in some way to justify that proceeding. I believe they were totally illegal, but the commissioners in this case and in many cases are very severe, and they have administered the Act in that way at the present time. It is evident the Treasury know that is wrong, because now they have restored what was the meaning of the original Act. I want to satisfy the Committee that this was the meaning of the original Act. When it was being passed on 23rd November, 1915, I had a discussion with the then Chancellor of the Exchequer:
    "Mr. McKenna; Then we say in regard to such company or firm that we will allow them a minimum of six per cent, upon the money involved in the company or firm.
    Mr. Lough: How involved? Will he give it on the value which the public gave for the shares?
    Mr. McKenna: I have agreed to do that.
    Mr. Lough: No, Sir.
    That might seem rather rude on my part, but the Chancellor of the Exchequer did not take offence, and he said:
    "Yes, on the money that the public paid for the shares, because that is money which has been paid by the public, and money in respect of which the shareholders expect a return."—[OFFICIAL REPORT, 23rd November, 1915. col. 250, Vol. LXXVI]
    In spite of these strong and clear words, there were many cases in the administration of this Act where they were not allowed to restore the money that was lost, and I think great injustice was done. That is proved by the fact that the Chancellor of the Exchequer has now adopted that principle, except that he has put in one or two restrictions which I am going to ask him to take out. I think he ought to leave out the period of six years, because the six years were not intended to apply to this point. It is a restriction which I think ought clearly to be removed. There is another Amendment which I will move, namely, that instead of leaving this to the Commissioners that the Act should be made in conformity with the statement of the Chancellor of the Exchequer which I have read. I am sorry to say that those who have gone before die Courts in regard to this matter have not absolute confidence in the Commissioners. I hope that these slight Amendments, which will make the Clause a useful Clause, and carry out the intention of the Government, will be accepted. I had an Amendment down to the first paragraph of the Clause to make the date the 4th August, 1914, instead of 31st December, 1916. I did not move that for this reason, that it would not be fair

    1037
    to other Clauses, but, so far as this particular Clause is concerned, I think it ought to be made retrospective to the 4th August, 1914. My three Amendments would be to make the Clause retrospective from the 4th August, 1914, to strike out the limit of years, and to make it incumbent upon the Commissioners in administering this Clause to carry out the declaration of the Chancellor of the Exchequer when the original Act was passed.
    Mr. BALDWIN: I am rather nervous about rising after what has been said by my right hon. Friend. I do not know whether he concludes from my rising, instead of my right hon. Friend, that what he has asked for is about to be conceded.
    Mr. LOUGH: I am very hopeful.
    Mr. BALDWIN: Does not the right hon. Gentleman feel that he is asking a great deal? We have given a very great concession in this Sub-section. I do not think that the right hon. Gentleman realises how great a concession we have given. In the original Act trade losses were allowed to go back for three years, and they were allowed to be written off the excess profits on which duty was payable if such were earned at a later date. Here we are going back six years instead of three. We leave the old arrangement still in force, by which the losses may be written off out of excess profits, and this Sub-clause allows losses over the six years to be written back to the capital, so that it increases as from the 1st of January this year the standard of the firm or company in question. That is a very considerable concession and shows that we recognise the fairness of giving back to the companies or firms trading losses that have been made over as long a period as we can recognise. I think that we have gone to the extreme limit. If we take any longer period than we have taken we shall then run the risk of bringing back into capital losses that are really permanent. We shall be replacing capital that had been lost. But we take the extreme view that it is possible that even for six years a company may be making losses and yet may be able to retrieve them. I do not think that the right hon. Gentleman or any other member of the Committee can ask us to go any further than we have gone. With regard to the alteration of date I do not know whether the right hon. Gentleman is in order at this
    1038
    point in raising the question, but we could not possibly meet him there. We think that we have gone to the extreme limit in our power.
    Mr. LOUGH: I desire to withdraw my Amendment.
    Amendment, by leave, withdrawn.
    Sir IVOR PHILIPPS: I beg to move to leave out the words "owing to trading losses."
    The reason for this Amendment is that the Clause as drafted might probably be construed as making the powers given to the Commissioners with regard to borrowed moneys conditional on trading losses having been made. I submit for the consideration of the Committee that in fairness any increase in borrowed money during the last six pre-war trading years, which obviously can only have been borrowed for the purposes of business, should not be deducted from the capital. I put this Amendment forward on behalf of a large number of firms and I hope that the Financial Secretary will give it his careful consideration.
    Mr. POLLOCK: I would like the Solicitor-General to give his opinion on this Amendment, if, as I understand it, it is merely a drafting Amendment. The purpose of the Clause is to give relief in cases where there has been a loss. If there are certain former assets that have ceased to form part of the assets of the trade or business, that is one case; and the next case is where money has been borrowed in respect of the trade or business; and the third where the debts of the trade or business have been increased. If that is the intention of the Clause, then I think the alteration proposed by my right hon. Friend is necessary, because as the Clause is drafted it would appear that the loss must be in consequence of trade as a condition precedent to the relief in all three cases for which relief is provided. I do not think that can be the intention, because the Committee would apparently have these three distinct oases in which relief is to be granted— one, the loss; secondly, the increase in borrowed capital; and thirdly, the increase in the debts of the trade or business—if that be the intention, then it is unfortunate to put in those words, "owing to trade losses." The effect of putting those words in the second line of the Sub-section would be to govern all three cases pro-

    1039
    posed to be relieved. If that be not the intention, I would suggest bringing in the words after the word "business," and the Sub-section would then read, "Where the Commissioners are satisfied that during the last six pre-War trade years any former assets of any trade or business have ceased to form part of the assets of that trade or business, owing to trade losses, or the money borrowed in respect of the trade or business, or the debts of the trade or business have been increased, the Commissioners may," and so on. The three separate cases would then not be governed by those words. So far as I can read the Clause, that must be the intention. It is not necessary in all cases that there should be an increase of borrowed money because there has been a certain trade loss, nor ought it to be a condition precedent to the granting of relief; but it may be perfectly fair to ask whether the debts of the trade or business have increased, although that may not be in consequence of the single case of owing to trading losses. I ask the Solicitor-General to give his opinion as to the meaning of the Clause, or whether or not it would not be more accurate to alter the Clause as suggested, in order to make the three cases independent of trade losses.
    Mr. LOUGH: I support the hon. Member's interpretation of these words. Many things may have caused trade losses—a fire, a shipwreck, or other causes which are not trading losses. If the Amendment is adopted the Government will lose nothing, and it would really better carry out the intention of the Government.
    Amendment negatived.
    Mr. POLLOCK: Does the Solicitor-General or the Financial Secretary intend to reply?
    The CHAIRMAN: The Solicitor-General is too late.
    Sir IVOR PHILIPPS: I have two other Amendments.
    The CHAIRMAN: They are part of the same proposal. I gave an opportunity, and I saw no one rise. The question can be raised on the Question that the Clause stand part.
    Mr. POLLOCKThe Solicitor-General intended to reply, and surely, by leave of the Committee, he can do so?
    The CHAIRMAN: I am afraid I cannot allow the Government special privileges.
    Mr. POLLOCK: If that is so, if the Government were going to accept this Amendment, the words would have been inserted, and we should have had to delete them on Report. The Solicitor-General indicated to me, apparently, that he intended to reply.
    The CHAIRMAN: I looked all round the Committee and saw nobody rise.
    Mr. BONAR LAW: I quite feel it looks discourteous on our part and that is why I rise to explain. My hon. Friend the Financial Secretary intended to rise, but as the Solicitor-General was expressly appealed to we were discussing which of them should get up. I hope that my hon. Friends will take the reply on the Motion that the Clause stand part.
    Mr. LOUGH: I beg to move, in Subsection (6), to leave out the word "may" ["the Commissioners may"], and insert instead thereof the word "shall."
    I know that "may" has the same effect as "shall" in a great many cases, but as it was the intention of the House to give this relief, and as the Chancellor of the Exchequer now gives it, and as doubt at times has arisen, I think the matter ought to be made clear by substituting "shall" for "may."
    Sir IVOR PHILIPPS: On a point of Order. May I ask why my third Amendment was not called, as it is not necessarily consequential on the other?
    The CHAIRMAN: I thought the hon. and gallant Member had said that those three Amendments of his were part of the same proposal.
    Sir IVOR PHILIPPS: I did say that, but I would get an opportunity of getting a reply from the Government. It is not necessarily consequential.
    Amendment agreed to.
    The CHAIRMAN: The next Amendment on the Paper, in the name of the hon. Member for Enfield (Major Newman), I am afraid I do not understand.
    Major NEWMAN: I beg to move, at the end of Sub-section (6), to insert the words,
    "(7) Where it is represented to the Commissioners that in a business where there is no capital invested the net profit that

