Orders of the Day — Excess Profits Duty.

Part of the debate – in the House of Commons on 28th April 1920.

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Photo of Mr George Terrell Mr George Terrell , Chippenham

I was about to explain that, when this duty was originally introduced, it was stated by the then Chancel- lor of the Exchequer to be necessary for the successful prosecution of the War. It was purely a War tax, and it was submitted to and accepted as a War tax by a class of the community who have been second to none in making every sacrifice that was necessary for the prosecution of the War. The War is over, and the time has come when the tax should be discontinued. The real objection to the tax is that it is so unfair, so unjust, and so oppressive. One would have thought that by this time everyone would have understood exactly how the tax operates, but I find, even since I put my Motion down, that among hon. Members there is a good deal of doubt how the tax is really levied. I think it necessary therefore to place on record exactly what the tax is and what is meant by the standard. The standard is the average profits which a firm or business earned two years prior to the war. That is taken as the datum line, and all profits over that standard are subject to the tax. It is very easy to see that a standard of that kind imposed at a time of great emergency, when it was expected that the war would last another year or two years at the very outside, could only prove to be a very rough-and-ready method of arriving at a datum line for the purpose of levying a tax. It has so proved, and, taking two firms with equal business and equal capital, one, which has the misfortune to have a bad standard is put at an enormous disadvantage as compared with the other, which has a good standard, and is liable for an enormous amount of taxation. I have some figures to illustrate my meaning, and I think it is necessary to quote them to the House. They are the figures of two firms each with £20,000 capital, one with a pre-war standard of £10,000 per year and the other with a pre-war standard of £2,200 per year. The firm with the big pre-war standard will pay in Excess Profits Duty £20,600 and the other firm with the low pre-war standard will pay £54,000. The firms in every respect may be of equal importance, doing an equal business, and yet one will be penalised by a total taxation of £33,500 over the period of the War. We all know that the cry of the trade unions and labour leaders throughout the War was for equality of sacrifice and equality of treatment. It was a very genuine cry, and I hope hon. Members will realise now that there is a very genuine cry among producers and people engaged in commerce and business that they similarly should have equality of treatment.

I have some very simple figures as to how this tax hits a new business or a business without a pre-war standard which may have been bought by a man who has been demobilised from the Army. I take two businesses, each with £10,000 capital, and one with a pre-War standard of £5,000 and the other with no pre-War standard. We will assume that both businesses during the present year make £6,000 profit. The one with the pre-War standard of £5,000 will pay £480 Excess Profits Duty this year and the other without a pre-War standard will pay £2,800. That is most oppressive, most unfair, and it requires to be very drastically remedied. Many Members are in doubt about another matter. A manager or a director who is also a partner and happens to be in receipt of a commission as part of his remuneration, is personally held subject to the Excess Profits Duty; so that to-day a manager is tied down by his earnings in 1913. That also is most unfair. If you have a good pre-War standard, you are not so badly off, but if you have no pre-War standard or a bad pre-War standard, then you are treated must unjustly and most unfairly. I have received an enormous number of letters and telegrams from firms all over the country, many of them explaining in great detail their grievances to me, and all of them full of protest against any continuance of the tax. Some people imagine that all these firms are big financial people. That is not the case. Many of them are little men, who are struggling to make both ends meet, and some of the letters which I have received are really almost pathetic in their sense of grievance and injustice. Here is one man in a small business who says that in 1910 he put all his savings into purchasing a business. The first three years were difficult, and he scarcely knew whether he would sink or swim, but in 1913 he was just beginning to make headway. He worked continuously from 7.30 a.m. to 9.30 p.m., and he says he feels the pinch most that his competitor is working side by side with him, an old-established business, with two or three good pre-War years and a good pre-War standard, and that he is abso- lutely free from Excess Profits Duty, while the writer is heavily oppressed. He says: "I bore it with patience when our country was in danger, but it knocks the heart out of one altogether now." That is one class of case, and here is another, and the two are a fair sample of a great number which I have had brought to my notice. This man says his pre-War standard was nil, and he has a cabinet works. He entered into contracts for hospital furnishing, and he made a profit which made him liable for £600 Excess Profits Duty. He put the whole of that profit into his business to enable him to carry on Army contracts. He has only been able to pay the Treasury £100 out of the £600, and he is being pressed by the Treasury for payment of the balance. He says: I have worked like a slave during the War. My eldest boy gave his life, my second boy is permamently wounded, to say nothing of the third, who was a flying officer, and now the War is over, the only recompense I get is to be driven into the bankruptcy court. Those two letters show the injustice of continuing this tax, and they also show that it requires either complete repeal or very drastic amendment. The injustice of it is further shown by the speech which was made the other day by the Chairman of the Textile Corporation at their statutory meeting. Here is an extract from that speech, and it has reference to the present Budget: The current Budget proposals, with the increased Excess Profits Duty, have made it safe for old-established firms like ourselves and made it almost impossible for younger firms to exist and futile for new firms to commence, and as the Excess Profits Duty has the effect of raising prices of all commodities, we as a merchant firm will have to pay more for our products and sell them for more, which will have the effect of increasing our profits per quantity of material handled. In a few words perhaps I may be allowed to give the House some little explanation as to how the duty operates, and to show that a firm which has once earned its standard, if that standard is a good standard, is in a very superior position compared with a firm which is struggling perhaps with a low standard and with difficulties. Directly you have earned your standard, you can spend money freely, because, whatever you spend, 60 per cent. of it comes out of the pockets of the Government. You can indulge in repairs, you can develop your business by advertising, you can prepare expensive catalogues, and if your employés want more money, well, the Government pays 60 per cent., and why quarrel with your employés for the sake of the 40 per cent.? You have also this advantage, that you can defeat your competitors by selling at less than cost. That is one of the operations of the Excess Profits Duty which very few people understand. A case came to my notice some time ago of a firm who wanted to extend their trade in a particular market. They had earned their standard— and it was at the time when the tax was 80 per cent.—and they sold a large quantity of instruments at less than cost price. They got into the market against their competitors, who were perhaps not so favourably placed. The Government paid 80 per cent. of that loss. Is that fair competition? Then people wonder why the Excess Profits Duty adds to the cost of production, but it must. If you are tendering, in the ordinary way you would tender, perhaps, for 10 per cent. or 15 per cent. profit, but now you say, "The Government want 60 per cent. of that, so we had better make a profit, instead of 10 per cent. or 15 per cent., of 20 per cent. or 30 per cent," and in that way the cost goes on to the goods, and the consumer pays the tax, and pays it in the most wasteful and extravagant form. We claim that the time has come when that tax should be stopped. I might quote one other instance, which was referred to in a speech by a former Member of this House, Sir John Simon, who said the tax had been of the greatest benefit to lawyers, and he knew it. He had benefited by it, because amongst his clients there were people who had gone to law when they had got doubtful cases, and they said they could take the risk because if they lost their case the Government paid 80 per cent. of the loss. I should have thought that that was almost sufficient evidence in itself to show the House that this tax is most undesirable.

