I think I can say, in regard to Clause 1, that the first Amendment to come before the Committee, that in the name of the right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler) in page 1, line 17, will also cover the succeeding five Amendments. I hope the hon. Gentleman will therefore address his remarks, if he succeeds in catching my eye, to any point which he wishes to make on the Amendment in his name.
May I recall to your memory, Major Milner, the fact that during this Parliament, on no fewer than four occasions, alterations have been allowed in the Title without any alterations, or at least material alterations, to the actual terms of the Bill, but because it was generally felt that the Title was misleading. For instance, the Investment (Control and Guarantees) Bill was changed to the Borrowing (Control and Guarantees) Bill, which was thought by some to be more accurately descriptive of the nature of the Bill.
I beg to move, in page 1, line 17, to leave out "twenty," and insert "twenty-two."
The object of this Amendment is to reduce the tax on undistributed profits, and we thought that it would be convenient, during the Committee stage of this Bill, which is not in itself very easy to amend, noxious though its contents may be, if we were to use this opportunity to discuss the question of undistributed profits and the reserves of companies—a matter of first-class importance to the national economy as a whole. Therefore this Amendment has been put on the Order Paper, and I think it will give us a chance of raising the important subjects which we considered on Second Reading and which will be considered again today as the main subject of the attack on this Bill.
Company reserves are a form of savings, and it is vital to our economy and the re-equipment of industry that the utmost care should be taken of industrial reserves, kept as they are for the purpose of re-equipment. I do not propose to import into this discussion any considerations, political or otherwise, other than this question of the importance of company reserves to our economy, and I think that perhaps the Financial Secretary and the Economic Secretary to the Treasury may be able to give us useful information as to their opinion on the value of these reserves to our economy, and also on the figures which I propose to quote to them.
The result of this Amendment, if it were carried, would be to reduce from 10 to 8 per cent. the tax on undistributed profits, and we have calculated on the best information at our disposal—and we have taken the trouble to try to obtain it from all quarters—that this would result in a loss to the Exchequer of some £11.5 million, therefore leaving a balance under the Bill of £1.5 million. I mention that because those are the best figures we have available and the object of our moving the 2 per cent. reduction in the Profits Tax was not, therefore, to cause a loss to the Exchequer by the passage of this Bill, because if the Amendment were accepted, there would be a small gain. If the hon. Gentleman who will reply can tell me that these figures are not correct, I shall be obliged if he will inform me what he counts the exact computation of the reduction of 2 per cent. to be.
The position therefore is that we are not moving any Amendment today with the purpose of taking money away. We are leaving this Bill as a Bill which provides a modest increase to the Exchequer, but I would remind hon. Gentlemen opposite of what I said on Second Reading—that, in our view, this Profits Tax is uneconomic. I said then, and my opinion is even stronger now in view of the representations I have received since then, that this Bill will probably not result in a lowering of dividends or in a mulcting of profit-makers. I do not believe it will have that result. I believe, and I have been confirmed in that opinion as a result of inquiries made from industrial and other circles, that it will result in eating into the reserves of companies.
I would repeat what I said on that occasion—that we would agree with any Measure which resulted in all sections of the population sharing, but that we do not believe that this Profits Tax will have that result. Therefore, we take the view that this is not an effective or valuable means of taxation, and that if the Government want to take from the profit-earners an equal sum to compensate for what they are taking from organised labour, this tax will not have that effect.
On Second Reading I tried to explain that directors of companies regarded it as a moral obligation to maintain their dividends when earnings justify this policy. I used arguments to show that there has been an all-round observance of the injunction of the Chancellor of the Exchequer that dividends were not to be raised, and I said that people in industry have played the game in that direction. I also quoted the fact that over 8 per cent. had reduced their dividends. We believe, however, in view of the perfectly moral position which directors of companies consider they should take up towards equity shareholders—on which they have as strong a moral feeling as hon. Gentlemen opposite have on other matters—that the result of the Bill will be that the whole incidence of the Profits Tax on undistributed profits, the Profits Tax on distributed profits and Income Tax at 9s. in the £ will fall upon that section of profits which are normally placed to reserve. What, in fact, will happen will be that the amount distributed in dividends will have to be paid as dividends and the whole burden of taxation will fall on the remainder, leaving a very small portion to be put to reserve.
The position about reserves is even more serious than this. The costs of replacement of capital assets in industry has increased between 200 and 300 per cent. since 1938. The general figure I am given by people who conduct our industry is that it is nearer 300 per cent. than 200 per cent. That, I think, can be supported by anybody who takes an interest in industry at the present time. If we have to replace a machine today, and the incidence of the cost has been particularly heavy since 1945, through no fault of anybody in particular but owing to the rise in the costs, the increase is now some 300 per cent. over 1938. Further, there is no doubt that costs have been increased by devaluation and the recent decisions. The fact is that this question of the reserves of industry is of even more burning importance than it was when we discussed it in our Budget Debates. Devaluation, due to the increased sterling cost of many essential stock materials of dollar origin, and, indeed, of sterling origin, and the consequent rise in the value of work in progress, book debts, etc., has further eaten into the available capital in industry which otherwise would be put to reserve for re-equipment.
We are, therefore, facing what anybody at present engaged in private industry regards as one of their most anxious problems—and that is, the availability of finance for re-equipment. I hope hon. Members opposite will take this argument in the same sense of gravity as that with which I am attempting to put it forward. I feel convinced that they will not be able to deny the fact that the person who profits most from re-equipment is the worker in the industry itself. The improvement of machinery relieves toil, makes work more pleasant and makes productivity easier, and it is in the interests not only of the capitalists in charge of industry or the entrepreneur, but it is particularly in the interests of our skilled work people that machinery of the most up-to-date character should be introduced into industry and that machinery should be replaced in industry.
The Chancellor himself realised that this was a burning problem, as is shown by the fact that he introduced into the Budget a deliberate provision permitting an increase in the initial depreciation allowances. When we discussed this in the Budget Debates we pointed out that this was not a gift to industry but an advance, and an advance of which only firms having the capital available would really be able to take advantage. It was a scheme, therefore, which tended to help the big firms rather than the small firms. Our efforts at that time to improve this concession and to make the Chancellor realise that this was a burning problem were unavailing. We are, therefore, trying again in the Committee stage of this Bill to bring this question of the reserves of industry once more before the Committee. In fact, we are having another try.
The hon. Gentleman who is to reply cannot say that the Government do not themselves realise the gravity of this problem. The Chancellor must realise it, and I believe he realises the inadequacy of his own proposal for stepping up the initial depreciation allowance, because he appointed a committee to investigate this whole question and, as I understand it, this committee is now taking evidence from industry. The Chancellor has therefore conceded the point that the existing allowances for wear and tear in industry are inadequate. But the right hon. and learned Gentleman is not content to await the report of his own committee. He has to introduce a further fiscal deterrent by the imposition of this extra Profits Tax which, as I have shown earlier, will fall almost entirely upon the reserves of industry.
My case is made even stronger by an admission of the Chancellor himself, made at Workington on 9th January, 1949. In answer to statements which were floating about at that time that profits of industry were exceptionally large, the Chancellor felt bound to make this observation:
A large part of the so-called profits is not a pure surplus but must be put to reserve to pay for replacements and repair of plant and machinery and for industrial expansion to meet our new production needs.
That is just our case. Unless there is available a sufficient sum to meet precisely what the Chancellor was describing—the repair of plant and machinery and industrial expansion—we cannot hope to achieve the productivity level we need or to restore our economy in the way we would desire. Some hon. Members opposite, in the debates which I have attended
in the past, have raised the question, how far should industry be permitted to re-equip itself out of reserves created through extra profits? All I can say about it is that this practice has certainly been sanctified by very long usage in the development and expansion of British industry.
I certainly think that the right hon. Gentleman has gone rather wide. The real discussion is as to the rate of 20 and 22 per cent. or the other figures mentioned in the Amendments, but I was hoping that perhaps if I permitted him a little latitude it might avoid any debate on the more general Question that the Clause stand part.
With all respect, Major Milner, I find it very difficult to accept your observations because this is an Amendment which we placed on the Order Paper to deal exclusively with undistributed profits. The fact that it was accepted by the Chair and that almost every other Amendment on the Order Paper has been ruled out of Order means that this is practically the only opportunity for debating this Bill. We specifically put the point down to test whether a debate on undistributed profits would be in Order and every one of the remarks I have made has been on the question of undistributed profits.
It is not correct to say that almost all the other Amendments have either not been selected or have been ruled out of Order. In fact, the great majority have been selected. In any event, the real question before the Committee, surely, is the rate of tax, and it does not give scope for the discussion of the whole subject matter of undistributed or distributed profits. Perhaps the right hon. Gentleman will continue.
If the right hon. Gentleman is allowed to develop the argument on which he has started, that the financing of business expansion out of profits is sanctified by long tradition, surely it will be in Order for someone on this side of the House to develop the argument that this long tradition ought now to be brought to an end?
No doubt you will forgive my desire to doubt any observations you make, Major Milner, and I will endeavour to conform to your Ruling, but as this is a matter of undistributed profits, and as not a single word I have uttered has been anything to do with any subject except that of undistributed profits, I thought I had been arguing on a very small and narrow issue with rather more attention than usual. I am sorry that I should have offended the Chair on this occasion. I find it somewhat difficult to continue my observations if I am not allowed to talk about undistributed profits. I was in the middle of an argument and I feel rather at a loss now as to where I can continue. I do not now see any real value in the Committee stage of this Bill.
It is true, as I think you have pointed out, Major Milner, and as my hon. Friend the Member for Nelson and Colne (Mr. S. Silverman) pointed out, that this Bill does not deal with undistributed profits. It deals exclusively and entirely with the increase in the tax on profits which are distributed. The rest of the Clause is pure machinery, and I admire the ingenuity of the right hon. Member for Saffron Walden (Mr. R. A. Butler) who has taken the machinery part of the Clause in order to make such a speech as he has made. It is not for me to say whether or not it is in Order, but I would point out that we are dealing not with undistributed profits but with distributed profits.