    1041
    would be left after payment of Excess Profits Duty and Income Tax is insufficient to meet the increased cost of living the Commissioners may, if they think fit, take such fact into consideration when calculating the amount of any Excess Profits Duty payable."
    This is another Amendment designed to meet the case of the small men. "We have had the hardships of the shipowners explained for the greater part of the afternoon. It came as a surprise to me, and doubtless it will to the Committee, to realise that two men, say, partners, or it may be three, taking out of a business a joint income equal to a major in an infantry regiment, or less than the earnings of a junior official, say, at the Ministry of Munitions, may be roped in as liable for the Excess Profits Tax. During the last few weeks I have had several cases of the sort brought to my notice, and I have investigated them. The Amendment draws attention to a real grievance, though it affects only a very small number of people in the community. Let me give an instance illustrating my case. There were a couple of men who in 1912 established themselves as insurance brokers. They formed themselves into a company, with a nominal capital, no money passing at all. For the year ended December, 1914, their earnings were £ 1,108, out of which they had to pay in Excess Profits Duty £62. In 1915 their earnings were £1,200, with £120 Excess Profits Duty. In 1916 their earnings were £1,489, with £295 Excess Profits Duty. If to that be added 2s. 3d. Income Tax, I suppose you will find that these two unfortunate men were, as a matter of fact, paying 25 per cent, of their net income to the State. Surely that is not fair! A big firm with cash reserves, or a rich man, could pay 25 per cent., but for small men, as in the case I have mentioned, I submit it is a hardship, and one which the House and the country does not wish to see inflicted. The Chancellor of the Exchequer will say, and has a right to say, that in the Clause there have been made two concessions which will meet this particular case— Sub-section (1) and Sub-section (4). Of course, Sub-section (1) does not meet the case at all, because as a matter of fact there is no capital invested, and Subsection (4) will meet it to only a very small extent.
    1042
    I submit that in a case of this sort there ought to be no Excess Profits Tax paid at all. Of course, if this were not strictly a war tax it would have to be very carefully graduated. If you are going to levy this tax after the War, you will have to graduate it so that the small man will pay very little. But this tax is only a temporary tax, and, therefore, you have to devise, to my mind, some temporary way of meeting this difficulty, and I think my suggestion would go some way to meet it. The hon. and learned Member for Leamington suggested something of the same nature, namely, that the Commissioners in these small cases should be given some latitude. If a man can show that by paying Excess Profits Tax he would be really deprived of the necessities or amenities of life for himself and family the Commissioners should be able, to take that into consideration. I have had a case given to me where an unfortunate individual, owing to this Excess Profits Duty and the increased cost of living, has had to withdraw his two boys from school. Surely we do not want to inflict any hardship of that kind on any man. That is a hardship with which the Commissioners ought to be able to deal, and, therefore, to meet these cases I do suggest that we ought to give this latitude to the Commissioners. We do not want to inflict unnecessary hardships, or to drive men, from a sense of injustice, to be passive resisters and compelled to pay at the point of the bayonet of the law. I do not say this Amendment is very well drafted, but, at any rate, it conveys my idea, and I should like to get some sort of assurance from the Chancellor of the Exchequer that either now or on the Report stage he will deal with this particular hard case.
    Mr. BALDWIN: I am afraid that we cannot accept this Amendment. No one has a higher opinion than I have of the Commissioners of Inland Revenue. I have every reason to have a high opinion of them, and I have seen a great deal of them lately, but I should be very sorry to throw upon them, in addition to all their other duties, the duty of deciding whether this man or that has sufficient means to meet the increased cost of living. I am quite sure the Committee would not wish to put that upon them. I would just like to say this to my hon. Friend, that it is not an easy matter in this Committee to discuss individual cases. It is quite impossible to examine the evidence as one would like to if one were to give a con-

    1043
    sidered opinion upon the case. But I would remind him of what, I think, he has forgotten, and that is that ex hypothesi before anyone pays Excess Profits Duty he is earning at least as much as he did before the War. The excess profits means that he is making as much as he did according to the datum line fixed for him either by his earnings before he started business, or by a percentage on his capital, or by his profits. It means not only that he had made something more— it means an extra £200 a year if a man of small means—and it means in any case that there is sufficient margin to him to compensate for the increased cost of living. I am quite sure if my hon. Friend had realised that he would not have seen the necessity for moving the Amendment.
    Amendment negatived.
    Mr. HENDERSON: I beg to move, at the end of the Clause, to add the words, "(8) Sub-clause (4) of Part II. of the Fourth Schedule to the principal Act shall have effect as if the words 'either of those two years' be substituted for the words' last of those two years.'"
    I propose this Amendment on behalf of my hon. Friend (Mr. Denniss), although I do not think there is much in it.
    Mr. BONAR LAW: I agree with the last sentence of my hon. Friend that there is not much in this Amendment. I really do not think we should be asked to do what this Amendment proposes, and I hope my hon. Friend will not press it.
    Amendment, by leave, withdrawn.
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Sir IVOR PHILIPPS: Can the Solicitor-General now give us the answer which he promised to give us?
    Sir G. HEWART: The answer I have to give to my hon. and learned Friend is that in the view of the Government, which I entirely share, the words "owing to trading losses" govern the whole Subsection. I imagine there would not be much controversy likely to arise as to whether a loss was a trade loss or not. But the matter might be made more clear if the Sub-section were made to read as follows: "Where the Commissioners are satisfied that during the last six pre-war trade years, owing to trading losses (a) any former assets of any trade or business
    1044
    have ceased to form part of the assets of that trade or business, or (b) the money borrowed in respect of the trade or business, or (c) the debts of the trade or business have increased," and so on. In each of the three cases the root of the matter is "owing to trading losses." In our view it is essential that the words "owing to trading losses" should govern all the rest of the words.
    Mr. McKENNA: Could the right hon. Gentleman say, in view of the fact that, we are close upon eleven o'clock, how far he proposes to go?
    Mr. BONAR LAW: My desire is to get far enough to-night to make it quite certain that we shall finish the Committee-stage in another day, and I will be satisfied if we get to the end of the Government new Clauses, including any Amendments-upon them.
    Mr. POLLOCK: I want to call attention to one very important point. We have established that the Commissioners are to be satisfied on certain points, and, if they are satisfied, then certain results are to follow. By Clause 24 the "Commissioners" mean the Commissioners of Inland Revenue. It is important that the Committee should understand—if I am wrong the Solicitor-General will correct me—that there is no appeal provided at all in respect of any of these matters from the Commissioners of Inland Revenue. The Committee ought to understand that we have now placed these important matters in the final decision of the Commissioners of Inland Revenue, who are concerned in the collection of the tax. They are, so to speak, on the one side and the taxpayer is on the other, and we take no steps to provide any appeal from their satisfaction and their opinion. I desire to point that out, because I observe one of my hon. Friends has got a Clause down providing for an appeal in certain cases. It is well that the Committee should understand that we are agreeing now, where the Commissioners, who are the collectors of the tax, are satisfied, that there is to be-no appeal, and that the subject shall have no right of questioning their decision in any form whatever.
    Question put, and agreed to.
    Clause 23 (Apportionment of Accounting Periods and Tears) ordered to stand part of the Bill.