You have the position to-day that the country is crying out for lower prices, but when the Government continue a tax of this kind it means that they are keeping up prices. It may be their policy to keep up prices. It is easy to see that by keeping up prices the grand debt is easier to handle, but if high prices ease the task of the Government, why stop profiteering? We know, of course, that prices must be kept down, and the first step towards getting prices to anything like their proper level, in my judgment, is to get rid of this taxation, which is not direct taxation, and which is not certain; you do not know exactly how much you are liable for, and you have to cover yourself by putting on a very large sum to cover all possible contingencies. The tax has excited throughout the whole country the greatest feeling of hostility. The term "excess profits" is suggestive that a man has been profiteering. In some cases he has been profiteering, perhaps. To pay a large sum in Income Tax, I suppose, is regarded as being meritorious, but to pay a large sum in Excess Profits Duty, I should imagine as a rule people would prefer to say nothing about it. At any rate, a great deal of hostility is felt to the tax, and it is safe to say that there never was a more unpopular tax. Manufacturers were called upon in the stress of the War to make sacrifices. They surrendered their workshops, they submitted to Government control, they did everything which they were asked to do to help the nation in its emergency, and there was no quibbling such as we have heard from some of the trade union leaders who stayed at home. The moment the Armistice was signed, the trade union leaders wanted their pre-war practices restored to them, and they got them restored, but the Government now want to continue the War sacrifices as against the manufacturing and trading community. Let me remind the House of the statement the Chancellor of the Exchequer made last year when he was introducing the Budget. He said the Excess Profits Duty was a War tax— It was imposed under the stress of War …It is open to many objections, but it was a rough and ready method of justice which Parliament, in its then, happily, not very critical mood, accepted with out too much difficulty.… There are great objections to it.… It operates with unfairness and inequality as between firms with a good pre-War standard of profit and firms with a poor pre-War standard.… It has encouraged wasteful expenditure.… A flat rate tax of 80 per cent.… acts as a great deterrent to enterprise and … to new development. I do not wish under these circumstances to continue the tax a moment beyond what is necessary."—[OFFICIAL REPORT, 30th April, 1919; Cols. 204 and 205, Vol. 115.]