I cannot for a moment accept the argument of the Financial Secretary, considering that the whole case of the Opposition in tackling this Bill has been that the effect is going to be that this increase of 5 per cent. on distributed profits will fall, in almost every case, upon reserves, which means upon undis- tributed profits. I explained at great length in my Second Reading speech—and I am prepared to continue at great length this afternoon if necessary—that this tax will not result in a reduction of dividends, but will result—
I am sorry, but the right hon. Gentleman is now talking about the tax as a whole. That may or may not be a proper question to raise on the Motion, "That the Clause stand part of the Bill," but here we have a much more limited question before us, and I must ask the right hon. Gentleman to confine his remarks to the Amendment.
I am really in some difficulty if I am to accept your Ruling, Major Milner, that I cannot touch upon that point. It means that I am unable to deal with the tax on distributed or undistributed profits. My last remarks related to distributed profits, and, therefore, I must ask you whether any further remarks on this subject are in Order.
I know that the right hon. Gentleman would wish to keep strictly within the rules of Order, but, quite clearly, the only subject of discussion is the question of the increase in the relief from 20 to 22 per cent. Surely, that is the question before the Committee.
On a point of Order. On the strict question of what is in Order on this Amendment, Major Milner, surely the right hon. Gentleman is right in saying that we are here discussing whether the rate of tax on undistributed profits should be 10 per cent. or 8 per cent., and, therefore, arguments addressed strictly to that on this Amendment must surely be in Order?
I am greatly obliged to you, Major Milner, and to the Economic Secretary for creating this happy atmosphere in the Committee. I can see that the hon. Gentleman has taken to heart the admonitions I have had to administer to him in the past, and I congratulate him on coming over into Macedonia.
I was about to develop my argument relating to the question of undistributed profits by saying that that question has become even more important now that the National Savings Scheme itself was running last year at a debit, and, as far as we can see—when this year's figures come out—the savings scheme as a whole is running at a debit in this financial year. If that be the fact, and in view of the collapse of Government credit and the inability of this country to rely upon the savings scheme, it is essential, in our view, that we should not prejudice one further great source of savings other than the insurance savings—the savings of industry. In fact, these reserves of industry are in themselves savings which are put aside by industry for re-equipment.
I have tried to calculate the position in regard to undistributed profits, and as far as I can obtain the advice of Mr. Chambers, he has calculated that between what depreciation allowances granted for tax purposes would cover and the needs of replacement, there was a gap of some £400 million in 1947. That is a very big gap on a matter of vital importance to our economy. The President of the F.B.I. said that the gap between allowances and the needs of industry in this sector was no less than £300 million in 1948. The official figure for profits put to reserve in 1938 was £170 million. The equivalent figure for 1948 was £545 million. If we deduct the lesser amount—not the £400 million, but the £300 million—which the President of the F.B.I. says is the gap between need and depreciation allowances, we come to a figure of £250 million. I have further consulted the "Bulletin" of the London and Cambridge Economic Service which calculated that the amount—
On a point of Order. I am sorry to be persistent about this, especially in view of the fact that the right hon. Gentleman has clearly prepared a very careful argument, but it seems to me that we are now getting into the realms of an absolutely general and unrestricted Debate about undistributed profits and reserves. If that is in Order, nobody will mind, but one would have thought it was a little doubtful.
I cannot agree with the hon. Gentleman. As I understand it, the right hon. Gentleman is arguing that the undistributed profits—the reserves—are too small, and that, therefore, it is proper to admit a greater relief than 20 per cent., namely, 22 per cent. If that is the case, it seems to me that the right hon. Gentleman's argument is in Order. Whether it is justified on its merits is, of course, another matter.
I see that the area of agreement, not only with my approach but with my remarks, is widening, and I hope that shortly it will embrace the whole Committee, not only in the scope of my arguments, but also in their tenor and context, and that the hon. Member for Nelson and Colne (Mr. S. Silverman) will be included.
I had got to the peculiarly complicated stage in my argument in which I was saying that the "Bulletin" of the London and Cambridge Economic Service—which is the only economic source from which I can obtain figures of this sort—calculated that the amount of working capital needed to maintain the volume of stocks at prices current in 1948 is some £150 million. If that is deducted from the figure of £250 million, it leaves only £100 million available in the reserves of industry, compared with £170 million in 1938. This figure, I maintain, is sufficient to do no more than maintain productive capacity, without taking into account the need for the expansion of industry or the replacement of plant.
I maintain that these arguments have shown that the position of the reserves of industry is an extremely serious one in this country at the present time. Upon that question of reserves a great deal of our future expansion depends. Therefore, I trust that the Government will pay close attention to the remarks I have made, and will realise that in putting forward this Amendment to reduce the tax by only 2 per cent.—which is a measure far more modest than many of my hon. Friends on this side would themselves like to espouse—we are trying to put forward an argument deliberately calculated, not to raise the cost to the Exchequer on this Bill, but to come within the purview of this Bill itself. I agree that if this Amendment were carried it would very largely negative the purposes of the Bill, but that is, of course, the object of moving it, because we do not like the Bill and should like to see its purpose countered and destroyed altogether. We thought that perhaps the most interesting way of using part of the time on the Committee stage was to draw attention to this very important question of reserves of industry, and I have therefore used the arguments which I have just put to the Committee.
My intervention in this discussion is due to the extraordinary reference made by the hon. Member for Saffron Walden (Mr. R. A. Butler) to the fact that National Savings are a debit balance and to his drawing of a comparison between National Savings and savings which he hopes that industry will make if this Amendment is accepted. There seems to me to be a very wide distinction between National Savings, which can only be contributed by the public from income on which tax has already been paid, and this form of savings which will be made by industry and on which tax will not have been paid at all—at least not to the extent of the 2 per cent. which it is hoped to save if this Amendment is accepted. That is the very purpose of the Amendment, apart from the basic purpose which the right hon. Gentleman has stated of trying entirely to wreck the Bill.
It seems to me extraordinary that the whole of the case for this Amendment as put forward by the right hon. Gentleman rests on the assumption, which he says is backed up by all the research and inquiry which he has been able to make, that in no circumstances will the directors who are responsible for fixing the level of distributed dividends and profits be prepared—or the profit takers either—in the present state of the country to take any less in dividends. That seems to me to be an anti-social statement, and its implications as to the concern of the shareholders and profit takers for the present situation of the country seems to be utterly alarming. It presupposes an attitude which, if the statement be true, throws a baleful light on profit takers. In my view, it is a very unfair light indeed.
Recently we have been discussing the effects of devaluation on the standard of living. Undoubtedly everybody in this country, out of his taxed income, will have to make a sacrifice—even the old age pensioners. Here we have the profit takers, not all of whom are wealthy people, of course, and it is suggested—
I was pursuing what to me seemed the extraordinary difference between the attitude disclosed by the Opposition now to the proposal that tax on distributed profits should be increased, and the very quiescent attitude which they displayed when proportionately far greater sacrifices had unfortunately to be demanded from people many of whom will be very much poorer.
The other point which struck me with considerable force was that, according to the right hon. Gentleman, savings in industry by means of re-investment, which would be facilitated by this Amendment if it were accepted, must, and can only be, in his submission on behalf of shareholders and profit takers, at the expense of the Exchequer and at the expense of the consumers, who will have paid already for the products of the various firms and thereby provided the profits. That seems to me to be a very inflationary suggestion. Why should it always be the consumers who will have to pay for the expansion and re-equipment of industry merely by reason of the fact that they have paid a larger price for the products than they would have needed to pay if lower, and indeed fairer, prices had been demanded?
A price for a product which is higher than strict efficiency and a fair return demand must be an agent in the creation of unemployment. It must be in the long run a menace to the continued prosperity of this country. Therefore, if the Government were to accept the responsibility for financing new expansion by forgoing what at the present time is regarded as a proper level of taxation, having regard to the needs of the country, they would indeed be acquiescing in adding to our difficulties and contributing to the ruin of the country.
Another point is that even if, as is true, the major part of industry is prepared to adopt the Chancellor's request that dividends should not be increased, and if as is also true the undistributed part of the profits made is ploughed back and remains in industry, but that eventually a large proportion is distributed in one form or another, either by means of increased dividends or, as is more usual, by means of bonus shares. I know all about the argument that it makes no difference, that if a share is £1, and out of accumulated profits or balances a bonus share of another £1 is issued, the Stock Exchange price of the share is thereby halved, and it makes no difference. I have heard that. But it is not true. It does not happen. It does not work out that way.
This money which is left in the business, and which, in accordance with the terms of this Amendment, would thereby be increased, eventually goes out to the shareholders in one form or another. If that were not so, it would be bad business indeed on the part of the people running the undertaking, because there would be no real object from their point of view; and, having in mind the principles which the right hon. Gentleman adumbrated as the moral feeling which directors have of the need never to declare a lower dividend, there would be no object in this Amendment. If that principle is denied, and if hon. Members on the other side of the Committee do deny it, then they are making complete and utter nonsense of the right hon. Gentleman's case.
Therefore, I hope that when my hon. Friend replies to the case that has been put forward and to the Debate, he will make it clear that we on this side of the Committee repudiate utterly the case that in no instance will directors or shareholders or profit takers agree to some sacrifice on their part on behalf of the country; that in no case do we accept the contention that it is the obligation and duty of the Government or of the consumers to provide industry with the wherewithal for expansion, as distinct entirely from renewal of plant which is worn out; and that in no case are we prepared to accept the contention that while people with very limited incomes are, out of their taxed incomes, called upon to make what are to them very considerable sacrifices, we should not at the same time demand from the profit takers a fair share of the sacrifice which now has to be made.
It would be impossible for me to reply to all the tendentious remarks made by the hon. Member for Taunton (Mr. Collins), but I should like to point out to him that this is a Bill not to reduce distributed profits but merely to tax them, and that therefore there is no reason why directors of companies should not make such distribution as is proper, bearing in mind the profitability of the company concerned, because in all cases there is a dividend limitation which prevents them from distributing above the ceiling agreed upon with the Chancellor of the Exchequer.
Is not that what I was saying? Is not the point this: Because of this extra 5 per cent. tax on distributed profits and the moral obligation on directors not to distribute less, they are going to increase the dividend by the amount of the tax?
No, and for a very good reason. The tax does not fall upon the dividend at all. The tax is paid out of money not distributed as dividend by the very nature of the Bill. There is no moral obligation on directors to distribute profits when profits are non-existent. Hon. Members opposite are in grave error in thinking that profits accrue automatically instead of through the efficiency of the firms who produce them. Many firms today are not producing the profits which would enable the directors to distribute up to the limit they are authorised to do. When it comes to sacrifices, the dividend limitation came into effect some time ago and has been loyally adhered to, whereas the workpeople who are now being called upon to bear sacrifices of £8 million have had a rise in wages.