    CLAUSE 24.—(Interpretation.)
    In this Part of this Act references to the principal Act, or to the Munitions of War Act, 1915, or to any provisions of those Acts, shall be construed as references to those Acts or provisions as amended by any subsequent enactment, and the expression "the Commissioners" means the Commissioners of Inland Revenue.
    Amendment made: At the end of the Clause add the words "and the expression 'Munitions Exchequer payments' in this Part of this Act and in any other enactment, includes any sums payable into the Exchequer under Section four of the Munitions of War Act, 1915, on account of the excess of the net profits of a controlled establishment."—[Mr. Bonar Law.]
    Clause, as amended, ordered to stand part of the Bill.

    CLAUSE 25.—(Remission of Death Duties in Cases of Members of the Crews of Vessels Killed in War.)
    Section fourteen of the Finance Act, 1900, as extended by the Death Duties (Killed in War) Act, 1914, and Section forty-six of the Finance (No. 2) Act, 1915, shall apply in the case of a master or a member of the crew of a ship or a fishing boat dying, whether before or after the passing of this Act, from causes arising out of the operations of the present War and within twelve months from the occurrence to which death is due, in like manner as it applies in the case of a person dying from such wounds, accident, or disease as are mentioned in the said Section fourteen, with this qualification, that the Treasury shall act on the recommendation of the Board of Trade instead of on that of the Secretary of State or the Admiralty.
    Mr. PETO: I beg to move to leave out the words "and within twelve months from the occurrence to which death is due."
    11.0 P.M.
    I think I can show in a very few words that these words are quite unnecessary and utterly confusing. I want to go shortly into the history of the concession that is embodied in this Clause for which I am very grateful to the Chancellor of the Exchequer. This Clause extends to the case of the master or a member of the crew of a ship or a fishing boat who dies from causes arising out of the operation of the War,
    1046
    the concession which was granted by the Death Duties (Killed in War) Act, 1914, which, in turn, was an extension of Section 14 of the Finance Act, 1900, a portion of which I should like to read to the Committee. That Section, which starts the whole of this legislation, says:
    "Where any person dies from wounds inflicted, accident occurring or disease contracted, within twelve months before death, while on active service against an enemy, whether on sea or land, and was, when the wounds were inflicted, the accident occurred, or the disease was contracted, either subject to the Naval Discipline Act or subject to military law, whether as an officer, non commissioned officer, or soldier, under Part V. of the Army Act, the Treasury may, if they think fit, on the recommendation of the Secretary of State or of the Admiralty, as the case requires, remit—"
    I would call the attention of the Committee to the words
    "or in the case of duty already paid, repay, up to an amount not exceeding one hundred and fifty pounds in any one case, the whole or any part of the death duties.…"
    There was a special Act passed in 1914, which made no reference to these words I have read and which occur in this Clause, which provide that the death must have occurred within twelve months of the wounds, accident or disease. It simply says:
    "Section fourteen of the Finance Act, 1900 (which relates to the remission of Death Duties in case of persons killed in war), shall have effect as respects the present War as if it applied to property passing to lineal ancestors as well as to-property passing to the widow or lineal descendants, and as if the amount of the duty to be remitted or repaid under that Section were, instead of the amount therein mentioned, the following amounts:"
    It goes on to provide that where the estate is less than £5,000 the whole of the Estate Duty is remitted. As the estates dealt with in this Clause are almost in every case of very small amount and less than £5,000, it really provides for complete remission. I do not see why these governing words
    "and within twelve months from the-occurrence to which death is due"

    1047
    should be brought in now and specially mentioned, when they are the governing words of the original Section. From the condition precedent these are included in the Death Duties (Killed in War) Act. 1914, and it was not considered necessary to repeat them in the case of soldiers and sailors in His Majesty's Navy and Army, but they are brought in now, when we art dealing with the merchant service. I dc not see that they make the matter any clearer. This Clause says that Section 14 of the Finance Act, 1900, as extended by the Death Duties {Killed in War) Act, 1914, shall apply to a master or a member of a ship now in the merchant service or a fishing boat. That being so, of course, the whole of what is provided in Section 14 of the Finance Act, 1900, is made applicable to these merchant seamen, as it was in the 1914 Act made applicable to the sailors and soldiers in His Majesty's Navy and Army. Although, therefore, it may only be in the nature of a drafting Amendment I think I am entitled to press upon the Treasury that if these words were not necessary to be repeated when the Clause was extended and applied to soldiers and sailors in the Army and Navy it cannot be necessary especially to bring them in in the present Bill. I would therefore ask the hon. Gentleman to allow me to leave out these words, which seem to discriminate against the merchant service, and repeat a condition which is really applicable to every case where the Death Duties (Killed in War) Act is applied.
    Mr. BALDWIN: It is not our intention to make any discrimination at all, and in putting in these words our sole intention is to put the fishermen in exactly the same position as the soldiers and sailors were in. We will consider the matter between now and the Report stage, and if we find they are unnecessary they shall be omitted.
    Mr. PETO: I beg to ask leave to withdraw my Amendment.
    Amendment, by leave, withdrawn.
    Clause ordered to stand part of the Bill.

    PART V.—STAMPS.
    Clause 26 (Exemption from Stamp Duty of Powers of Attorney for the Sale, etc., of Government Stock), and Clause 27 (Suspension of New Sinking Fund) ordered to stand part of the Bill.

