§ Sir P. Bennettasked the Chancellor of the Exchequer whether h will give guidance and remove uncertainty by making a statement in connection with the Excess Profits Tax postwar refunds to show on broad principles what type of expenditure would be regarded by the Treasury as being for the purpose of developing and reequipping a business; to what extent existing reserves should be withheld from distribution so as to avoid indirectly benefiting the proprietors by the receipt of Excess Profits Tax postwar refunds by a company; and where the line of distinction is drawn between benefiting the business and benefiting the proprietors of the business.
§ Mr. DaltonI cannot of course give an answer which will deal with all the varying circumstances of all the businesses receiving these refunds, but I will ask the Advisory Panel—which I hope will start work almost immediately—to issue in due course a considered statement on this subject. I intend that the words "developing or reequipping" of a trade or business should be broadly interpreted, to cover any use of the refund which increases its capital resources and, subject to the normal risks of carrying on the trade or business, effectively maintains such increase. This would cover, for example, an increase in fixed assets or in working capital. It would also cover the replacement of assets where, owing to a rise in prices, cost of replacement is higher than the original cost and would apart from the refund, require additional finance.
The relation between the use of the refund and the disposal of existing reserves must depend on the circumstances 295W of each particular case. It is not intended to require that, in no circumstance whatever, should any part of existing reserves be distributed; but clearly, such reserves should not be distributed merely because the receipt of the refund has made it no longer necessary to retain reserves accumulated for the purpose of increasing the capital resources of the business. Such distribution would mean that the refund was indirectly being applied in a manner contrary to the undertakings required by the statute.
As regards the third part of the Question, the use of a refund in a business should obviously benefit the business, and any resulting increase in its current earnings can be freely dealt with in the same way as its earnings generally. It is the refund itself which, under the statute, is not to he distributed or applied for the benefit of the partners, shareholders or proprietors. But I must once more repeat that generally speaking, I do not regard increased dividends as being in the national interest at the present time.