That dividend limitation was specifically withdrawn by the Federation of British Industries earlier this year. [HON. MEMBERS: "No."] Oh, yes. In a communication to the Chancellor of the Exchequer they said that they could no longer retain this ceiling of dividends, but they would substitute for it a policy of restraint and moderation, whatever that meant.
I am also aware of the facts, which are that almost all companies have undertaken to limit their dividends to those which they previously distributed.
To turn to my main point, I would ask the Economic Secretary: What is the purpose of this tax? Is its purpose to raise another £13 million for the Inland Revenue or merely, as has been stated—
I am sorry if I should have appeared to stray outside the terms of the Amendment, but I was anxious to show that the yield from the tax may very properly be returned to industry by means of the Amendment which we have proposed. If the Amendment is accepted, the yield from the tax would in fact be returned to industry for the replenishment of its capital resources. I hope, therefore, that I may continue on those lines.
We have been suffering a good deal in the last six or nine months from lecturettes to industry given by the Front Bench opposite, and the Economic Secretary to the Treasury has not failed to add his quota. One of his brighter remarks has been that the taxation of profits does not enter into industrial costs. No greater piece of nonsense has yet emerged from his mouth. The plain fact is—
The taxation of undistributed profits, which this Amendment is designed to alleviate, has in fact a considerable inflationary effect. When undistributed profits are taxed it then becomes necessary to increase the price charged to the consumer in order to yield an undistributed sum which when taxed is sufficient to replace the goods sold and to replace machinery and plant which is wearing out.
Is the hon. Gentleman not now mixing up the need to maintain the rate of profit with the need to maintain sufficient income for replacements? This is concerned with profits and not replacements.
A great deal of difficulty arises from the confusion in the minds of hon. Gentlemen opposite between the words "profit" and "income," because what they describe as profit is in fact undistributed income required for the maintenance and development of the business. It is this undistributed income, or unspent earnings, which is in fact being taxed by this Bill, and our Amendment seeks to reduce the amount of tax on the undistributed earnings which are vitally required for the maintenance of the business.
Hon. Gentlemen opposite have asked: How is business to be financed? How is it to be financed, indeed, if the only means open to a business to finance itself are taken away from it? When a firm wishes to embark upon capital expenditure at the present time it cannot go to the capital issues market and get money from the public with prices falling as they are at present. The only way development can be financed is by means of using the unspent earnings which are at present being subjected to a severe rate of taxation. The only way one can overcome that loss is by so raising prices as to bring in a sum which when taxed will yield the amount required.
The taxation of the undistributed profits, earnings or income, whatever we like to call them, is in fact an inflationary factor in our economy. There is no escaping that fact. The reason we seek to reduce the tax on undistributed profits is to enable industry to re-equip itself at the present time and to carry out those very precepts with which hon. Gentlemen opposite are so very fond of lecturing industry.
I am afraid that I am not qualified to follow the speech of the hon. Member for Altrincham and Sale (Mr. Erroll) in all its intricacy and ingenuity. I prefer for three or four minutes to deal with the much simpler and readily understandable argument which the right hon. Gentleman employed in moving his Amendment. He was perfectly frank and candid with the House about the effect of the Amendment. He said quite plainly, and in simple and direct words such as he normally employs in addressing the House, that the effect of his Amendment would be to wreck the Government's proposals. He told us that he was not in the least alarmed at the thought of that result. If that was not the sole purpose of the Amendment, he was quite glad that that would be the result of it. He told us why. He described the Government's proposal as a vindictive proposal.
I can quite understand that if the right hon. Gentleman sincerely believes that the purpose which the Government had in view in seeking to have the Clause enacted as they want it, instead of having it enacted as the right hon. Gentleman would prefer, was vindictive, he is entitled to put down an Amendment which would have the effect of wrecking the proposal and so make impossible the carrying out of a vindictive purpose. Of course, if one does not think that the Government's purpose was vindictive, the argument will not sound so attractive.
After all, what was that purpose? The purpose was still further to discourage the distribution of dividends. The hon. Member for Altrincham and Sale said that the purpose was not to reduce dividends. There may be some technical sense in which he can make good that argument, but I am not sufficiently technically-minded to follow it. It is quite clear—I do not think anybody denies or doubts it; I am sure the hon. Gentleman does not deny it—that the Government's purpose was to re-deploy the machinery of this tax in order to make sure that distributed profits bear an additional tax. That is what the right hon. Gentleman thought was a vindictive purpose. Why should it be a vindictive purpose? What is vindictive about it?—unless hon. Gentlemen opposite intend to say to the country that it is vindictive to attempt to reduce the spendable earnings of dividend earners at the same time as an appeal is being made to everybody else in the country to restrict their own spending.
I do not quite follow that. I should have thought that "reduce" and "restrict" meant the same thing, unless the right hon. Gentleman intends "restrict" to mean that there must be no increase. It must not be forgotten that one effect of devaluation is to provide an uncovenanted and unearned profit to a great many industries. [HON. MEMBERS: "No."] Certainly it does.
The hon. Gentleman is now arguing upon the matter generally, which may be a matter for discussion when we come to Debate the Question "That the Clause stand part of the Bill." I am not quite sure at the moment about that; but certainly this is not the appropriate time to discuss it.
I am doing my best to keep within the various rulings which you have been good enough to give from time to time since this discussion started. I thought the right hon. Gentleman's argument was ultimately held to be relevant to the Amendment because it dealt with the effect of the Government's proposal, even though only in a machinery way, in its effect on undistributed profits. I am merely endeavouring to deal with the argument as the right hon. Gentleman put it forward. I certainly do not want to go beyond that. I quite agree that there are other opportunities of dealing with the general merits of the policy when we discuss the Clause as a whole, and that it would not be strictly relevant at this stage.
I am endeavouring to deal with the right hon. Gentleman's argument that he was justified in recommending to the Committee an Amendment which he frankly conceded would have the effect of wrecking the whole Clause, on the ground that the purpose of the Clause was a vindictive purpose which ought not to be allowed to prevail. At the same time, he said that the Bill would not have the intended effect, but I do not want to deal with that because I think it is more appropriate to the Clause as a whole. If it be true that the Amendment would have the effect of wrecking the Government's proposal, and that that is one of its advantages, then I am entitled to say that we on this side of the Committee and our supporters in the country will not regard this purpose as being vindictive. On the contrary, it seems to us to be mere common equity. I will now leave the point. I have met the argument in as detailed a form as is appropriate at this stage.
I do not know whether or not it has occurred to the right hon. Gentleman, but if the argument with which he recommended this Amendment is sound, it is nothing more than a declaration of sabotage on the part of a whole section of taxpayers. I am not for one moment suggesting that the right hon. Gentleman would be in favour of any such thing, but I am saying that such is the effect of these facts, if indeed they are facts. What he was saying was: "Do not think for one single moment that this proposal will really result in dividend drawers spending less dividends. Do not think that will happen, because those who run these matters, out of a high sense of moral obligation to their shareholders, will see that their shareholders get just as much as they got before. They will escape making any sacrifice or any contribution of any kind. We, rather than allow them to make any general contribution to the national sacrifice, would run down our reserves, with all the effect that may have on the development of our industry."
That was the right hon. Gentleman's argument, and if that argument is sound, I say that it is a declaration by the right hon. Gentleman of an intention on the part of all these people to evade their obligations under the Bill, not to make their contribution, not to limit their own spending power, and not to come into the general national body of effort to minimise inflationary pressure; but, on the contrary, to maintain it to the full, and to see that any extra money they have to pay is at the expense of capital reserves and the development of the industrial capacity of this country.
The hon. Gentleman has been making some very serious charges. I do not know whether he attended the whole Second Reading Debate; I did not see him here; but on that occasion I developed to a greater length my belief that in some cases dividend reductions would result, and I quoted the figure of 8 per cent. so far. Only today I have read that a large firm has announced that it proposes to reduce its dividend. I am very glad to note such cases; but I am not recommending any policy to industry, nor am I advocating such a policy. We must leave it to industrial leaders. I am saying that in a large number of cases a certain moral obligation exists to equity shareholders, and that that will be observed. I am only stating facts, not advocating a policy.
The right hon. Gentleman must not attempt to have it both ways. I concede at once that he would not advocate or recommend any such thing. Of course, he would not. What I am pointing out is that, if his argument is sound, that nevertheless would result. That is what would in fact be happening. If the right hon. Gentleman says, "Oh, no, it does not happen at all," or that it only happens to a small percentage, then to that extent he is withdrawing the argument he advanced today when proposing this Amendment. Either this will be paid at the expense of reserves or it will not. If it is not to be paid at the expense of reserves, there is nothing in his argument, and he ought to withdraw the Amendment. If it is to be paid at the expense of reserves, then I say again that it is nothing more than a declaration of sabotage and evasion in advance of the passage of this Bill.
I wish to meet the argument of the hon. Member for Nelson and Colne (Mr. S. Silverman) fairly and squarely, and to give him a few figures, but first I revert for a moment to the valuable speech of the hon. Member for Taunton (Mr. Collins), who succeeded in saying a good deal in a short time. We are all in agreement that sacrifices should be shared fairly and equally. Our quarrel with this proposal is that it does not do that, or that if it does it in any way at all, it does so by doing the gravest possible harm to the reserves of industry, on which the whole country depends. That is our argument put fairly and squarely.
We are not anxious that any class or section of the community should avoid necessary sacrifices. Our contention is that this proposal does infinite harm to the economy of the country, and that we cannot afford it.
If I may finish my speech I shall try to say why.
The hon. Member for Nelson and Colne says, in common with most hon. Gentlemen opposite, that the need is to reduce dividends and that the real purpose of this Bill is to bring about a reduction in dividends. Has the hon. Member paused to consider what reductions in dividends are necessary to do this? Has he paused to consider the effect of this additional burden, added to the existing burden on industry? I will give him three examples. Let us take the company which distributes three-quarters of its net profits in dividends. It cannot be considered by reference to the percentage of dividends because the total profits vary. If the company distributes three-quarters of its net profits it can place literally nothing to reserve.