    CLAUSE 28.—(Depreciation Fund.)
    (1) The Treasury shall by Regulation establish a depreciation fund in connection with the Five per cent. War Loan 1929–1947, and the Four per cent. War Loan 1929–1942, in accordance with the terms upon which those Loans were raised, and may issue out of the Consolidated Fund or the growing produce thereof from time to time such sums as may be required for the purposes of that fund:
    Provided that the aggregate sums so issued shall at no time exceed an amount equal to one-eighth of one per cent, per month, calculated as from the seventeenth day of February, nineteen hundred and seventeen, of the total nominal value of the stock and bonds of those Loans originally created whether as a result of subscriptions or conversions.
    (2) The Regulations may provide—

    (a) for the manner in which the fund is to be applied, including the purchase for cancellation from any Government account of stock or bonds purchased between the said seventeenth day of February and the passing of this Act in anticipation of the establishment of the "fund; and

    (b) for the cancellation of any stock or bonds to the purchase of which the fund has been applied.

    (3) The Treasury may, if they think fit at any time, for the purpose of providing for the issue of sums out of the Consolidated Fund under this Section or for the repayment to that fund of all or any part of the sums so issued, borrow money in any manner in which money is authorised to be borrowed for the purposes of the present War; and all sums so borrowed shall be paid into the Exchequer.
    The CHAIRMAN: With regard to the Amendment standing in the name of the hon. Member for Coventry (Mr. D. Mason), the first part would be equivalent to a direct negative to the Clause, while the second part involves a charge on the Exchequer and is out of order. I understand the hon. Member will raise the matter on the Question that the Clause stand part of the Bill.
    I have also a manuscript Amendment which is out of order. It proposes to raise the question of Premium Bonds, which is outside the scope of the Clause.
    Mr. HUME-WILLIAMS: I submit that on this Clause, as it stands, that Amendment should be in order. It is a Clause empowering the Treasury to raise loans either for the purpose of repaying into the Consolidated Fund amounts drawn out of it or to provide funds to be expended out of the Consolidated Fund. All this Amendment does is to define the way in which it can be raised, and, that being so, I venture to submit that it is in order to discuss one of the ways in which the powers taken by the Government under this Bill could be applied.
    The CHAIRMAN: I am afraid not. The point was raised last year, and I then pointed out that this Sub-section (3) of the corresponding Clause last year applies only to borrowing money in the form authorised by legislation by the Government, and it is quite clear that a departure in the nature of Premium Bonds is a proposal which cannot be introduced by the six words proposed in this Amendment. It must be brought in on a Loan Bill as an actual proposition.
    Mr. HUME-WILLIAMS: May I venture to express the hope that in these circumstances the Government will see their way to give some opportunity to discuss this important question.
    The CHAIRMAN: Perhaps the hon. Member will put down a question about that?
    Motion made, and Question proposed, That the Clause stand part of the Bill.
    Mr. D. MASON: I quite appreciate your ruling, Mr. Whitley, with regard to my Amendment. My object in putting it down was, firstly, that I have no objection whatever to a Sinking Fund. In fact, I support a Sinking Fund, but to have a Sinking Fund now, when you have a deficit of 1,000 or 1,600 millions, is, I think and could show, absurd. We have just passed Clause 27, which the Committee no doubt observed, was for the purpose of suspending the New Sinking Fund, created, I think, in 1876 for a charge of some £28,000,000, and which, naturally, the Treasury has suspended for the reasons I have just mentioned, that you cannot have an effective Sinking Fund when you have a deficit, as we have at present, of 1,600 millions. I think to create another Sinking Fund in the next Clause seems to me really incredible, if one did not see it in print, because not only does
    1050
    the Treasury propose to have this Sinking Fund, but in the terms of the Clause, Sub-section (3), Members will see it is stated there that the Treasury may, if they think fit, at any time, for the purpose of providing for the issue of sums out of the Consolidated Fund, under this Section, or for the repayment to that Fund of all or any part of the sums so issued, borrow money in any manner in which money is authorised to be borrowed for the purposes of the present War, and all sums so borrowed shall be paid into the Exchequer—that is to say, that the Government actually propose to ask this House and the Committee to give them power to borrow money on the one hand and repay the existing debt on the other. I confess I did not think any body of men would be asked to subscribe to such an absurd proposition.
    It may be argued that this is part of a bargain which the Treasury is bound to carry out, because of the fact that they have given this guarantee or entered into this undertaking in the prospectus issued to the public when the war Loan was issued. I turn to the actual prospectus itself, because I certainly would be the last person to suggest, or be a party to the suggestion, that this Government, or any Government, should be false to its pledges or to any guarantee it had given to any person. I respectfully submit that this undertaking is a qualified undertaking, and I shall read it to the House so that they may judge for themselves whether the House or the Committee, or the Government, has entered into any undertaking or guarantee. The words of the prospectus are:
    "For the purpose of providing against depreciation in the market prices of the loans, the Treasury undertake to sot aside monthly a sum equal to one-eighth of 1 per cent, of the amount of each loan to form a fund to be used for purchasing stock or bonds of either loan for cancellation whenever the market price falls below the issue price."
    I shall be able to show that this purpose is not carried out by any action on the part of the Treasury. On the contrary, we are at present faced with a permanent deficit of some 1,600 millions. Add to that the charge of one-eighth of 1 per cent, per month, or 1½ per cent, per annum on the total amount of the loan which is something like 2,000 millions, and you have an additional charge of thirty millions for our existing obligations to borrow. You disturb the market, as you are bound to do, and it tends rather to depreciate the stock. I, therefore, contend that the undertaking is a

