If, upon an application made in relation to any chargeable accounting period by a person carrying on any trade or business which consists of the getting of minerals or oil from any mine, oil well or similar natural source of a wasting nature, being a trade or business the Standard profits of which are the statutory percentage of the average amount of the capital employed in the trade or business, with or without an increase under section thirty-one of the Finance Act, 1941, the Board of Referees are satisfied that the date by which the source is likely to be exhausted is such that the standard profits are insufficient to allow for the amortisation of the expenditure of a capital nature incurred in the establishment of the trade or business and to leave to the persons carrying it on a reasonable profit, the Board may order that the standard profits in the case of that trade or business shall, in relation to that chargeable accounting period, be increased to such extent as may be specified in the order.—[Mr. Brooke.]
I beg to move, "That the Clause be read a Second time."
I am sure there is unanimity in the House that the higher we raise the general level of taxation the more essential it is that we should make certain as a Parliament that that taxation falls equitably as between one taxpayer and another. That principle has been endorsed not only by the Chancellor but by hon. Members in all parts of the House. In this new Clause I am bringing to the attention of the House, I believe for the first time since the Excess Profits Tax was introduced, a type of case where, in fact, that tax is operating not merely to remove excess profits, not merely to remove the whole of the actual profit that a company is making, but even to bite into the shareholders' capital as well. May I have the courtesy of the attention of the House to explain this rather complicated matter? Hon. Members know that in the case of mining companies a portion of any profits they make and any dividends they pay has to be regarded as repayment of capital, because with a mining company as distinct from other companies a wasting asset is being used up, and at the end of the life of the mine the shareholders will have no realisable asset left. This principle, which is recognised throughout the accountancy profession, has rightly been recognised by the House, and in the Finance (No. 2) Act, 1940, a special provision was inserted in Section 13 to allow mining companies in certain circumstances to have their standard profits increased by not more than 4 per cent. of the capital employed, as compared with companies of another character.
That solution is a reasonable one for this difficulty in the case of mines and other natural sources which have a long life. Four times 25 is 100, and the House will see that by that 4 per cent. a company working a mine with a life of 25 years or more may amortise its capital over the life of the mine, and recognition is given to that before Excess Profits Tax is charged. It is quite otherwise, however, in the case of mines with very short lives. There are mines with a life of not more than 8 or 10 years, and an allowance of only 4 per cent. for a mine which will be exhausted in 8 or 10 years is, in practice, not going to permit the company to repay by way of dividends to its shareholders even the original capital they had invested. There is at present no way out of this situation. In the Finance Act, 1941, the Chancellor inserted in Section 31 a provision relaxing the Excess Profits Tax standard in the case of those mines which, owing to wartime conditions, are using up their mineral assets more rapidly than they otherwise would do, but that, again, applies only to a limited class, and it does not in any way meet the needs of those short-lived mines which were in the development stage immediately before the war and which in war-time not only lack the machinery to work at a higher rate than was originally planned but, owing to all kinds of higher costs, are directly through war causes making a lower profit than they would otherwise have made. Those companies, because they were developing in the years immediately before the war, have not got the normal profit-standard based on the standard years, and they are charged Excess Profits Tax at 100 per cent. on all earnings beyond 12 per cent. of their capital. They are allowed 8 per cent. per annum, that being the standard allowance for all new companies, and an extra 4 per cent. under Section 13 of the Finance (No. 2) Act, 1940, making 12 per cent. altogether. I could give the House examples of companies of this character which, so long as everything above 12 per cent. is sliced away by Excess Profits Tax, cannot possibly, during their eight or 10 years' life, repay to the shareholders even the amount of capital originally invested.