Suppose that the company wanted to place something to reserve. Would the hon. Member consider it immoderate of that company if it decreased the amount of profits distributed to two-thirds? The hon. Member does not care to give an answer to my question. I tell him that it will add to the reserves of that company precisely 5½ per cent. of its net profits. Perhaps he may say that instead of distributing three-quarters of the net profits by way of dividends it should distribute only one-half. Has he any conception of the not addition that will mean to the reserves of the company? Has he, in fact, studied this question at all before airing his views in this Committee? It would mean 15 per cent. of the net profits of that company would go to reserve, and no industry can continue, at a time of rising prices and inflation, by putting only 15 per cent. to reserve.
Perhaps the hon. Member would go further than that. He can hardly ask a company to do more than to forego any dividends at all. Has he any idea of the amount of net profits that would go to reserve in that case? Does he know anything at all about it? It would mean only 49½ per cent. of the profits would go to reserve. The reduction of dividends distributed from three-quarters of the net profits to one-half of the net profits will result in only 15 per cent. of the net profits going to reserve, and therefore I say that this is ruining industry.
I wish to deal with one point only that has been made by two or three hon. Members opposite, the extraordinary suggestion that no contribution is being made by the recipient of a dividend if the amount of his dividend is not reduced. That is a fantastic suggestion. The hon. Member for Taunton (Mr. Collins) said that old age pensioners are going to be worse off as a result of devaluation, and he is quite right. But why are they going to be worse off? It is because, although what they get will be nominally the same, it will be worth less, and that is precisely the same position as that of the recipient of a dividend if his dividend remains the same. Recipients of dividends will suffer in the same way from devaluation as the old age pensioners to whom the hon. Member quite rightly drew attention. The fantastic absurdity of all this is—
I am sorry but hon. Members will persist in dealing with the tax generally. When the hon. Member for Farnham (Mr. Nicholson) concluded his remarks, it appeared that the whole of what he had said was out of Order. Had I known that that was to be the conclusion of his remarks, I should have called him to Order at the commencement of his speech.
I had no intention of going beyond the rules of Order, I was merely dealing with the argument of the hon. Member for Nelson and Colne (Mr. S. Silverman). I apologise if my remarks were out of Order.
Hon. Members will appreciate that it is extremely difficult on a somewhat complicated matter of this sort to know precisely how a Member is going to relate what he is saying to the Amendment before the Committee until he has proceeded some way. The hon. and learned Member for the Combined English Universities (Mr. H. Strauss) was speaking of recipients and of the tax as a whole, which are not the subject matter of this Amendment. The Amendment is much more limited in its scope.
While I appreciate the difficulty of the Chair on an occasion of this sort, and always wish to bow to your Rulings, Major Milner, may I point out that, as the hon. Member for Taunton was allowed to proceed on precisely this point, I thought I should be justified in replying to his argument? However, I have only a few more remarks to make about it. I can quite understand the search for equality of sacrifice through Income Tax or Surtax, but the proposal we are here concerned with relates only to limited liability companies and has no regard to the wealth of the ultimate recipients. The hon. Member for Nelson and Colne and the hon. Member for Taunton were guilty of the mistake that there would only be a sacrifice on the part of recipients of dividends if dividends were reduced.
I did not advance that argument. I dealt with the argument put forward in favour of this Amendment from the Opposition Front Bench. It was said that the tax would not be paid by the dividend holder but would come out of reserves. I do not know whether that is right or not, but, if it is right, the dividend holder will be making no contribution.
I have already pointed out that both hon. Members overlooked the fact that the recipients of dividends will suffer, just as the old age pensioners will suffer, if the amount they receive remains the same, because of the diminution in the value of money. It is perfectly true that in some cases the recipient may be a rich man.
It is precisely because we are not dealing with recipients that the argument I am endeavouring to controvert is so wholly wrong. If we were dealing with recipients there might be something to be said for the argument put forward, but we are dealing with reserves of joint stock companies which take no notice of the ultimate recipients of the dividends. There is, therefore, no justification for the argument that has been put forward from the other side. If I have said anything which is out of Order I apologise and will trespass no longer on the time of the Committee.
The hon. Member for Nelson and Colne (Mr. S. Silverman) has not on this occasion produced so logical an argument as those he sometimes produces when he comes to the assistance of the Treasury Bench. The argument from this side is that the effect of this increased tax upon distributed profits will be that the tax will be paid out of reserves. Either that argument is correct, or the tax will be paid out of distributed profits. If, as we on this side believe, it is being paid in the majority of cases out of undistributed profits, that will mean that the tax will bear upon the profits which, according to the proposals of the Government, they do not intend to reduce below what they are at present. If, on the other hand, the argument which has been advanced from the other side of the Committee is correct, and if this increased duty will be paid out of distributed profits, then no harm will be done but an unexpected benefit will accrue to industry from the reduction in the duty upon undistributed profits.
The argument put forward by the hon. Member for Nelson and Colne was that it is only that part of the profits which is distributed in dividends which he desires to to see reduced. He described as sabotage the suggestion that if directors had to pay out of the total volume of profits of the company, a higher Profits Tax assessed on the portion distributed in dividends, if they took that from undistributed profits, that would amount to sabotage and would be defeating the intention of the Government. That is a fair statement of the hon. Gentleman's argument.
Underlying his argument, and, I believe, the proposals of the Government, is the assumption that at present it is desirable that the largest possible proportion of the profits made by companies should be ploughed back into industry. That has been said quite openly. On the assumption that the Government's view is well-founded, why should they oppose a proposal to reduce the taxation on undistributed profits? They should desire to make certain that the larger amount of the profits made by industry were available for the renewal and extension of industry.
I follow this part of the hon. Gentleman's argument quite well, but what I do not understand is how it assimilates itself to the suggestion made by his right hon. Friend who moved the Amendment, that the Government could not accept the Amendment without destroying the Bill.
The purpose of this Amendment—and I suppose that I can understand an Amendment to which I am speaking as well as anyone else—is that the total revenue received by the Government from Profits Tax should not, in our present difficult circumstances, be reduced. If the Amendment were accepted, we estimate that there would be an increase of £1½ million in receipts by the Exchequer from the Profits Tax. What we are concerned to do, since we failed to defeat the Bill on Second Reading, is to make it less harmful than it would be in its present form. We therefore propose that if the Government intend to increase the tax on those parts of profits which are distributed as dividends, there should be imposed a corresponding decrease in the taxation of those parts of profits which are not distributed, and which are ploughed back into industry. As our assumption is that in the majority of cases this increase in the Profits Tax will be paid out of undistri- buted profits, and the assumption made on the other side of the Committee is that they ought to be paid out of undistributed profits, in both cases this is an entirely sound Amendment.
I want to reply, bluntly and definitely, to arguments which have been put forward from the Government benches, notably the other day by the hon. Member for Blackley (Mr. Diamond) and the hon. Member for Central Southwark (Mr. Jenkins), in what were, in other respects, closely reasoned and fair-minded speeches. Underlying the whole of their argument was the assumption that a reduction in dividends is something entirely different in kind from a reduction in wages.
Let us look at this matter from the point of view of the Chancellor. He has accepted a proposal which was originally put forward by my hon. Friend the Member for Edgbaston (Sir P. Bennett), that at this juncture industry should voluntarily agree to limit its dividends. The right hon. and learned Gentleman has frankly acknowledged that by and large, industry has stood by the undertaking which the F.B.I. gave on its behalf. It is quite impossible to say that the trade unions have accepted, in the same way, a corresponding request that there should be no demands for higher wages or reduced hours, except in so far as there would be an increase in production. At this time hon. Members opposite regard it as reasonable not merely to demand that there shall be no increase in dividends, but that a punitive tax of this kind shall be imposed on dividends with a view to their being reduced. As my hon. and learned Friend the Member for the Combined English Universities (Mr. H. Strauss) pointed out, in so far as devaluation results in a decrease in the purchasing power of the pound, exactly the same reduction is made in the value of dividends as in the value of wages.
The hon. Member's argument might be addressed to the Motion "That the Clause stand part of the Bill," but not to the Amendment. Having regard to the wide form which the Debate has taken, I hope we shall not have another Debate on that Motion when we come to it. I endeavoured to make that bargain with the right hon. Gentleman the Member for Saffron Walden (Mr. Butler).
In view of the difficulty of debating the merits of the Amendment without transgressing the ground which can be covered in the Debate on the Motion "That the Clause stand part of the Bill," might I suggest, Major Milner, that we vote on the Amendment and discuss its merits after we have disposed of it?
I respectfully agree with what you have said, Major Milner, in criticism of the list of arguments that I advanced. I confess that they are perhaps a hangover from a previous Debate when I had not the good fortune to catch Mr. Speaker's eye. Therefore, while enjoying the latitude which has been given to me today, I was able to hang my arguments on some observations which had been made by an hon. Member opposite.
I really rose in order to deal with the particular point that the purpose of this Amendment is not wrecking, in my view. It is in order to increase the reserves available for re-instatement in industry by the same amount as the Profits Tax is increased by those profits which are distributed. I hope the Economic Secretary to the Treasury will at least disavow any sympathy with the argument of the hon. Member for Taunton (Mr. Collins), who apparently took the view that such profits should not be made by industry, put to reserves and ploughed back as would assist the development of the industry in which those profits have been made.
We have heard what this Amendment is and what it would do. I am wondering whether we could clear our minds as to the nature of the Amendment and what its effect would be if it were passed. At the moment we have a Profits Tax which is strangely enough a tax on profits. I say "strangely enough" because Income Tax is not always a tax on income, and, in fact, nowhere in the Income Tax Acts is income defined. Here we have a Profits Tax which is a tax on profits, and that tax is 25 per cent. There is relief given of 15 per cent. on that portion of the profits not distributed. The effect of the Profits Tax at the present moment is to tax distributed profits at 25 per cent. and undistributed profits at 10 per cent.
I am not going to be drawn into a discussion on the definition of profits. We know that the profits upon which the Profits Tax is charged are fully described in the Profits Tax Act, and they are adjusted profits. What I want to get at is the effect of the Amendment on the Profits Tax, and we now have it. I have said, I think with the agreement of the Committee, that the Profits Tax is 25 per cent. on distributed profits and 10 per cent on undistributed profits. The proposal in the Profits Tax Bill before us—
I beg pardon; I meant the Finance Act. There is a proposal in the Bill to increase the Profits Tax from 25 per cent to 30 per cent., and it is proposed to increase the relief on undistributed profits from 15 to 20 per cent., so that the proposal under the Bill is that the tax on distributed profits will be increased from 25 per cent. to 30 per cent. and the tax on undistributed profits will remain the same as before, at 10 per cent.