    1051
    qualified one, and that there is no obligation at all, because the purpose, as so specifically pointed out, was based upon doing something which would prevent depreciation of the loan.
    My contention is that this action, apart from being an additional cost to the taxpayer, is pernicious and unsound, and is quite contrary to what it was intended to do when the Treasury issued their original prospectus. It might be contended that the bondholders themselves would take exception to this repudiation, but I have pointed out that there is no bargain. In addition I personally, as a bondholder, happened to have occasion the other day, in changing investments, to give up some American securities to the Treasury and invest some £20,000 in War Loan on behalf of my wife, and I do not desire the Treasury to carry out this obligation. I do not regard it at all as an advantage and I question if anyone outside a lunatic asylum would ask the Treasury to add to the charges of the State by entering upon a transaction which tends to depreciate my stock. I do not desire then to do this thing. Then why in the name of common sense do they ask us to do it? It does not benefit us who are bondholders. I ask any bondholder who may have invested in War Loan does he think that any Government which adds to its charges in time of war, when it is faced with a permanent deficit, by taking money from one hand and putting it into the hands of another is going to advantage or improve the price of the stock. It is incredible that any Government should ask us to subscribe to a transaction which does nothing to improve the price of the security, which adds to the charges, which are already very heavy, in financing and carrying on the war, and which instead of having a beneficial effect on the stock has a most pernicious effect.
    I might be asked "What proof have you that these arguments which you advance are sound arguments?" I can only refer to past precedents. It is a most extraordinary fact that history seems to repeat itself because almost the same things occurred in the time of the Napoleonic wars. Pitt for the time being was lured into the creation of a Sinking Fund to help him to get rid of his debt, but it is a curious fact that actually almost a similar proposal was made at the time of the French war to that which is made here, and a Dr. Price, something like one hundred years
    1052
    ago, suggested with regard to our loans then existing that a sum should be set aside
    "from the rest of our annual revenue and appropriated for the purchase of stock at the current prices, this system to be inviolably followed in time of war as in time of peace, and money, when wanted, to be raised by new loans as if no such fund existed."
    Hamilton, who criticised both Pitt's Sinking Fund and this proposal of Dr. Price, laid down the principle that
    "in time of war when the expenditure exceeds the revenue the preservation of the Sinking Fund and consequent increase of loans is a system from which no advantage can arise. If it could be conducted without expense it would be nugatory. As it is necessarily attended with expense it is pernicious. Much has been said by Dr. Price and others of the advantage which a Sinking Fund produces in supporting the price of stock."
    That is precisely what the Chancellor of the Exchequer said the other day was the reason for this fantastic proposal. Hamilton went on to say:
    "It is incapable of producing any such effect. The price of stock depends on the proportion of supply and demand. Whatever sums are brought intothe Money market and applied by the Commissioners for the purchase of stock, equal sums are withdrawn from the Money market by the additional loans required to replace what is invested in the hands of the Commissioners."
    That I think is surely conclusive evidence that I am not alone in advocating this proposal. This happened one hundred years ago, but the Government does not appear to have learnt from experience, and again we have to go over the old ground and press these old arguments. I am sorry that my hon. Friend the Member for Greenock (Major G. Collins) is not present. He is so zealous an advocate of economy that I had hoped to have his support on this occasion, when there is an opportunity of perhaps saving the State from the necessity of borrowing something like £30,000,000; I regret his absence, but possibly some of those hon. Members associated with him will support me. They will have an opportunity of showing their sincerity in supporting this proposal. In 1828 a Finance Committee was appointed for the same reasons as are advanced in favour of the Committee which the hon. Member is anxious to form. The finding of the Committee in 1828 was along the lines of the remarks which I am now submitting to the Committee. In their Report they made an appeal against any such schemes as are now being suggested by the Treasury. They said:
    "The Committee does not hesitate to declare that they cannot, under any circumstances, recommend a sinking fund not provided by a real surplus of revenue.…They have already stated that they

    1053
    could not, under any circumstances, recommend a system involving the principle of raising funds for the extinction of debt by the creation of it in another shape."
    That is precisely what the Government propose in this Clause. We are actually asked to-night to give the Government power to go into the market and to borrow and incur fresh debt for the purpose of paying off old debt. This proposal is realty to enable people who own the existing War Loan to sell it to the Treasury, and as the Treasury, in order to obtain the funds to purchase the old Loan, is now selling Treasury bills of three, six and twelve months, we have the process reversed by this Clause, because the Government go into the market to borrow on three, six and twelve months Treasury Bills, and they use the proceeds for the repayment of these long-time Loans. Could there be anything more fatuous proposed by any sensible or sane Government or any Government pretending to be sane or sensible? To me it is incredible that we should be asked to-night to subscribe to a measure which will have no permanent effect upon stock, because if I go into the market and deplete the market to the extent of another £30,000,000 I depress my stock, which must remain permanently at a discount. How then, in the name of common sense, can the stock go to a premium? The Government is a continuous borrower. It has to pay about 5 per cent, for twelve months Treasury Bills. If the War goes on another year the Government will probably have to pay 6 per cent, for accommodation, and then we shall have the spectacle of this Government going into the market and paying 6 per cent, for Treasury bills to pay off a Loan bearing interest at 5 per cent. It is inconceivable that we should be asked to subscribe to so fatuous and unsound a proposition.
    If this Sinking Fund is adopted in times of peace I should like to see it applied to all Government Debts. If it was not so applied, and you were in normal times, and had a surplus revenue over expenditure and were justified in using a certain amount of that surplus for the support of a Government stock, you would have this particular security rising above the other securities, and you would have the Government artificially rising one stock, while people would be selling that and investing in the lower price stocks. When it
    1054
    was proposed after the Crimean War to set aside £1,000,000 to redeem the war loan of £60,000,000, Mr. Gladstone suggested that it should be made available for all Government loans as it might be inconvenient if it applied only to one loan. It is a, very important matter to suspend the necessity for borrowing £30,000,000 additional. If the investor understands the position he will welcome anything which lessens the charges on the Treasury.
    The Chancellor of the Exchequer on a previous occasion took exception to my describing the proposal in his prospectus as an immoral procedure. I adhere to that description. I heard nothing from the Chancellor of the Exchequer to show that it was wrong. He said that this particular form of Sinking Fund was not going to deceive investors. I submit that it did deceive investors and that it was used for that purpose by people who advocated support of the War Loan, even by members of the Government itself, who apparently did not seem to be aware of the ordinary elements of finance. One of the members of the Government went down to his constituents and told them that this was a security which would appreciate and could not possibly depreciate. That is the kind of security that we have all been looking for the whole of our lives. It is extraordinary that men occupying responsible positions in the Government of a great Empire like this should show such ignorance of the ordinary elements of finance. It makes one despair of the future of sound finance in this country. I hope, therefore, that the Chancellor of the Exchequer may see his way before the Report stage to suspend this operation until we come to a period when we have a surplus of revenue over expenditure.
    Mr. BALDWIN: Our view is diametrically opposed to that of the hon. Member for Coventry. We believe that if we accepted the Amendment we should be committing a breach of faith with the investors. We said in the prospectus that a definite sum would be set aside for the purpose of maintaining the prices of the Four per Cent, and Five per Cent. Loans, and having regard to the words of the prospectus the Government regret that they are unable to accept the Amendment.
    Mr. HENDERSON: I really did not know there was so much to be advanced in support of the Amendment as has been stated by the hon. Member for Coventry.

