Financial Statement

– in the House of Commons on 25th April 1944.

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Photo of Sir John Anderson Sir John Anderson , Combined Scottish Universities

During the war it has been the practice of the Chancellor of the Exchequer to set his story of revenue and expenditure in the framework of a broad review of the financial policy of the Government and then to announce his taxation proposals for the coming year. It is clearly convenient that the Budget proposals should be seen against this wider background, and I shall follow the established practice, but, with the permission of the Committee, I propose, on this occasion, to alter somewhat the order of the statement.

Photo of Sir John Anderson Sir John Anderson , Combined Scottish Universities

Certainly. The plans which my colleagues and I are preparing for the days after the war are based on the assumption that we shall be in a posi- tion to import the raw material necessary for active employment and sufficient food to maintain a standard at least a little better than what we are enjoying now. It is right that this should be our assumption, for we intend to make it good. It is also right that I should warn the Committee that we shall start with no solid or realised basis for it, given the sombre background which I have described. A nation of sound heart should find such a situation stimulating. I take it as a challenge to the industry of this country. My flank recoils, my 'centre yields. Excellent! I attack Marshal Foch is supposed to have said on a famous occasion. The burdens are large and, indeed, our initial debit balance may be larger than the figures I have given. But the productivity of this country is also large, and we can carry this burden in due time if we make an effort. It will not be a light effort, especially after the endurances of the war. Our only means of doing so will be by our own goods produced here at home. We have no other resources available.

When the war ends there will be a demand all over the world for goods, and if we decide to give a reasonable and proper priority to the imperative needs of our export trade, we shall not find much difficulty in selling. But we must not abuse that opportunity by taking a short view. Our aim must be to re-establish old connections and develop new ones which are likely to be of enduring value, rather than to snatch quick gains in a seller's market. Speaking as Chancellor of the Exchequer, I am more concerned to see a steady and rising income from our exports than to build up, possibly on an unstable basis, a temporarily improved position of our foreign exchanges. The renewal of a contract to-morrow is worth more to me than the last penny out of to-day's contract.

I used a phrase a moment ago that all this should be a challenge to the vigour, the initiative and the adaptability of our industry. Four and a half years ago a much graver challenge was thrown down and was accepted. Looking back over the industrial history of those years, I believe that the most important fact that stands out is the inventive boldness and enterprise of our industrialists, our scientists and our technicians, and the adaptability of our workpeople. We must, I think, always be a country predominantly of high-grade products, for otherwise we throw away part of our inherited technical industrial skill. Our high-grade products can only hold their own and find their markets if we keep our light shining a little ahead of the rest. Competition in industrial and technical inventiveness is the finest competition of all, and it is the one most beneficial to the world. There will be no easy money in the export trade, but there will be good money and secure money for the benefit of our people if the same drive is applied to the problems of the export trade as has been applied to the problems of the war. Nor will the urgency be much less.

TAXATION OF INDUSTRY: EXCESS PROFITS TAX

What I have just said shows the vital importance of looking ahead to the health of our industry, and what I have to say now is concerned mainly with questions of post-war industrial taxation. Before coming to that, I would like to turn for a moment to a feature of war-time taxation which has been the subject of repeated representations to me as regards its effect on industrial enterprise—that is, the Excess Profits Tax.

I have had this matter under most careful review. Many of the complaints regarding the incidence of Excess Profits Tax are really criticisms of the rate of the tax, for the 100 per cent. rate takes away the whole of the profit above the standard, and leaves no margin to bear the unevenness of incidence which is inevitable in any taxation of this kind. I cannot, however, entertain any suggestion for the reduction of the Rio per cent. so long as hostilities last. As has been more than once said by my predecessor, the 100 per cent. rate springs from other considerations than those of purely fiscal policy, and these other considerations remain to-day in full force.

I must remind those who complain of the rate, that the law has made special provisions for the refund, after the end of the war, by way of a post-war credit, of 20 per cent. of the net amount of taxation paid at the 100 per cent. rate. This credit was originally provided for in the Finance Act, 1941, subject to such conditions as Parliament might hereafter deter- mine. In the Finance Act, 1942, the promise of the repayment was made more definite by indicating that the conditions governing payment would be "conditions relating to the distribution, application or capitalisation of profits for the benefit of shareholders by way of dividends or bonus share distribution." It is quite clear that all trading concerns that have to face postwar expenditure on rehabilitation and reconstruction or, indeed, that have to race capital expenditure of any kind whatever, can look forward with absolute certainty to having their post-war Excess Profits Tax credits available for the financing of such expenditure. Allowing for the Income Tax payable on all refunds of Excess Profits Tax, the post-war credit represents, net, a sum of 10 per cent. of the annual produce of the 200 per cent. rate of tax, and this represents a fund growing at the rate of £40,000,000 to £50,000,000 a year. The availability, after the war, of such a fund must obviously be a great factor in enabling industry to turn 'back to peacetime production, and to face any expenditure involved therein. While I recognise that the payment, as the law stands, is contingent, I think industry may safely leave the future to the wisdom of Parliament, and be content with the assurance, already given in the Statute, as enabling it to count on the post-war credit being available to finance post-war expenditure.

As regards the general basis of the charge, as distinct from the rate, I have had many representations. To discuss them in detail would be a lengthy process, for which I will seek some later opportunity. The Committee may be prepared, for the moment, to accept my asurance that I have thought very carefully about this matter, and to hear very briefly what I propose. It is a modest relief, especially important to small businesses, for those cases, of which there are thousands, where some standard other than the profits standard applies. Subject to one qualification, which I shall mention in a moment, I propose that, as from the 1st of this month, all standards, except profit standards, should be increased by £1,000. This increase will apply to the cases where the standard is a minimum standard, or the personal working-proprietor standard, or a standard representing a percentage on capital employed in the business. It will benefit no less than 30,000 small businesses, 10,000 of which will pass out of charge.

The qualification which I mentioned is this: Speaking generally, deficiencies of profits below the standard in any accounting period work either backwards or forwards, as a debit against the excess profits of another period. Deficiencies due to this new relief will work forwards and not backwards; that is to say they can be set against excess profits of future periods but not against excess profits of past periods. Largely arising out of this relief, a strengthening of the provisions of Section 35 of the Finance Act, 1941, dealing with the avoidance of taxation, will be required.

If I say no more at this juncture about this duty as a whole, it is because, as I have said, I hope to find an opportunity for a more elaborate statement later. I have taken into account the cost of this adjustment of the Excess Profits Tax in the Estimates, which I will give the Committee later of the yield of revenue in the current year. Only a small part of the cost falls this year, because the adjustment and collection of Excess Profits Tax necessarily lag behind the completion of the traders' accounting year. The cost in a full year will be £,12,500,000.