The Amendment proposes to increase the relief on undistributed profits from 20 per cent., as it is in the Bill, to 22 per cent. That is a proposal to increase the relief on undistributed profits in order to ease the additional charge on distributed profits. When the right hon. Member for Saffron Walden (Mr. R. A. Butler) stated that the effect of the Amendment would be to wreck the Bill, he was perfectly right, because the effect of the Amendment is to reduce the increased charge on distributed profits. To that extent the Amendment defeats the purpose of the Bill. I hope we are now clear about what the Bill and the Amendment propose to do.
For a few moments I should like to deal with the question of where the Profits Tax comes from, because there seems to be a great deal of confusion and difference of opinion on the matter. It may come by reduced dividend, by way of contribution from reserve, or from increased profits. Do not let us lose sight of the purpose for which the Chancellor first proposed the increase in the Profits Tax—to reduce the profits which inevitably some industries—and pretty large industries at that—would make out of the devaluation of the pound.
I concede at once that in some cases if the board of a company felt it right and necessary to maintain some dividend distribution although they had not got increased profits out of which to pay the increased tax on distributed profits, this additional tax might come out of their reserves but not the reserves necessary for the development of business enterprises or which were being used for that development. Many reserves are, in fact, so large that it is quite impossible for the industries concerned to use them for the development and expansion of their business. So what do they want them for?
I trust that the tortuous mind of the business element on the benches opposite will not try to confuse a perfectly simple analysis of what is the true position. All reserves cannot be fully employed for the development of business enterprises, and they are either distributed or held in reserve and invested.
May I make this suggestion about dividend limitation? Because of the desire of many firms to limit their dividend distribution, they have acquired inflated reserves, and they do not wish to carry out any distribution because they do not desire to violate the voluntary policy of dividend limitation. They cannot employ these reserves usefully in their business, and they are holding them either in the bank or by way of investment.
I said that in some case increased taxes on profits will come out of reserves, but by no means in all cases will that additional charge to reserves be of the greatest possible harm or of infinite harm—phrases used by the hon. Member for Farnham (Mr. Nicholson)—to business.
The hon. Member is trying to clear up misconceptions but he seems to be getting deeper into the mire. There is one misconception that he might well clear up. He has been talking about reserves. When I used that expression I meant the part of the profits that is going to be put to reserve. Does the hon. Member mean the already accumulated reserves?
As my hon. Friend the Member for Blackley (Mr. Diamond) pointed out, I thought with devastating simplicity the other day, profits are a pool out of which a business does a variety of things. Out of that pool it may put money to reserve for replacement, development or expansion. Out of that pool of profits it may allocate a certain sum to dividend distribution and it may allocate commissions to directors according to the terms of their service agreements. In that pool it may have a sum which is not necessary for reserves and which, under the observance of dividend limitation, it is undesirable to distribute. Therefore, out of that nucleus, the additional Profits Tax can be paid without the slightest harm to anybody and without impairing the efficiency of that industry or reducing the profit income of the shareholders.
I decline to be diverted by the red herrings that are being drawn across my path. I am coming to my conclusion. I said that in some cases the additional Profits Tax upon distributed profits will come out of reserves. In some cases it may be quite unharmful but in other cases, it must be admitted, it may bring some inconvenience to the business undertaking because of its special circumstances. In that regard, the Chancellor of the Exchequer said that this tax was an act of rough justice. He conceded that it could not operate fairly and that its incidence would not be equitable, over the whole field of industry.
There is no gainsaying that this tax will come from one of three sources: by reduced dividend distribution which in some cases would do no harm because the dividend is already excessive; in some cases it can come from reserves without harm to the industry, its development or its expansion; thirdly, and this is what will happen in many cases as we can see from the financial newspapers and the finance columns every day of the week, it can come out of the increased profit which flows directly from devaluation of the pound and is not in any way the reward of additional enterprise or more imagination in the export market. It will go to those who just sit and rake in the shekels. There is no doubt about it. [Interruption.] Of course they do. The whisky distillers are just going to sit there raking in the shekels.
Of course he is. What do we think the Chancellor of the Exchequer is there for? I am dealing with the gloomy speeches, uttered in sepulchural tones, which are coming from the other side about the grave and infinite harm—the actual word used by the hon. Member for Farnham (Mr. Nicholson)—which will be done by this proposal. I have sought to point out that the tax on the undistributed portion of the profits remains exactly the same under the Bill as it was before, and that the only additional charge is a 5 per cent. increase on that portion of profits which is distributed. What all this fuss is about I really do not know.
I would ask the hon. Gentleman whether, when he talks about whisky distillers sitting and raking in the the shekels, he is criticising or blaming them for doing so. Does he not remember that the Chancellor of the Exchequer expressed the hope that in all cases where it was possible to maintain the full price traders should do so?
Despite what has been said from the other side, I shall have no difficulty whatever in supporting the Amendment. I believe that if it were carried it would be for the ultimate good of the country. The hon. Member for Sowerby (Mr. Houghton) has made a number of points, to some of which we can take no exception, while we very much differ from some of his other conclusions. The fact that there is a small section of people who will get additional profit without effort—and whether they will do it I do not know—should not be made the reason for penalising in advance a great many people who are going to suffer. That is the kind of argument which I cannot understand. I have said before, I have told the Chancellor and I say now, that this is not rough justice. It is very rough and there is no justice in it.
I come from a city of small trades and, I can assure the hon. Member that they do not sit down and rake in. Nothing flows in to them; they have to go out and get it. The hon. Member for Taunton (Mr. Collins) suggested an appeal to profit takers, who he thought should be willing to make some sacrifices in order to share in the general effort. I was looking round for the hon. Member for Ipswich (Mr. Stokes).
The hon. Member for Ipswich has been at some pains to explain that shareholders are not exactly having a splendid time if we compare postwar with pre-war conditions. [HON. MEMBERS: "Oh."] Well, the figures are available. The amount of dividend paid before and after the war shows that the rise in dividends is very small compared to the rise in the amount paid to the producers. If you also take taxation into account it means that the people who are living on dividends are worse off, and that the people who earn their living are better off, than before. [HON. MEMBERS: "Hear, hear."] Wait a minute. I am not grumbling. I am only stating the facts. The hon. Member for Taunton should not come forward and suggest that the man who has been living on dividends is rolling in luxury and ought to be willing to make sacrifices.
I know that the hon. Member will forgive me for interrupting him, but I think he is misrepresenting entirely what I said. I made no such suggestion about men rolling in dividends. What I said and what I meant was that, in the main, it is the workers who earn the dividend and not the profit taker, and that generally speaking, the profit taker is better off than the worker. Consequently, the worker under present conditions is making a greater sacrifice in proportion, than is being made by the one who takes the profit.
I was trying to show the reverse. [Laughter.] Well, the figures are there and hon. Members should study them. No doubt I shall be pardoned for upholding the class to which I belong. Anyone would imagine that the worker earned his money entirely on his own. Let me tell the House that I took over a business in 1920 when the workers were wandering the streets and begging for work. [HON. MEMBERS: "Because of Tory misrule."] It has nothing to do with Tory misrule. There was unemployment all over the world, in America and elsewhere, in places where there was no Tory rule at all. They were honest to goodness men who did not know how to earn their own living. Work had to be provided for them; some one had to go out and do it, and I am one of those who have spent their lives trying to find work for men who were incapable of doing it for themselves. We do not apologise for the success we have had in doing that; at least, I do not. When I took over, there were 2,800 employed in the business; there are 35,000 today. That is my life's work and I do not apologise for it.
I am sorry, Mr. Bowles, for making this personal reference but what was said rather got under my skin. The hon. Member for Taunton suggested that it was almost immoral to expect replacement cost to be included in the final cost and charged to the purchaser, but, of course, the replacement cost is part of the cost and it must be charged to the consumer; otherwise what will happen eventually—
I did not refer to replacement; I referred to costs of expansion. It might interest the hon. Gentleman to know that at precisely the same time when he was doing what he did in 1920, I did the same thing on not quite such a big scale, but the business increased from three men to some hundreds of men. The only difference between the hon. Gentleman and myself is this: although the businesses which I control are quite prosperous and have a moderately high repute, I think I have a moral obligation, as the governing director, not to distribute dividends to others than the workers who produce them.
I do not own the capital. The hon. Gentleman is probably in the happy position of owning all the capital. I am only a paid servant.
Coming back to the point, it has been suggested that there is something wrong in putting large amounts to reserve and then using them for financing the business. I say that if one does not do that, the business will eventually go down. One of the things which the Americans are saying to us all the while is that we do not do enough of that. We do not replace our plant quickly enough. They say that the way to do it is to put a charge on the goods and get the money from the consumer, and then bring the plant up to date, and work to reduce the costs so that in the long run the consumer gets the benefit. I sincerely believe that that is correct.
This is a very real point. I know industries which have studied this matter scientifically as against the old hit-and-miss methods of the laissez faire days. Many of our industries have had to have working parties set up to consider the situation because the principle of replacement and having ample reserves had not been studied. Depreciation allowances went into the general till and were so used for general purposes; the plants ran down and then there was not the wherewithal to replace them. I know of companies on the other hand, which have gone into the matter scientifically, and they have decided that at a certain time the plant should be replaced. During the last three years owing to the rise in the cost of the plant, and because it is not permissible to charge the full amount needed to depreciation, it has not been possible to do what the Americans are urging us to do and what we ought to do if we are to keep up to date and live in this fight.
Therefore, it will be seen why I am in favour, in the national interest, of supporting this Amendment. It would help to relieve this depreciation shortage, as more would be put to reserve. It would be for the benefit of the whole of industry, on which the workers depend as well as everyone else.
I will endeavour to remain strictly within the terms of this Amendment which, as I understand it, seeks to reduce the Profits Tax on undistributed profits from 10 per cent. to 8 per cent. The right hon. Member for Saffron Walden (Mr. R. A. Butler) started by asking me what would be the cost of this Amendment to the Exchequer. He had not got the figures exactly right; the actual cost would be £21 million gross and, after allowance for Income Tax, £12 million net. Therefore, he was approximately correct in suggesting that if we accepted this Amendment there would only be £1 million additional revenue left to the Exchequer as a result of the tax.