    1055
    Really the Clause is a piece of window-dressing, and reminds me of the stock jobber who, asked to settle something on his daughter, said, "I've got nothing, but I'll settle £50,000 Consols on her." It is a piece of window-dressing that might very well be left out.
    Mr. HOGGE: I have not spoken to-day on the Finance Bill, and I am very much impressed with the length to which my hon. Friend the Member for Coventry, has gone back in his financial researches. I got up, however, not to address myself to his argument, but to appeal to the Chancellor of the Exchequer to accept a Motion to report Progress. The Government have had a very good day, and have got a long way. I do not think there is any fractious opposition, and we have got over the most critical parts of the Bill. In view of the fact that we will lose our last trains if we are kept here, I think the right hon. Gentleman might consent to report Progress. He must himself be tired. He has sat here all day very courteously replying to all the arguments, and, in view of the small attendance and the fact that he has made very good progress, I think the Bill might now be left where it is, and after disposing of this Amendment, the right hon. Gentleman might consent to report Progress.
    Mr. BONAR LAW: I always desire to meet reasonable requests, but on this occasion I regret that my hon. Friend has broken his record of not having spoken today at all. At eleven o'clock I indicated that I wished to get the Government's new Clauses, and I sincerely hope that no attempt will be made to insist upon reporting Progress.
    General CROFT: I think the Chancellor of the Exchequer will agree that the early rising last night was through an unfortunate misunderstanding, which was indeed most unhappy from the point of view of those who have been trying to urge the importance of the subject of double Income Tax within the Empire. There is really no Party opposition, and as it is after half-past eleven o'clock, I think the request to report Progress is a reasonable one. This is a question which excites interest throughout the length and breadth of the Empire, and which at the Imperial Conference assumed very large proportions. As the Chancellor is aware, owing to the new difficulties with regard to the Press, it is
    1056
    practically impossible for any report of this Debate to appear in the newspapers to-morrew. I ask him, knowing that his heart is always with those who desire to be fair to the Empire as a whole, to consider the way it will be regarded by the enormous number of people interested in this question if the Debate should take place at this time of night.
    The CHAIRMAN: I allowed the original question to be put to the Chancellor of the Exchequer, but we are now on the Question that Clause 28 stand part of the Bill, and those other questions are not really relevant.
    General CROFT: I beg to move, "That the Chairman do report Progress, and ask leave to sit again."
    Sir G. TOULMIN: I think the hon. Gentleman is mistaken as the new Clause is not coming on now.
    Mr. BONAR LAW: I think my hon. and gallant Friend is a little unreasonable, but I quite recognise the importance of this subject, and I am willing, if this appeals to the Committee as a whole, to agree not to take the particular Amendment so that the discussion will not take place now.
    Mr. McKENNA: I think my right hon. Friend has made a very fair offer, and, speaking for myself, I agree with it.
    General CROFT: As far as I am concerned—and I think I am speaking for my friends—we appreciate very much the spirit in which the Chancellor has met this question, and we will do everything in our power to limit our speeches when the Debate takes place on Thursday.
    Question, "That the Chairman do report Progress, and ask leave to sit again," put, and negatived.
    Clause ordered to stand part of the Bill.
    Clause 29 (Payment of Expenses of Redemption of War Loan Securities) and Clause 30 (Power to Transfer War Stock and Bonds in satisfaction of Death Duties and Excess Profits Duties) ordered to stand part of the Bill.

    CLAUSE 31.—(Power of Trustees, etc., to Borrow and Invest in War Securities.)
    (1) It shall be lawful and shall be deemed always to have been lawful for a trustee to borrow for the purpose of subscribing to, or investing in any securities which have been or may be issued in connection with any Government loan raised for the

    1057
    purpose of the present War, and a trustee shall not be liable for any loss resulting from any borrowing so authorised or from any subscroption to or investment in such securities or the sale of any securities for the purpose of such subscription or investment, or from the exercise of any option to convert any securities into securities so issued, whether such borrowing, subscription, investment or sale, or the exercise of such option was before or after the passing of this Act; and trustees and other persons acting in any fiduciary character are hereby expressly authorised to exercise without the consent of any other person, such powers of borrowing, subscription, investment, sale, or conversion, notwithstanding anything in any instrument creating the trust.
    (2) This Section shall apply to any officer or department who hold funds on account of or for the benefit of any persons or class of persons as part of, or in consequence of, the duties of the officer or department, but shall not apply to any trustee under an implied or constructive trust, except a resulting trust arising on the determination or failure of an express trust.
    (3) The foregoing provisions of this Section so far as they relate to the exercise of such powers as aforesaid before the passing of this Act shall apply to local and other public authorities, notwithstanding any limitations on their powers, in like manner as they apply to trustees.
    (4) It is hereby declared that the power conferred by Sub-section (6) of Section one of the War Loan Act, 1916, on companies and bodies of persons and persons responsible for the direction and management of a company or body of persons to hold Government securities purchased in pursuance of the powers conferred by that Sub-section is not limited to the continuance of the present war and a period of twelve months thereafter.
    The CHAIRMAN: The Amendments in the name of the hon. Member for the Bodmin Division (Mr. Hanson) are, I think, met by the second of the two Amendments on this Clause, of which the Chancellor of the Exchequer has given notice—[At the end add the words "the powers conferred by the said Sub-section shall include, and shall be deemed as from the commencement of the War to have included, a power on the part of a company or body of persons and of persons responsible for the direction or management of
    1058
    the company or body, to borrow, notwithstanding any such limitations as are mentioned in that Sub-section, for the purpose of investing in or purchasing Government securities in accordance with that Sub-section"]. That seems to deal with exactly the same point, but I wish to be quite clear before I pass on.
    Mr. HANSON: I think so, and I desire to express our gratitude to the Chancellor of the Exchequer for the readiness and courtesy with which he has met the point involved.
    Sir F. BANBURY: I beg to move, in Sub-section (1), to leave out the words "or investing in."
    This Clause gives power to trustees to speculate with other people's money. That seems to me to be an extremely bad Clause. Not only does it give power to do so, but it gives power to do that without informing the beneficiaries that they have done so. What might happen under this Clause if there was a sole trustee, and if the words "or investing in" were left in? The trustee might go and purchase £20,000 worth of Government securities. If those securities in the course of the next two or three days went up he would resell them, take the profit, and say nothing whatever about it. If, on the other hand, the securities went down, he would have to inform the beneficiary that, acting under this Clause, he had made the purchase, and had borrowed the money to pay for them. I have had a few words privately with the right hon. Gentleman the Chancellor of the Exchequer upon this question, and he considered that action of that kind would be fraud, and thought it unlikely to occur. But it would be extraordinarily difficult to find out such a case, because no one would have information that that particular trustee had done this except the bank or the stockbroker, the latter of whom would not have been informed that the transaction was not on behalf of the beneficiary or trust; he would merely have had to execute the order. I am not arguing from the standpoint of something that may not occur. It actually has occurred to me as a stockbroker. I was instructed to buy certain securities for a certain person, the manager of a bank, on a certain date. I did so, and sent in the contract in the name of the person. He asked me to alter the contract. I declined. Meanwhile, the stocks had gone up, and if I had altered the contract he would have