This position is reasonably met by minute taxation in other countries. In the Union of South Africa, where, of course, a great number of other mining companies are registered, there has been upon the Statute Book for some time a capital redemption allowance, and the case of mines, whether of short life or of long life, is properly met by their capacity to claim this capital redemption allowance before Income Tax is charged. In this country we have no such capital redemption allowance. A mining company not entitled to benefit from Section 31 of the Finance Act, 1941, has no safeguard, except that extra 4 per cent. which is allowed by the Finance (No. 2) Act, 1940. The new Clause which I propose would apply to companies which commenced operations after 1st July, 1936, that is to say, companies which in the normal standard years had not reached a development stage where they were making a profit which could be taken as their standard. It provides that, in the case of those companies, in any chargeable accounting year, if the Board of Referees are satisfied that the mine or other concern is of such short life that the standard profits—that is to say, the profits of 12 per cent.—are insufficient to allow for the amortisation of capital expenditure within the life of the mine and to leave to the persons carrying it on a reasonable profit, the Board may order that the standard profits may be increased to such extent as they think fit.
The Chancellor is a much wiser man than I am. He may know much better ways of dealing with and removing this injustice. I have had to use the word "reasonable." We already have provisions upon the Statute Book which empower the Board of Referees to make such increases in percentage allowances as they "think just." I hope that the Chancellor will not criticise the proposed new Clause simply on the ground that the word "reasonable" is undefined. There must be some phrase to authorise the necessary discretion to the Board of Referees. I hope I have made clear to the House in this short speech that a genuine case of severe injustice exists here, and I look to the House and to the Chancellor of the Exchequer to find some satisfactory means of remedying it.
I beg to second the Motion.
My right hon. Friend will not be surprised to find I am only too ready to do so. This question of how undertakings carrying on mining and other wasting asset operations should be treated for E.P.T. started at the very first moment when the proposals were introduced, and it has been the subject of Debate in this House and attention elsewhere, during the period of existence of the tax. In the proposed new Clause, one limited and very obvious instance is taken, and the Government are asked to deal with that case. It is the most obvious instance of the injustices that exist as between one undertaking and another and that have come to light during recent months. The undertaking which was about to be developed, or was in the developing stage when the tax was introduced, was obviously planned to continue an ordinary business, or what was expected to be normal, when the war was looming in the distance or it was an actual fact.
Events have been far too strong for forethought or planning in connection with the mining industries. In the national interest it has been absolutely necessary to concentrate, and it will be necessary to do so still more, upon the deposits which are most easily and quickly got at. The result has been that certain mines have been literally stripped as hard as they could be stripped, every day, week and month, in the national interest. In other words, far more of the mineral is being extracted from the earth than anybody with the wisest foresight could have anticipated two or three years ago. The Government are taking, in the guise of this 100 per cent. E.P.T., vast proceeds which they would never have seen had it not been necessary to deal so ruthlessly, if wisely, with these undertakings. It is, therefore, unarguably necessary that something should be done. This point does not apply only to new mines but equally to older mines where the same intensive extraction of mineral is being carried out for war purposes. Difficulties always face back benchers in putting forward Amendments dealing with anything more than one narrow point. I therefore propose to confine my remarks to this one narrow Clause, having made these few remarks.
The proposed new Clause involves giving a certain discretion to the Board of Referees. I know that the Chancellor has found it very difficult in the past to give them any real discretion. Rightly, he has felt that it is the duty of this House to tax and not the duty of any subsidiary body. In this Clause we have tried to put in a ceiling by which we suggest it is possible for the Board to come to a definite conclusion, namely, that whatever additional relief they give must be limited by the limited life of the mine. I see my right hon. Friend looking at me; he knows as well as I know that the estimation of the life of a mine is not always a very easy thing, but, on the other hand, if there is a certain course of working going on at present, it is not beyond the powers of experts in this country to be extraordinarily accurate as to the time it will take to finish off, at that rate, the working of a particular mine. I therefore urge my right hon. Friend that there is nothing at all impossible in what we are asking in this Clause; by this provision, or something very like it, a very grave injustice as between one undertaking and another could be mitigated. It is on those grounds that I submit this matter to my right hon. Friend and to the House as being an urgent problem and one which is causing grave dissatisfaction in many parts of the country, and indeed, so far as English countries are concerned, in places outside this country as well. This is a remedy for it, and I hope the House and my right hon. Friend will think that it is a feasible remedy. I beg to second the New Clause.