How is that calculated? Surely it depends on so many factors, such as the amount in distributed profits. It is a very difficult calculation. Would the hon. Gentleman enlighten the Committee as to how it is made?
No doubt it depends on many things, but this is the best estimate the Inland Revenue can make. In so far as the Amendment would deprive the Exchequer of all the extra revenue, one can, I suppose, describe it as a wrecking Amendment, as the right hon. Gentleman so described it.
On the other hand, I do not take quite so strong an objection—though I do object—to the Amendment, as to the proposals of the Opposition on the Second Reading, that we should not raise the tax on distributed profits. There is this distinction. This Amendment would probably provide a slightly greater incentive to put profits to reserve, rather than to pay them out in dividends. The right hon. Gentleman asked me what the Government's attitude was, and whether we favoured the placing of profits to reserve by the industrial companies. Of course we do. Indeed, it was this Government which initiated the differentiation between the rate of tax on the distributed and undistributed profits. We also introduced dividend limitation which, in itself, has tended to ensure that profits were put to reserve.
Surely the issue is not whether in general we are in favour of prudent company finance. The issue is whether this particular Amendment is necessary to ensure that sufficient sums are put to reserve by industrial companies generally. It is there that I disagree with the right hon. Gentleman. As my hon. Friend the Member for Sowerby (Mr. Houghton) said, the fact is that the Profits Tax increase over the last year or two has largely been paid out of increased profits, and my expectation is that this increase will also be so paid.
One has only to look at the figures in the White Paper on National Income which show that as between 1938 and 1948 the total income of companies has increased from £763 million to £1,945 million, that the amount paid out in dividend has increased from £506 million to £730 million, and that the amount paid in taxes has increased from £87 million to £670 million. Finally, the additions to free reserve have also gone up from £170 million to £545 million. Indeed, in the last year, between 1947 and 1948, the addition to the reserve went up from £425 million to £545 million. Therefore, the fact is that profits, sums placed in reserve, and the amounts paid out in taxation have all increased at the same time.
The right hon. Gentleman sought to argue that the money at present available for reserve was insufficient, by quoting various figures, partly from an article by Mr. Chambers, and also from other sources, suggesting that there was a gap of £200 million or £300 million between what was necessary for replacement and what was actually available. I do not admit in principle that there can be such a gap, if the matter is regarded from the point of view of the whole life of the plant. Over the whole life of the plant in question the whole amount is written off out of the sums paid in taxation. Therefore, over that period there cannot really be such a gap.
It may be argued that in a particular year, when the price of plant and equipment has been rising, there may be difficulty in that year in replacement at high prices, but it was precisely to meet that criticism that in the Budget last summer we made the very considerable concession of doubling the initial allowance for wear and tear. That was a very large concession, which will cost the Exchequer about £75 million in a full year, in remission of taxation to companies.
The amount of the plant will certainly be recovered if one starts to depreciate at the full value from the day one bought it, but what about the years gone by when we were only allowed to depreciate at the old price and the fact that we are now facing two to three times the amount of replacement? That is a very real problem to us.
The answer to that is that in those years bigger and bigger sums have been placed to reserve. I remember my hon. Friend the Member for Reading (Mr. Mikardo) arguing about the initial allowance, that it was not necessary to make the concession this year at all because at present we are in a period when, as the capital cuts show, it is on the whole necessary to restrain physical development by industry rather than to encourage it. The Government did not take that view. We took the view that the concession on the initial allowance was justified, but we certainly do not think that there is any case for going still further and, as the Amendment would do, providing a further concession for that purpose.
It might be argued that, even though there was no need arising from the immediate problem of replacement by industry, nevertheless some remission of this kind and some increase in sums placed to reserve by companies was necessary because of the need, which I fully admit, for greater National Savings as a whole in the fight against inflation. The Amendment would not result in any net increase in National Savings in that sense. Whereas it would mean larger sums in the hands of industrial companies, it would reduce the Budget surplus by exactly the same amount, or, alternatively, if there was a deficit, increase the Budget deficit. There is therefore really no economic argument on those grounds for the Amendment. It is really an issue of social rather than economic policy. The Amendment would transfer the ownership of these savings from the taxpayer as a whole to the shareholders of the companies concerned.
One is bound to recall, in answer to the arguments of the Opposition today, that the whole question of companies' reserves, which arises on the Amendment, raises not merely an issue of economic policy, company investment and so forth, but also an issue of the distribution of property in the community. My hon. Friend the Member for Sowerby was right when he pointed that out, and so was my hon. Friend the Member for Central Southwark (Mr. Jenkins) on Second Reading, when he pointed out that if wage earners forgo a claim for increased wages they forgo that amount for good, but if the shareholder forgoes his claim for a higher dividend and the sum is placed to reserve, that asset remains the property of the shareholder and over a period of years his capital appreciates in value, and in one way or another he takes a capital profit.
No, Sir. I do not agree with that conclusion, but the premise was perfectly correct. It is true that in so far as these sums are placed to company reserves, which may be a good thing from the point of view of company finance, it also affects the distribution of property in the community; in the next stage, of course, as my hon. Friend pointed out, we may perhaps have a bonus issue. Hon. Gentlemen opposite, and the accountants, point out, quite correctly, that it is no more than the nominal transfer to the shareholders, in one form, of assets which were their property already. Other people complain that the total market value of the shares goes up as a result, and that a capital profit accrues to the shareholders. That is merely an outward and visible sign of the fact that these sums are accruing in this way to the holders of stock in these companies.
For that reason we must look at this question not only from the economic point of view, but also from the point of view of its effect on the distribution of property. That is a reason for not going too far in encouraging, by taxation, the placing by companies of sums to reserve, over above what is necessary and possible, in present economic circumstances, for legitimate replacement and re-equipment. For these reasons we ask the Committee to reject the Amendment.
The speech of the Economic Secretary has made it clear to the Committee—I am very glad that it has made it clear—that there is really no argument in principle which either the Government or any Government supporter can with any possible reason advance against the Amendment. The Profits Tax was fixed in 1947 at a rate of 12½ per cent. on distributed and 7½ per cent. on undistributed profits. There was at that time a gap of 5 per cent. between the rates on distributed and undistributed profits. Ever since then, whenever a change has been made in the rate of Profits Tax; it has been by way of increasing the gap between the rates on distributed and undistributed profits.
The present rate is 25 per cent. on distributed and 10 per cent. on undistributed profits, with a gap of 15 per cent. between the two, and the Bill proposes to carry the Government policy of widening the gap between the rates on distributed and undistributed profits even further. It makes the gap which is now 15 per cent. into a gap of 20 per cent. by a distributed Profits Tax rate of 30 per cent. and an undistributed rate of 10 per cent. All that the Amendment proposes to do, despite all we have heard advanced against it, mostly by way of misunderstanding from back benches opposite, is to substitute a gap of 22 per cent. for the gap of 20 per cent. which the Government have now fixed.
In his Second Reading speech, the Economic Secretary, when interrupted by my hon. Friend the Member for Farnham (Mr. Nicholson), said:
And may I remind the hon. Member that in the Finance Bill Debates in June, 1948, his hon. Friend the Member for Chippenham (Mr. Eccles) argued on an Amendment by the Opposition that the widening of this margin would increase the incentive to put moneys to reserve, which is precisely what I am arguing now."—[OFFICIAL REPORT, 3rd November, 1949; Vol. 469, c. 609.]
The hon. Gentleman was arguing that it would be a good thing to increase the gap between the rate of tax on distributed and on undistributed profits. All we are trying to do today from this side of the Committee is what the Government have done three times already, and to carry further a step which they are themselves taking in this Bill.
I was just coming to that point. So far as the principle is concerned, we are doing in this Amendment what successive Governments have done ever since the Profits Tax was introduced in 1946, and we are simply increasing by 2 per cent. the gap which the Government now propose should be 20 per cent. instead of 15 per cent.
The effect of our proposal is that there will be no net diminution on balance in the amounts allocated to the reserves of industrial undertakings. We think that is a good thing, and it is on this point that the real argument arises between us and those who have spoken in support of the Government. We think it is much better for this sum of £11 million or £12 million to remain in the reserves of industrial undertakings than for it to be taken by the Chancellor and expended as part of his current expenditure. If that sum remains in the reserves of industrial undertakings it cannot be wastefully spent at this time because no capital expenditure can be undertaken without licences from Government Departments, and physical controls exist which prohibit altogether a wasteful expenditure of sums allocated to reserve.
It follows, therefore, that until such time as these reserves are required for renewals or for developments and for the rehabilitation of the industry in which the money is saved, they have to be invested in some form of securities. That means that the money will be used for a useful purpose, which would do a great deal to restore confidence at the present time. For it is perfectly clear from the trend of things on the Stock Exchange that Government securities are much in need of bolstering up at present. We think it would be far better for this sum to be available for use in years to come when required and, in the meantime, to be used for sustaining the credit of the Government by investment in Government stocks than that it should be used for the current expenditure of His Majesty's Government.