    1059
    taken the profit, instead of it being credited to the shareholders of the bank. He informed me that if I did not alter the contract I would have no more business from him. I refused to do so: consequently I never had any more business from him. This incident is by no means an isolated one. I hope the Chancellor of the Exchequer will accept the Amendment, and that between now and the Report stage, he will put in words—I cannot do so at the moment; I ought to have thought of this before, but I have been very busy— which will compel the trustees to inform the beneficiary what he intends to do. If something of the sort were done it would, I think, mitigate the extraordinary proposal that the trustee should speculate with other people's money, because that is what it amounts to.
    It must be remembered that trusts are in many cases, created by people who have worked hard all their lives to save a little money in order that their wives or children may, after their death, live in comfort, and the idea that people who have done that are to be subjected to a trustee speculating, even for such a good object as buying Government securities, with borrowed money, where the man would risk no pecuniary loss whatever in so doing, is, to my mind, such a very extraordinary proposal that I think adequate safeguards should be put in, so that by no possible means shall a trustee commit any fraud, which, as I think I have shown, is possible if the Clause is left in the form in which it is at present.
    Mr. BONAR LAW: As I indicated to my right hon. Friend when he spoke to me, it is not possible for the Government to accept this Amendment, because the whole reason which made us put it in in connection with the War is that in the crisis in which the country stands money in the hands of trustees should not be prevented from being used for the purposes of the War in the form of Government loan. What my right hon. Friend suggests is only to prevent them from investing in loan. But surely that would be a great disadvantage. The main objection of my right hon. Friend is that advantage might be taken of this in the way of fraud. If trustees are going to commit fraud of this kind, surely they would find some other way of doing it. The case in his own experience to which my right hon. Friend referred occurred
    1060
    before there was any arrangement of tins kind. It might be that if a trustee wanted to commit a fraud on beneficiaries it would take a cleverer man than the Chancellor of the Exchequer to prevent it.
    Mr. McKENNA: I agree with what the right hon. Gentleman has said, except on one point. Is it proper that a trustee should borrow for the purpose of investment? That he should have the right to sell any stocks he has got, and to invest the proceeds in Government stock, or that he should be allowed to borrow for the purpose of subscribing for a loan, I can understand; but is it right that a trustee should borrow for the purpose of an investment? It is giving, as my right hon. Friend has said, to the trustee an enormous power of speculating at the expense of the beneficiary. I can well understand that the trustee, having securities, should be empowered to sell those securities in order to invest the money in Government stock, or that the trustee should be empowered to borrow for the purpose of subscribing to Government stock, but it is going a long way further to enable a trustee to borrow for the purpose of investing in Government stock. Perhaps the right hon. Gentleman will reconsider the point before the Report stage.
    Colonel Sir R. WILLIAMS: In all these cases the bank has the security of the stock. The trustee borrows on the security of the stock he buys, and therefore the fraud cannot be committed in the way suggested.
    Mr. McKENNA: It has nothing to do with banks; it is another point.
    Sir R. WILLIAMS: He must borrow from somebody, and the person from whom he borrows has the security of the stock, and he has to hold the stock for the benefit of the beneficiary.
    Mr. BONAR LAW: I will do what my right hon. Friend suggests. I will consider it before Report. It strikes me, on the face of it, that there is a stronger reason from this point of view, that if a trustee had made up his mind to sell particular securities in order to invest in War Loan, it might be necessary to borrow before he proceeded to take up the stock itself. I will have it looked into.
    Sir F. BANBURY: I am much obliged, because the borrowing is really the point. It is not a question of selling the security

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    or of investing if he has the money, but that he should borrow for the purpose of investing. With regard to what my right hon. Friend said as to the case to which I referred, that case arose because the particular person had the power to do the very thing which the right hon. Gentleman is going to enable a trustee to do here. This Clause is going to give to a trustee the power to borrow money and buy stock for somebody else without informing that person. It has nothing whatever to do with banks. A trustee can give an order to a stockbroker to buy £20,000 worth of Five per Cent. War Loan without informing the beneficiary, and the price goes up and he sells it, putting the profit in his own pocket, but if it goes down he tells the beneficiary.
    Sir R. WILLIAMS: But he has not borrowed the money.
    Sir F. BANBURY: It has nothing to do with the borrowing of the money. This Clause as it stands puts it in the power of the trustee to take advantage of the beneficiary and speculate on his own account. It is not an uncommon thing. I could give one or two instances in private. I beg leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Amendments made:
    At the end of Sub-section (1) add the words, "Provided that the power of borrowing for the purpose of investing in any such securities shall not be exercisable after the expiration of twelve months from the terminatioin of the present War."
    At the end of Sub-section (4) add the words, "The powers conferred by the said Sub-section shall include, and shall be deemed as from the commencement of the War to have included, a power on the part of a company or body of persons and of persons responsible for the direction or management of the company or body, to borrow, notwithstanding any such limitations as are mentioned in that Sub-section, for the purpose of investing in or purchasing Government securities in accordance with that Sub-section."— [Mr. Bonar Law.]
    Clause, as amended, ordered to stand part of the Bill.
    Clause 32 (Power to Abolish Certain Fees) and Clause 33 (Construction and Short Title) ordered to stand part of the Bill.

    NEW CLAUSE.—(Application of Section 22 of the Finance Act, 1915, to Interest on Advances by Members of Stock Exchanges and Discount Houses.)
    Section twenty-two of the Finance Act, 1915 (which provides for the repayment in certain cases of Income Tax on interest paid co banks), shall, subject as hereinafter mentioned, apply to interest (not being yearly interest) payable in the United Kingdom on an advance from a person who in the opinion of the Commissioners of Inland Revenue is bonâ fide carrying on business as a member of a stock exchange in the United Kingdom or from any person who, in the opinion of the said Commissioners, is bonâ fide carrying on the business of a discount house in the United Kingdom as it applies to interest payable on an advance from a bank:
    Provided that no repayment shall be made under the said Section as applied by this Section unless the Commissioners of Inland Revenue are satisfied that the interest has been or will be brought into account in the return made or to be made for the purposes of Income Tax by the person making the advance.—[Mr. Bonar Law.
    Brought up, read the first and second time, and added to the Bill.

    NEW CLAUSE.—(Provisions Facilitating Dealings with Government Stock.)
    (1) For the purpose of facilitating transactions in connection with Government stock the Treasury may, in conjunction with the Bank of England and the Bank of Ireland, make Regulations with respect to the following matters, that is to say:

    (a) for providing that any document relating to Government stock may, on the demand of any person who from any cause is unable to write, be validly executed on his behalf by a notary public, commissioner for oaths, or justice of the peace;

    (b) for enabling stockholders to be described in the books of the bank as trustees, and either as trustees of any particular trust or as trustees without qualification, and for authorising the bank to act on powers of attorney granted by stockholders so described;

    (c) for enabling the Bank to open and keep accounts of Government stock

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    in their books under the official description of a person holding any office or position, and for providing by what person any document relating to Government stock standing on such an account may be validly executed, and what evidence shall be sufficient of the identity of that person;

    (d) for enabling stockholders, whether or not trustees, if a request in that behalf is made in the prescribed manner by all the stockholders, to act by a majority for the purpose of transferring Government stock or giving authority for the payment or accumulation of dividends or the payment of redemption moneys;

    (e) for determining what documents relating to Government stock shall require attestation, and for providing that any such document requiring attestation shall be deemed to be sufficiently attested if attested by one credible witness, and that any document relating to Government stock shall in the prescribed cases be deemed to be sufficiently executed by an individual if under hand only without seal, and in the case of a corporate body not having a common seal, if executed by the prescribed persons;

    (f) or applying the provisions of Section 18 of the National Debt Act, 1870, with or without modification, to the case of persons claiming payment of any money payable on the redemption of Government stock;

    (g) for making provision as to the manner in which and the conditions subject to which a transfer of stock may be made from England to Ireland, or from Ireland to England;

    (h) for providing that in the prescribed circumstances Government stock may, on the death of a sole or last surviving stockholder, be transferred and the dividends thereon and the moneys payable on the redemption thereof received in such manner and by such persons as may be prescribed

    (2) Any Regulations made in pursuance of this Section shall have effect as if enacted in this Act and notwithstanding any rule of law or any provision in any other Act to the contrary, and all transfers of Government stock and payments and accumulations of dividends thereon, and payments of any moneys payable in redemption thereof, and all other things
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    made, done, or permitted, in pursuance of, and subject to the provisions of any such Regulations shall be deemed to be properly made, done, and permitted respectively:
    Provided that—

    (a) nothing in any such Regulation shall as between any trustees or as between any trustees and the beneficiaries under a trust be deemed to authorise the trustees to act otherwise than in accordance with the rules of law applying to the trust and the terms of the instrument constituting the trust or affect the mutual rights of joint stockholders; and

    (b) neither the bank nor any person acquiring any interest in any Government stock shall by reason only of any entry in the books of the bank in relation to any Government stock or any stockholder, or of anything in any document relating to Government stock, be affected with notice of any trust, or of the fiduciary character of any stockholder or of any fiduciary obligation attaching to the holding of any Government stock.

