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 Stanley Baldwin Mr Stanley Baldwin , Bewdley

I do not suppose for a moment that those who support this Amendment would be prepared to see the abolition of the Excess Profits Duty as a whole. But it makes a very useful peg on which to hang a discussion which enables those who feel that the raising of the limit from 40 to 60 per cent. is something which should not be attempted, to bring into the discussion the questions of the small business man and the new business man, and to put it to the Government whether it is prepared to do anything to help them. I, for one, welcome this discussion to-day, because I think the more general the lines of our Debate on the Report stage of these Resolutions the better, reserving, as we should do, all points and all details regarding the Amendment of the law for the Committee stage of the Finance Bill which will come on later. I do not propose to speak at any great length this afternoon, but I think it may clear our minds if we consider for a moment what the Excess Profits Duty is, and why it was put on. It was put on at a time when the country needed money, when the necessity for money was really vital, and when it was felt throughout the country that it was somewhat unreasonable, at such a time, for people to make more money than they had done in times of peace. That was the underlying feeling at the time the duty was put on. It was put on to serve the financial necessities of the nation. Some people speak as though the moment the War stopped, this duty ought also to have stopped. But suppose that the Excess Profits Duty actually lasted for a period of ten years, could anyone, looking back, and reflecting that we had been fighting for our lives during more than half that time, say that the statesmen of this age had treated the community unjustly in this country, because they had made a specific War tax last in such circumstances for a period of ten years? I do not believe it for a moment.

But it has not run for nearly ten years. This tax, if this Amendment be defeated, will be running into its seventh year. During the whole period when we were fighting, the average burden was 66 per cent. If the Chancellor of the Exchequer's scheme become law, the average burden since fighting ceased will have been 50 per cent. Last year the Chancellor of the Exchequer spoke about it being a "temporary duty," and much play has been made with those words, people talking as if the use of the word "temporary" meant that he was going to withdraw the tax at once. Of course, all would like to see the tax come off, and no one more than the right hon. Gentleman and myself. When, however, one is speaking of a temporary period during which a tax lasts, he can be held to refer to so short a period as, say, twelve months. Although it comes as a temporary tax, it is a temporary tax for a few years, and each year is bringing us nearer to the end of it. Hon. Members laugh, but we all know perfectly well that what is meant by a temporary period is the period during which the circumstances created by the War lasts, and we can all agree that this temporary period will come to an end when these circumstances disappear, and the tax itself can also then be ended. Why did my right hon. Friend reduce the duty last year instead of keeping it at 80 per cent.? Had he reduced it to 60 per cent. there would not have been any quarrel with the 60 per cent. this year, but, because he reduced it to 40 per cent.. people jumped to the conclusion that the tax was coming to an end, and that all the profits they might in the future make would accrue to themselves. They are, therefore, suffering from a very natural reaction of disappointment. My right hon. Friend reduced the duty for two reasons. The first was that at the time it looked as if industry in this country was going through an extraordinarily difficult state of things. The conditions had been difficult, but it then looked as if they would be still more difficult, but he had no conception at the time he made the reduction of what the actual state of things in the commercial world would in fact be. He was also moved by the fact that the 80 per cent. rate had been in force for two years and had, quite apart from the onerous incidence of the tax, pressed with very great severity on all the businesses of this country, because they were needing at the time more money for working capital. We in the Government held that this reduction of the duty from 80 per cent. to 40 per cent. would relieve what we believed to be business difficulties immediately in front of us, and would also enable business men to do what many of us had found much difficulty in doing in the two years immediately preceding—it would enable them to increase the amount of working capital, to increase the amount of reserves, and also make it more easy for them to face the conditions into which they were running.

Before I come to the present position of the duty, I will remind hon. Members what happened when the duty had been running for two or three years in this country. It was seen then that the tax could not be a tax for only a year or two. It was seen that there were great inequalities of incidence, that there were a great many cases of real hardship. There are a great many cases of real hardship now, which it may pass the wit of man to remove, but there are also a great many which can be removed. I would remind hon. Members that in 1917, when the present Lord Privy Seal (Mr. Bonar Law) brought in his Budget, in which I was privileged to help him, a good many substantial concessions were made to meet the difficulties which had up to that time arisen, and the concessions made in the Budget have eased the situation even down to the present day. The two subjects that were tackled then were the question of the small busi- ness man and the incidence of the duty on the new business man. The new man and the small man alike were helped by raising the percentage standard by 1 per cent., and then putting on 3 per cent. for the new capital subscribed. At the same time my right hon. Friend tackled the question of the small man, by giving additional relief to people whose pre-War standard was not more than £500, and where the profits involved were not more than £2,000. It was a very ingenious scheme, and it proved of the greatest benefit both to the new man and to the small man. As a result the small business man finds himself to-day in the position of being able to pay 60 per cent. Excess Profits Duty while retaining reductions considerably in excess of the pre-War standard. Since 1917 another three years have elapsed. That has brought into prominence fresh anomalies and the increasing strain to which some of the small and new businesses have been subjected by the great rise in prices, which makes it more difficult to find working capital, and makes more working capital necessary, and by the higher rate of interest for loans, and so forth. I have discussed this with my right hon. Friend the Chancellor of the Exchequer, and he is fully prepared in the Finance Bill to make substantial concessions to the small man and the new man. The House cannot, and I am sure will not, expect me to go more into detail at this moment, because we are discussing the principle. We are asked to vote now whether the Excess Profits Duty shall be abolished, and we may be asked to vote later on that the rate shall be reduced to 40 per cent. Such concessions as my right hon. Friend has in mind will require a great deal of working out, and will probably require interviews with the people chiefly interested. As hon. Members of experience know, it is no easy matter, in the first place, to arrive at a sound decision, and in the second place to get that sound decision embodied in a simple and easily understood form in an Act of Parliament.