|Division No. 275.]||AYES||[5.48 p.m.|
|Acland, Sir Richard||Field, Capt. W. J.||Mathers, Rt. Hon. George|
|Adams, Richard (Balham)||Follick, M.||Mellish, R. J.|
|Albu, A. H.||Foot, M. M.||Messer, F.|
|Allen, A. C. (Bosworth)||Forman, J. C.||Middleton, Mrs. L.|
|Allen, Scholefield (Crewe)||Fraser, T. (Hamilton)||Mitchison, G. R.|
|Alpass, J. H.||Gallacher, W.||Monslow, W.|
|Anderson, A. (Motherwell)||Ganley, Mrs. C. S.||Morgan, Dr. H. B.|
|Attewell, H. C.||Gibson, C. W.||Morley, R.|
|Austin, H. Lewis||Gilzean, A.||Morris, Lt.-Col. H. (Sheffield, C.)|
|Awbery, S. S.||Glanville, J. E. (Consett)||Morris, P. (Swansea, W.)|
|Ayles, W. H.||Gooch, E. G.||Murray, J. D.|
|Ayrton Gould, Mrs. B.||Goodrich, H. E.||Nally, W.|
|Balfour, A.||Gordon-Walker, P. C.||Naylor, T. E.|
|Barslow, P. G.||Greenwood, A. W. J. (Heywood)||Neal, H. (Claycross)|
|Barton, C.||Grenfell, D. R.||Nicholls, H. R. (Stratford)|
|Battley, J. R.||Grey, C. F.||Noel-Buxton, Lady|
|Bechervaise, A. E.||Grierson, E.||Oldfield, W. H.|
|Benson, G.||Griffiths, D. (Rother Valley)||Oliver, G. H.|
|Berry, H.||Griffiths, Rt. Hon. J. (Llanelly)||Paling, Will T. (Dewsbury)|
|Beswick, F.||Griffiths, W. D. (Moss Side)||Palmer, A. M. F.|
|Bevan, Rt. Hon. A. (Ebbw Vale)||Gunter, R. J.||Pannell, T. C.|
|Bing, G. H. C.||Guy, W. H.||Parker, J.|
|Blackburn, A. R.||Hale, Leslie||Parkin, B. T.|
|Blenkinsop, A.||Hall, Rt. Hon. Glenvil||Paton, Mrs. F. (Rushcliffe)|
|Blyton, W. R.||Hamilton, Lieut.-Col. R.||Pearson, A.|
|Boardman, H.||Hardy, E. A.||Peart, T. F.|
|Bottomley, A. G.||Hastings, Dr. Somerville.||Piratin, P.|
|Bowden, H. W.||Haworth, J.||Poole, Cecil (Lichfield)|
|Braddock, Mrs. E. M. (L'pl. Exch'ge)||Herbison, Miss M.||Popplewell, E.|
|Braddock, T. (Mitcham)||Hobson, C. R.||Porter, E. (Warrington)|
|Bramall, E. A.||Holman, P.||Porter, G. (Leeds)|
|Brook, D. (Halifax)||Holmes, H. E. (Hemsworth)||Price, M. Philips|
|Broughton, Dr. A. D. D.||Houghton, Douglas||Proctor, W. T.|
|Brown, George (Belper)||Hoy, J.||Pryde, D. J.|
|Brown, T. J. (Ince)||Hubbard T.||Ranger, J.|
|Burden, T. W.||Hudson, J. H. (Ealing, W.)||Rankin, J.|
|Burke, W. A.||Hughes, Emrys (S. Ayr)||Rhodes, H.|
|Callaghan, James||Hughes, Hector (Aberdeen, N.)||Ridealgh, Mrs. M.|
|Chamberlain, R. A.||Hughes, H. D. (W'lverh'pton, W.)||Roberts, Goronwy (Caernarvonshire)|
|Chetwynd, G. R.||Hutchinson, H. L. (Rusholme)||Robertson, J. J. (Berwick)|
|Cluse, W. S.||Hynd, J. B. (Attercliffe)|
|Cobb, F. A.||Irvine, A. J. (Liverpool)||Robinson, Kenneth (St. Pancras, N.)|
|Cocks, F. S.||Irving, W. J. (Tottenham, N.)||Rogers, G. H. R.|
|Coldrick, W.||Isaacs, Rt. Hon. G. A.||Ross, William (Kilmarnock)|
|Collick, P.||Jay, D. P. T.||Sargood, R.|
|Collindridge, F.||Jeger, G. (Winchester)||Scollan, T.|
|Collins, V. J.||Jeger, Dr. S. W. (St. Pancras, S. E.)||Scott-Elliot, W.|
|Colman, Miss G. M.||Jenkins, R. H.||Shackleton, E. A. A.|
|Cook, T. F.||John, W.||Sharp, Granville|
|Corbet, Mrs. F. K. (Camb'well, N. W.)||Johnston, Douglas||Shurmer, P.|
|Corlett, Dr. J.||Jones, D. T. (Hartlepool)||Silverman, S. S. (Nelson)|
|Cove, W. G.||Kenyon, C.||Simmons, C. J.|
|Crossman, R. H. S.||Kinley, J.||Skeffington-Lodge, T. C.|
|Cullen, Mrs.||Kirkwood, Rt. Hon. D.||Skinnard, F. W.|
|Daines, P.||Lang, G.||Smith, C. (Colchester)|
|Davies, Edward (Burslem)||Lavers, S.||Smith, Ellis (Stoke)|
|Davies, Harold (Leek)||Lee, Miss J. (Cannock)||Smith, H. N. (Nottingham. S.)|
|Davies, Haydn (St. Pancras, S. W.)||Leonard, W.||Smith, S. H. (Hull, S. W.)|
|Davies, R. J. (Westhoughton)||Leslie, J. R.||Snow, J. W.|
|Davies, S. O. (Merthyr)||Lewis, A. W. J. (Upton)||Solley, L. J.|
|Deer, G.||Lewis, T. (Southampton)||Sparks, J. A.|
|Delargy, H. J.||Lipton, Lt.-Col. M.||Steele, T.|
|Diamond, J.||Longden, F.||Swingler, S.|
|Dodds, N. N.||Lyne, A. W.||Sylvester, G. O.|
|Driberg, T. E. N.||McAdam, W.||Symonds, A. L.|
|Dugdale, J. (W. Bromwich)||McAllister, G.||Taylor, H. B. (Mansfield)|
|Dumpleton, C. W.||McGhee, H. G.||Taylor, R. J. (Morpeth)|
|Dye, S.||McGovern, J.||Taylor, Dr. S. (Barnet)|
|Ede, Rt. Hon. J. C.||Mack, J. D.||Thomas, D. E. (Aberdare)|
|Edelman, M.||McKay, J. (Wallsend)||Thomas, Ivor Owen (Wrekin)|
|Edwards, Rt. Hon. Sir C. (Bedwellty)||McKinlay, A. S.||Thomas, John R. (Dover)|
|Edwards, Rt. Hon. N. (Caerphilly)||Maclean, N. (Govan)||Thorneycroft, Harry (Clayton)|
|Evans, Albert (Islington, W.)||McLeavy, F.||Thurtle, Ernest|
|Evans, E. (Lowestoft)||MaoPherson, Malcolm (Stirling)||Tiffany, S.|
|Evans, John (Ogmore)||Mallalieu, E. L. (Brigg)||Timmons, J.|
|Ewart, R.||Mallalieu, J. P. W. (Huddersfield)||Tolley, L.|
|Fairhurst, F.||Mann, Mrs. J.||Turner-Samuels, M.|
|Farthing, W. J.||Manning, Mrs. L. (Epping)||Viant, S. P.|
|Fernyhough, E.||Marquand, Rt. Hon. H. A.||Walkden, E.|
|Wallace, G. D. (Chislehurst)||White, H. (Derbyshire, N. E.)||Williams, W. R. (Heston)|
|Wallace, H. W. (Walthamstow, E.)||Whiteley, Rt. Hon. W.||Willis, E.|
|Warbey, W. N.||Wigg, George||Wills, Mrs. E. A.|
|Watkins, T. E.||Wilkes, L.||Woods, G. S.|
|Watson, W. M.||Wilkins, W. A.||Young, Sir R. (Newton)|
|Webb, M. (Bradford, C.)||Willey, F. T. (Sunderland)||Younger, Hon. Kenneth|
|Weitzman, D.||Willey, O. G. (Cleveland)|
|Wells, P. L. (Faversham)||Williams, D. J. (Neath)||TELLERS FOR THE AYES:|
|Wells, W. T. (Walsall)||Williams, J. L. (Kelvingrove)||Mr. Joseph Henderson and|
|Wheatley, Rt. Hn. John (Edinb'gh, E.)||Williams, Ronald (Wigan)||Mr. Hannan.|
|Amory, D. Heathcoat||Harris, H. Wilson (Cambridge Univ.)||Nutting, Anthony|
|Astor, Hon. M.||Harvey, Air-Comdre. A. V.||O'Neill, Rt. Hon. Sir H.|
|Baldwin, A. E.||Head, Brig. A. H.||Orr-Ewing, I. L.|
|Barlow, Sir J.||Headlam, Lieut.-Col. Rt. Hon. Sir C.||Peake, Rt. Hon. O.|
|Bennett, Sir P.||Hinchingbrooke, Viscount||Peto, Brig. C. H. M.|
|Birch, Nigel||Hollis, M. C.||Pickthorn, K.|
|Boles, Lt.-Col. D. C. (Wells)||Hudson, Rt. Hon. R. S. (Southport)||Ponsonby, Col. C. E.|
|Bowen, R.||Hulbert, Wing-Cdr. N. J.||Prescott, Stanley|
|Boyd-Carpenter, J. A.||Hutchison, Col. J. R. (Glasgow, C.)||Prior-Palmer, Brig. O.|
|Bracken, Rt. Han. Brendan||Jeffreys, General Sir G.||Raikes, H. V.|
|Braithwaite, Lt.-Cmdr. J. G.||Joynson-Hicks, Hon. L. W.||Reed, Sir S. (Aylesbury)|
|Bromley-Davenport, Lt.-Col. W.||Keeling, E. H.||Roberts, Emrys (Merioneth)|
|Brown, W. J. (Rugby)||Kendall, W. D.||Roberts, H. (Handsworth)|
|Buchan-Hepburn, P. G. T.||Kerr, Sir J. Graham||Roberts, P. G. (Ecclesall)|
|Bullock, Capt. M.||Lambert, Hon. G.||Robertson, Sir D. (Streatham)|
|Butcher, H. W.||Legge-Bourke, Maj. E. A. H.||Robinson, Roland (Blackpool, S.)|
|Butler, Rt. Hn. R. A. (S'ffr'n W'ld'n)||Lennox-Boyd, A. T.||Ross, Sir R. D. (Londonderry)|
|Byers, Frank||Lindsay, M. (Solihull)||Savory, Prof. D. L.|
|Carson, E.||Linstead, H. N.||Scott, Lord W.|
|Challen, C.||Lloyd, Selwyn (Wirral)||Shepherd, W. S. (Bucklow)|
|Channon, H.||Low, A. R. W.||Spearman, A. C. M.|
|Corbett, Lieut.-Col. U. (Ludlow)||Lucas-Tooth, Sir H.||Stewart, J. Henderson (Fife, E.)|
|Crookshank, Capt. Rt. Hon. H. F. C.||MacAndrew, Col. Sir C.||Stoddart-Scott, Col. M.|
|Crosthwaite-Eyre, Col. O. E.||McFarlane, C. S.||Strauss, Henry (English Universities)|
|Crowder, Capt. John E.||Mackeson, Brig. H. R.||Stuart, Rt. Hon. J. (Moray)|
|Darling, Sir W. Y.||McKie, J. H. (Galloway)||Thorneycroft, G. E. P. (Monmouth)|
|Digby, S. Wingfield||Maclay, Hon. J. S.||Thornton-Kemsley, C. N.|
|Donner, P. W.||Maclean, F. H. R. (Lancaster)||Thorp, Brigadier R. A. F.|
|Drewe, C.||MacLeod, J.||Touche, G. C.|
|Eccles, D. M.||Macmillan, Rt. Hon. Harold (Bromley)||Turton, R. H.|
|Elliot, Lieut.-Col. Rt. Hon. Walter||Macpherson, N. (Dumfries)||Tweedsmuir, Lady|
|Erroll, F. J.||Maitland, Comdr. J. W.||Vane, W. M. F.|
|Fleming, Sqn.-Ldr. E. L.||Manningham-Buller, R. E.||Wakefield, Sir W. W.|
|Fletcher, W. (Bury)||Marlowe, A. A. H.||Wheatley, Colonel M. J. (Dorset, E.)|
|Fox, Sir G.||Marples, A. E.||Williams, C. (Torquay)|
|Fraser, H. C. P. (Stone)||Marshall, D. (Bodmin)||Willoughby de Eresby, Lord|
|Fraser, Sir I. (Lonsdale)||Mellor, Sir J.||Winterton, Rt. Hon. Earl|
|Galbraith, Cmdr. T. D. (Pollok)||Molson, A. H. E.||York, C.|
|Gomme-Duncan, Col. A.||Morrison, Maj. J. G. (Salisbury)||Young, Sir A. S. L. (Partick)|
|Granville, E. (Eye)||Neven-Spence, Sir B.|
|Gridley, Sir A.||Nicholson, G.||TELLERS FOR THE NOES:|
|Hare, Hon. J. H. (Woodbridge)||Nield, B. (Chester)||Mr. Studholme and Major Conant.|
|Harris, F. W. (Croydon, N.)||Noble, Comdr. A. H. P.|
I beg to move, in page 2, line 48, at the end, to add:
(6) This section shall not apply to such proportion of the taxable profits of a body corporate, unincorporated society or other body as bears the same relation to the total taxable profits of the said body as the value of its sales to hard currency areas bears to its total turnover.