    (3) Before any Regulations under this Section come into force they shall be laid before each House of Parliament for a period of not less than thirty days during which the House is sitting, and if either of those Houses before the expiration of those thirty days presents an Address to His Majesty against the Regulations or any of them no further proceedings shall be taken thereon without prejudice to the making of any new Regulations.
    (4) It is hereby declared that stock or registered bonds issued under the War Loan Acts, 1914 to 1916, and any other Act authorising the raising of any sum for the purposes of the present War, shall be transferable in like manner as other stock to which the National Debt Act, 1870, applies and shall be subject to the provisions of that Act and any enactment amending that Act, so far as is consistent with the tenor of the Act under which the loan is raised, and save as is otherwise provided by any other Act.
    (5) In this Section, unless the context otherwise requires—
    The expression "Bank" means the Bank of England or the Bank of Ireland, as the case may be;
    The expression "stock-holders" means the persons entered in the books of the bank as the proprietors of any Government stock, and includes persons entitled to be so entered, and the legal personal representatives of a sole or last surviving stock-holder;
    The expression "Government stock" means any stock or bonds which are for the time being transferable in the books of the Bank of England or the Bank of Ireland under the National Debt Act, 1870, or by deed under Section seventeen of the Finance Act, 1911;
    The expression "document relating to Government stock" means any power of attorney or other document made by way of or in connection with the transfer of Government stock, or in connection with the payment or accumulation of dividends thereon, or the payment of any money payable on the redemption thereof;
    The expression "books" includes registers;
    The expression "trustees," includes executors and all persons holding a fiduciary position, and the expression "beneficiaries" includes in relation to persons holding a fiduciary position all persons entitled to require due observance and performance of the duties involved in the holding of that position;
    The expression "prescribed" means prescribed by Regulations made under this Section.—[Mr. Bonar Law.]
    Brought up, read the first and second time, and added to the Bill.

    NEW CLAUSE.—(Relief from Income Tax in Respect of Income Accumulated Under Trusts.)
    (1) Where in pursuance of the provisions of any will or settlement any income arising from any fund is accumulated for the benefit of any person contingently on his attaining some specified age or marrying and the aggregate amount in any Income Tax year of that income and the income from any other fund subject to the like trusts for accumulation and of the total income of that person from all sources (hereinafter referred to as "the aggregate yearly income") is of such an amount only as would entitle an individual either to total exemption from Income Tax or to relief from Income Tax, that person shall, on making a claim for the purpose within
    1066
    three years after the end of the Income Tax year in which the contingency happens, be entitled, on proof of the claim in manner prescribed by the Income Tax Acts, to have repaid to him on account of the Income Tax which has been paid in respect of the income during the period of accumulation a sum equal to the aggregate amount of relief to which he would have been entitled if his total income from all sources for each of the several years of the said period had been equal to the aggregate yearly income for that year; but in calculating that sum a deduction shall be made in respect of any relief already received.
    (2) All the provisions of the Income Tax Acts which relate to claims for exemption, relief, or abatement, or the proof to be given with respect to those claims shall apply to claims for relief under this Section, and the proof to be given with respect to those claims.— [Mr. Bonar Law.]
    Brought up, and read the first time.
    Motion made, and Question proposed, "That the Clause be read a second time."
    Mr. NEEDHAM: I would like to ask the right hon. Gentleman if this covers the whole point of the Amendment which I have had on the Paper for some weeks?
    Mr. BONAR LAW: We give in substance the Amendment of my hon. Friend and some others, and I believe it does what the hon. Member desires. My hon. Friend will have an opportunity of examining our proposal between now and the Report stage, and he can then raise the matter again if he thinks it is necessary.
    Mr. C. ROBERTS: This Clause provides for the case of money left to a person contingently on his arriving at a certain age, and it also provides that the money should be accumulated. Does it also provide that where the money is left without any express instructions in the will it should be accumulated for the benefit of the person entitled? Would that be the case where there were no instructions in the will? In the ordinary course of law the trustee would invest the money, and I want to know if this proposal specifically covers those two cases.
    Mr. BALDWIN: It does.
    Question put, and agreed to.
    Clause read a second time, and added to the Bill.

    NEW CLAUSE.—(Continuance of Certain Relief from Income Tax.)
    The provisions of Sections twenty-nine, thirty, and forty-three of the Finance Act, 1916 (which give relief from Income Tax in certain cases for the current Income Tax year), shall have effect as if herein re-enacted and in terms made applicable to the Income Tax year beginning on the sixth day of April, nineteen hundred and seventeen:
    Provided that—

    (a) for the words from "and in calculating, to the end of Sub-section (2) of the said Section thirty, there shall be substituted the words "and in calculating the earned income on which relief is to be given under this Section the deductions required to be made from earned income under Sub-section (2) of Section nineteen of the Finance Act, 1907, as amended by any other Act, shall not be made from the pay unless and except in so far as the amount of those deductions exceeds the aggregate amount of the earned income other than the pay and of the unearned income; and

    (b) the said Section thirty, as so amended, shall apply to any person who during the current Income Tax year has served, or serves, for not less than three months as master or a member
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    of the crew of any ship or fishing boat as it applies to any of the persons mentioned in that Section."

    Brought up, and read the first time.
    Motion made, and Question proposed, "That the Clause be read a second time."
    Mr. PETO: May I ask that we shall not pass this Clause to-night, because I have handed in a manuscript Amendment adding a new Sub-section(c).
    Mr. BONAR LAW: We will not go beyond the Second Heading of this Clause.
    Question put, and agreed to.
    Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again"—[Mr. Bonar Law]— put, and agreed to.
    Committee report Progress; to sit again upon Thursday.
    The remaining Orders were read, and postponed.
    It being after Half-past Eleven of the clock, Mr. DEPUTY-SPEAKER adjourned the House, without Question put, pursuant to the Standing Order.
    Adjourned at one minute before Twelve o'clock.

WAR
  GERMAN BANKS (LONDON BRANCHES).
  GERMAN BANKS (LONDON BRANCHES).
  CUSTOMS AND EXCISE (STAFF).
  CUSTOMS AND EXCISE (STAFF).
  OLD AGE PENSIONS.
  OLD AGE PENSIONS.
  AIR RAID (FREIBURG).
  AIR RAID (FREIBURG).
MILITARY SERVICE.
  ONE-MAN BUSINESS.
  ONE-MAN BUSINESS.
  NAVAL AND MILITARY PENSIONS AND GRANTS.
  NAVAL AND MILITARY PENSIONS AND GRANTS.
  Admiralty Shipwright (Allowance).
  Admiralty Shipwright (Allowance).
  Agricultural Rates (Relief).
  Agricultural Rates (Relief).