I thought it well to follow the history of the Excess Profits Duty from the beginning, because I wanted to show that what is in my right hon. Friend's mind is on all fours with what has been done by the Government before, when the tax had been running two or three years. If it be possible to see where the shoe pinches so as to cripple, then we try and relieve the pressure. The position to-day is that we ask this House for one more year, certainly—and beyond that we can give no pledge; no Government could— for one more year to continue the Excess Profits Duty at the rate of 60 per cent. We ask the House, in the Division that is coming, to vote against the Amendment which has been moved, and to continue for another year the Excess Profits Duty. No reason, to my mind, has been given why this year the tax should be given up. I admit at once that a great many people in the country are at this moment very vocal. Hon. Members' letter-bags may be full of letters on this subject. My letter-bag has not been, but, perhaps, I shall get them after this Debate. I would, however, remind all my hon. Friends that the art of propaganda is improving very much. Whenever anything is proposed in this House that hits anybody or any group of people in the country, we hear about it very quickly, and the methods that are adopted are very skilful. The Press very often plays its part, anxious not to be behindhand, and in order to maintain our view we have sometimes to stand up to a very severe storm of criticism. When, however, you eliminate the very sources of complaint that we are going to try and eliminate, I am certain that the feeling is not either as unanimous or as deep-seated as hon. Members would have us believe.

Trade in this country to-day is in a very curious condition. People in business today are paying the most extraordinary prices for their raw materials and semi manufactured stuff. They are paying higher wages than ever they paid before, and they are selling their goods at incomparably higher prices—there may be exceptions, but I am speaking of the general run of business—and extraordinarily large profits are being made. That could not have been foreseen last year. A great many elements which have caused it were present, but there were other elements. The elements that might have interfered did not interfere to the extent anticipated. There is still a practical monopoly in many goods. It is not a normal condition of trade. It has arisen directly out of the state of war, nothing else, and, as such, it ought to bear its share of taxation, as I hope it will. I do not believe the business men of this country are going to protest against this tax, to the extent of being desirous of seeing their protest carried into action in this House, and the Excess Profits Duty beaten.

An alternative tax takes a long time to work out, and when my right hon. Friend comes to speak of the Corporation Profits Tax he will be able to explain to the House at what a high rate that tax would have to be levied to get a yield which would bring anything into the scale to weigh against the Excess Profits Duty. There has been a great deal said, not to-day, but in some debates, about "killing the goose that lays the golden eggs." I am very tired of that, and I am glad that it has not been mentioned to-day. There are, however, more ways than one of killing a goose. Although it may be a very sad thing if a goose lays rather smaller golden eggs, or if people think we take too many of those golden eggs, there is one very bad effect to which I have not seen attention called. If the goose tries to lay too large a golden egg, she will burst, and there is nothing more dangerous for a goose.

I will leave that point—my points are generally very simple ones—and say just one thing in conclusion. I would say it both as a Minister standing here and also as a man the whole of whose life has been spent in competitive business, from which he has suceeded in emerging, and whose firm has also done its share in paying Excess Profits Duty. I do not see how any business man can look round to-day at the financial condition of this country, examine the Budget of my right hon. Friend, and see how he has spread his taxes over every class in the country, calling upon all to pay according to their capacity; seeing how this year he has increased the price of beer, which touches nearly everyone in the country, and how he has been unable, although urged to do so, to make any remission on things like tea and sugar, which hit the very poorest people in the country—I cannot see how, in the face of all that, my friends in business can come to this House and say to the Chancellor of the Exchequer, "No; keep your beer tax, your tea and sugar tax, and all those taxes on; but our excess profits—No, we are going to vote against you, and we will turn you out rather than pay it." I am quite sure that, on consideration, many a man who may feel that he is being hit, or may think he is being unduly hit, by this tax, will think once, twice, and three times before he votes against it in this House.