I am not particularly enamoured of the way in which this Clause is drafted. There are certain difficulties which will probably loom very large in the eyes of the Chancellor when he considers it, but on the other hand I am not at all satisfied with the general situation as to the taxation of wasting assets. The matter is very complicated, I know, because there are so many different financial arrangements relating to so many different material circumstances in the mining of wasting assets that the problem must essentially be one of extreme difficulty. On the other hand, the formula set out in the Schedule to the 1941 Act is a very simple and very narrow formula, and I doubt whether in a very great number of cases justice is really done. In certain cases it could not be, and the allowance made under the 1941 Finance Act Schedule does and must work out very much less than, for example, the effect of depreciation and obsolescence in the case of machinery. Frankly, I do not see any reason why capital invested in a rapidly-wasting mine should be treated any differently from capital invested in a machine tool, which may be worn out, as a result of war activity, in three or four years instead of in 10 or 15 in peace-time. Capitalists ought to be treated with a reasonable degree of equity as between one and another, and we must see that as far as possible the taxation imposed by this House is equitable under given circumstances.
There is another point, and that is that in the case of a wasting mine the very proper restrictions which have been placed by the Chancellor on the 20 per cent. return of E.P.T. cannot apply. That return of E.P.T. will be for the purpose of re-equipment, but an exhausted mine cannot be re-equipped, and therefore in a very large number of cases that 20 per cent. will be prevented from finding its way back to the mine owner. I am not in any way under-estimating the difficulties of achieving equity in this case. Take, for example, the case of a mining company which has a known short life. It pays very high dividends and may have repaid its capital several times over, but the high rate of interest reflects itself in the market price of the shares, and there are people who have invested recently in this company at market prices. They suddenly find that under war conditions the effect of E.P.T. is that they will not get their investment back.
One could multiply all kinds of anomalies and give examples of various hardships which the formula will not and cannot meet. Whether a formula could be devised, or will be devised, I do not know, but to hand over to an entirely independent body like the Board of Referees the power to fix what rate of interest shall be paid is to a very large extent abrogating the right of this House, and I am as unhappy about the remedy suggested as I am about the formula of the 1941 Act. I would be more prepared to accept the idea that the Board of Inland Revenue should have some discretion in this matter, though there again there are very great difficulties. I would ask the Chancellor, in view of the fact that grave injustices are arising and must arise in connection with rapidly-wasting assets, whether he cannot think of some improvement on his 1941 formula with a view to seeing that our taxation approximates more to justice than it does at the present time.
I should like to support this Clause. Reasons have already been given why it is only equitable that something of this kind should be done, but there is one additional reason which I would like to emphasise, and that is that in the case of the coal industry we shall shortly have before us a series of proposals for Government control. In the course of the operation of that control it is quite clear that the Government may, if they find it necessary, reverse the ordinary prudent methods by which mines are operated and, in the case of certain properties, may insist that they shall be exhausted far more rapidly than normally would be the case. Under the present legislation the owners and shareholders will suffer very serious injustice. Already, in the case of one small mine in my own constituency to which my attention was drawn only yesterday, the Board of Trade have asked the owners to work a deposit of coal, which they had intended to develop over a period of 15 or 20 years, at a rate which would exhaust it within three or four years. It may not last as long as that—we hope it will not—but, unless some such provision as this is made, many proprietors and shareholders in the mining industry will suffer great injustice. Therefore, I appeal to the Chancellor to accept either this Clause or some equivalent remedy.
I hope the Chancellor will resist this Clause. I do not think these are the times for undue, or, shall I say, continued, preference to those who merely invest their spare cash in the mining industry. I might not object to this Clause if, from the Benches opposite, there were shown for the miners one-thousandth part of the concern which is invariably shown for those who have merely invested some of their money in the industry. The usual emphasis has been placed upon the fact that the mining industry is a wasting asset. It is very much indeed a wasting asset, and a great deal of the waste is due to irresponsible wastrelism on the part of those who are responsible for the mines. This Clause asks that, in addition to profits being returned on investments in the mining industry, the capital shall also be returned to the investors. Those who are engaged in the industry have at last come to understand the profound partiality which is shown to those who merely have their money invested in the industry, while so very little regard is shown for those whose whole lives are involved. When we talk of coal being a wasting asset, let us remember that if a colliery closes down, the district which depends on that colliery becomes derelict. There is no talk about the wasting assets of the homes of those engaged in the industry, in which their whole lives' savings may be sunk. This Clause raises the old historical issue of partiality, and I hope that, in view of the present situation, the Chancellor will have no hesitation in rejecting it.
I think my hon. Friend has mistaken the day. It is on the next Sitting Day that we are having the Debate on coal. Therefore, I do not propose to address my remarks particularly to—
Of course, we have heard my hon. Friend make those statements before. I would congratulate my hon. Friend the Member for West Lewisham (Mr. Brooke) on the Clause. This is the third attempt he has made to bring this matter before the House, and he is fortunate to have been able to put down a Clause which can now be discussed. I would also congratulate my hon. and learned Friend the Member for Ashford (Mr. Spens). Very wisely, he avoided referring to the terms of the Clause itself, contenting himself with addressing the House in general terms. I recognise that my hon. Friend has put forward a serious case. In connection with this and with other matters relating to E.P.T., there arise very difficult and hard cases. Many of them arise inevitably from the fact that we have increased E.P.T. to 100 per cent. We took that step largely on national grounds, and because of the necessity, as the Government thought, of taking such a course at that time, accompanied as it was by other steps which affected other sections of the community. My hon. Friend's proposal briefly stated is this: He desires, in the special cases that he has mentioned, where we are dealing with
the getting of minerals or oil from any mine, oil well or similar natural source of a wasting nature",
the trade may be granted by the Board of Referees an increase in the standard. The increase may be made, as my hon. Friend opposite has stated, where the Board of Referees are satisfied that the date by which the source is likely to be exhausted is such that
the standard profits are insufficient to allow for the amortisation of the expenditure of a capital nature incurred in the establishment of the trade or business and to leave to the persons carrying it on a reasonable profit.
It would appear that the amount of the increase is to be determined separately for each chargeable accounting period and for each individual concern which makes an application. In fact, no limit is placed on the discretion of the Board of Referees, who can award any percentage they think fit. It is important to remember that the particular concerns for which my hon. Friend has put forward a case belong in fact to a class of such concerns for which we endeavoured to make provision in Section 13 of the Finance (No. 2) Act of last year. We provided, in Section 13 (1), that:
Upon an application made with respect to any class of trades or businesses consisting in the getting of minerals or oil from any mine, oil well, or similar natural source of a wasting nature, the Board of Referees may by order direct that in relation to trades or businesses of that class the references in section 27 of the Finance Act, 1940, to six per cent. and eight per cent. and the references in subsection (9) of section thirteen of the Finance (No. 2) Act, 1939, to eight per cent. and ten per cent. shall be construed as if they were references to six, eight or ten per cent. as the case may be, increased to such extent as may be specified in the order.
The Board is permitted to do that in these classes subject to the proviso set out in the Section, the most notable item of which is that it shall not increase the said percentages in any case it thinks proper by more than a further 4 per cent. That was done deliberately. I remember the discussion in the Committee when it was considered that it was reasonable that some limitation must be made, and that limitation was fixed at 4 per cent. It was left that the concerns as a class should be able to apply as stated in the Section, and the Board would have power to make an increase in the percentage of capital to reflect the fact that the capital employed in mining the mineral had a shorter life than the life of capital expenditure in
general industry. The Clause of my hon. Friend does not interfere with the operation of that particular Section, so that a concern belonging to a class dealt with by the Section would in fact receive the benefit of any additional percentage on capital granted under that Section to provide for the comparative wastage of capital expenditure. Such a concern, as satisfies the Board, is entitled to relief in that circumstance.
But the first observation I would make about the Clause is that it is not clear—as, I am afraid, might be one of the consequences if the Clause was accepted by the House—whether it would not temporarily confer upon the particular concern a double relief. This I do not think my hon. Friend really proposes. The principal objection is that it introduces the concept of an allowance for the absolute amortisation of capital, which is quite different from the provision we have already placed upon the Statute Book for dealing with the comparative amortisation on which Section 13 is founded. I do not really think that that concept could possibly be entertained by the House. The whole idea of Section 13 is to give a special relief for capital employed in exploiting wasting assets because it has a shorter life than the ordinary industrial life. In these circumstances it is impossible for me to accept the proposal. I know one or two of the concerns which hon. Friends have in mind, and difficult and hard cases no doubt often arise, but I have made inquiries, and it appears that no application has been made by these particular concerns as a class to the Board of Referees under Section 13.
I hope my hon. Friend will not be too pessimistic. If he does not think that he may be afforded some relief under Section 13 of the Act, and seeing that I am bound to resist this Amendment, I would advise those concerns to test the possibility of relief under both Sections to which I have referred, before coming to the conclusion that these are inadequate. I cannot accept the Clause, for the reasons I have given and also because I do not think that the House would for a moment contemplate handing over unlimited powers to a Board of adding percentages. To say that these powers should be unlimited is something that we could not possibly countenance. I rely however mainly upon the other reasons I have given to the House, and—my hon. Friend has been very persistent and has stated his case very well—in the circumstances of to-day, these concerns had better test the provisions which, as I have said, we have already made available to them.
If my hon. Friend the Member for West Lewisham (Mr. Brooke) is satisfied with the explanation of the Chancellor of the Exchequer, it is not for me to press the matter further, but the longer this sort of thing lasts the greater will be the number of cases that will constantly come before the Chancellor of the Exchequer. His reply does not quite meet the case which the House has to face. In view of the imposition of such high taxation as obtains, we ought, as a House, to try and find means of seeing that legitimate cases of hardship are given opportunities of expression and that those in authority should have the opportunity of providing relief where hardship has been proved. My hon. Friend the Member for West Lewis-ham said he knew of cases where this particular impost was of a very hard and exacting nature upon the undertakings which he had in mind. He would not have made that statement unless he had the requisite knowledge and information to substantiate it.
As the Debate went on, another important point arose of which this House ought not to lose sight. We all accept the general suggestion that in these days of war private interests must be subservient to national interests, but I would ask the Chancellor of the Exchequer to bear in mind the fact that there is to be some alteration in the way in which concerns owning wasting assets are to be run. If these alterations are to be pursued with vigour, rigour and ruthlessness, and it would appear that the demand for coal may make that necessary, it would be most unfortunate if this House lost sight of the fact that by existing legislation, for which the Government themselves are responsible, the steps taken by the direction of the Government meant an addition to the hardships which would undoubtedly ensue to companies in the category to which my hon Friend the Member for West Lewisham has referred. I am not personally very much afraid, as the Chancellor of the Exchequer seems to suggest, of giving to the Inland Revenue or the Board of Referees a greater discretion than they already possess. If I have any complaint at all against this authority, it is that, if they show any bias at all, it is always on the side of the Treasury. I am not afraid of extending to them a greater discretion.
Even so—and I accept what the Chancellor of the Exchequer has said—as the Clause is framed, that unlimited discretion is not quite so unlimited as he suggests. It is limited to the point that the Board of Referees must be satisfied that the life of the mine will not exist beyond a certain period. Surely it is not beyond the ingenuity of man. If it is impossible to define precisely what the life of a mine is, it is not impossible for the Chancellor to say that he will give further discretion to the Board of Referees and say that if the life of a mine extends beyond that period, liability will remain. I think the hon. Member for West Lewisham has done a service in bringing to the attention of the House once more the fact that this duty at the rate of 100 per cent. has many grave and serious consequences. If those responsible for the control of mines have not the means to extend and develop them, the people who will suffer most through unemployment, and all that comes from improper direction and control, will be the miners. They are linked up with the matter just as much as the management. It is not a question of any class at all. I think the Chancellor is right not to accept the present form of words, but I hope he will consider that in these cases there ought to be provided means whereby hardship can be adjusted by the appropriate authorities.
May I ask the Chancellor a question? If the companies whose position I have brought to the notice of the House act on the suggestion which he has made, and yet it still appears that after any allowances that they have been able to claim under the existing law they are still not in a position to preserve from the tax collector even their original capital, will he receive me sympathetically if I approach him again at that stage and ask him to investigate afresh the effect of 100 per cent. E.P.T. under the existing law on certain kinds of companies with wasting assets?
I am always ready to receive my hon. Friend, but I would not care to answer a hypothetical question of that kind. I am hopeful, however, that these concerns will get some relief.