The object of this proposed new subsection can be quite simply described. It is that the more trade a firm does with a dollar or a hard currency country, the less of the new additional tax it has to pay. As an example, a firm which does half its business with the U.S.A.—which is what we want firms to do—would pay only half the additional tax which the Bill imposes.
It is, of course, possible to adduce a number of technical arguments and administrative difficulties against the Amendment. One of these, which may come at once to the minds of most hon. Members, is that a firm engaged in making component parts would not be able to derive the same benefit as the firm making the finished article and exporting it to the United States. The most I would claim for the Amendment would be that it was rough justice. [Laughter.] I hardly think, however, that the Economic Secretary is at liberty to attack me on that score. I hope very much that whoever replies to the discussion will deal not only with the technical and administrative points involved, but with the principle of whether a firm actually engaged in trading with the dollar area, which everybody wants it to do, should or should not be given some special advantage for doing so.
In order to present to the Committee the arguments for the Amendment it is necessary for me to recall the two main points which the Government have made in support of the Clause. Their first point was that the additional tax was designed to penalise those who do extra business in North America.
I will tell the right hon. Gentleman presently—I have my authority. The second point was that it was to placate the trade unions. They were both thoroughly bad points. I do not intend to deal with the second one because it would be wholly out of Order on the Amendment. We have already expressed our views about the type of political appeasement which leads to an action of that character.
I want to say something about the penalising of those who do extra business in America. The right hon. Gentleman the Financial Secretary put it all very much better than I could have done. We all respect him in the House of Commons. He has had the unenviable task of serving two of the worst Chancellors of the Exchequer, and he has served them very well indeed. In the Second Reading Debate he put the matter with remarkable clarity. He said:
A good many of the points made by hon. Members on the other side of the House have been based on the assertion that my right hon. and learned Friend is increasing this tax in order to penalise those who would do extra business in North America, and who will make additional profits—[HON. MEMBERS: 'He said so.'] I know he did. I have read the speeches of my right hon. and learned Friend just as have hon. Members opposite. He indicated that that was one reason why he considered that this tax was necessary and desirable; but it is not his only reason."—[OFFICIAL REPORT, 3rd November, 1949; Vol. 469, c. 726.].
The right hon. Gentleman then went on to describe the other reason, to which I have referred and which we have already debated and is out of Order.
What the hon. Member says is quite right. In that Debate I obviously, on the spur of the moment, used the word "penalise." To do my right hon. and learned Friend justice, however, I cannot charge my memory that he himself used the word "penalize" and, therefore, it should not-go forth that because I used that phrase the Chancellor, therefore, used it and that that was his reason for increasing the tax. What I think the Chancellor did say—I am paraphrasing—was that it was right and proper that those making extra profits in North America should pay extra tax on them.
I am going to withdraw some of the favourable comments I have made about the right hon. Gentleman. Whatever may be said about his right hon. and learned Friend, I thought I was entitled to assume that he meant what he said. The right hon. Gentleman made it perfectly plain, as indeed it was perfectly plain from the speech of his right hon. and learned Friend—which he claimed to have read, although he did not suggest his hon. Friends behind him had read it—that one of the main objects of the tax was to claw back some of the additional profits which might be made by those who exported to the dollar area. He adopted, and quite rightly adopted, the word "penalise" in it. We regard that policy as both mischievous and silly.
We think it a futile way of carrying on the government of this country to make bombastic speeches on the wireless urging people to go all out in a drive to sell goods in the dollar area and then for the right hon. and learned Gentleman to come to this House and admit that one of the first reasons for this Clause was to penalise those who in fact carried out those instructions. If one wants a man or a firm to do something there are only two ways of getting it done. One is by using some measure of compulsion and the other is by giving some additional reward. In the whole history of our human affairs no one has found other ways of getting these things done, particularly when the thing we want done is one which involves quite a considerable risk. Let no one under-estimate the risks which have to be taken in trying to break into some of these hard currency markets.
I know there are hon. and right hon. Gentlemen on the other side of the Committee who want to use the weapon of direction in this matter. The Home
Secretary wants to use it. I am sorry he is not in the Committee now. He made it perfectly plain in a speech the other day. The Home Secretary said "it was essential that our principal industries should be directed to serving the nation's purpose and not in contradictory purposes that might be more attractive to private owners. We were faced with the difficulty of ensuring that the goods available for export should be sent directly to those places from which our imports were to come." He does not appear to share the enthusiasm of the Chancellor of the Exchequer for multilateral trade. He went on:
We are making an appeal to goodwill, and I hope that goodwill will be forthcoming. But if goodwill is not sufficient to ensure our survival, it may be necessary to direct the policy of planning over a wider range than we have at present applied it.
[HON. MEMBERS: "Hear, hear."] Hon. Members cheer and that is a perfectly logical and arguable case, that I would not deny for a moment. It was the method by which Nazi Germany, before the war, tried to direct her products into the export field. It is the only way by which a National Socialist system—and this Government is becoming more National Socialist every day—could ever direct exports into the foreign field. It ended in Nazi Germany and has ended in Soviet Russia, with the machine gun and the concentration camp.
The hon. Member for Monmouth (Mr. P. Thorneycroft) is going on soon, I think, to say that the other alternative is by altering the tax between what goes to America and what does not.
If I may say so with respect, you have taken the words out of my mouth. If the hon. Member for Kidderminster (Mr. Tolley) had only waited a little longer, he would have realised that I was about to argue that, of course, there is another way of doing it. The tragedy of the Government is that they have adopted neither method. They have sat in the middle hoping for something to happen. That is why, when they set a target for increased manpower, or something of that kind, it is not reached and the figures go down, instead of up, or go up, instead of down. The time is surely coming when they will have to make up their minds whether they are to adopt the view so enthusiastically cheered by hon. Members below the Gangway and supported by the Home Secretary, or do something of the kind suggested by this Amendment.
We say that at the present time every encouragement ought to be given to those who try to get exports into the dollar markets. We maintain, and I think there is some substance in it, that to try to break into those markets involves a very great deal of commercial risk, if a firm which has been trading for many years with what are now known as soft currency countries is told to give up its old selling arrangements and its customs and should try to divert its trade to this new world. If it succeeds it may be met with an increase in tariffs and will almost certainly have to face increased competition by one of the finest industrial nations on earth. If men are to take that risk they should get reward and encouragement and, whatever happens, they should not be "penalised," in the words of the right hon. Gentleman, for doing what everyone wants them to do.
Recently the Chancellor of the Exchequer went to Washington and discussed with the United States of America what steps could be taken in order to assist us to get over some of the difficulties associated with the dollar gap. The communiqué which was issued with the eight or 10 points—I have forgotten how many there were—dealt with the general steps which might be taken on out side of the Atlantic to help us to solve that problem. It said with regard to the sterling area "that in the sterling area it would require the creation of appropriate incentives to exporters to the dollar area." The right hon. and learned Gentleman signed that agreement and came back here. The first thing he does is to set out to penalise them. I do not associate myself with those, not on this side of the Committee, who at times attack the honesty and integrity of the Chancellor of the Exchequer, but I am bound to say that his words are increasingly bearing less and less connection with his actions. It does no good to sign agreements like that in the United States and then come back and, so far from offering incentives, actually to impose penalties on those carrying out the job.
I believe that if we are to get this very difficult job of selling exports to dollar areas done, we have to give some reward to those who own the industries, those who manage them and those who work in them. Until we do that I do not think we shall get that deflection of our trade which we all desire. This is a paltry Bill and could only cover a narrow section of the field, but I feel that if this Amendment were carried it would do something to remove some of the mischief which the right hon. and learned Gentleman and his colleagues are doing to the economy of this country.
I wish to deal with one part only of the speech of the hon. Member for Monmouth (Mr. P. Thorneycroft)—the last part, in which he seemed to me to be returning to an argument advanced a little earlier, not today, by his hon. Friend the Member for Chippenham (Mr. Eccles). That was the argument that we should not do any good in our attempt to increase our sales in hard currency areas unless—and I think I am quoting his words correctly, although I did not write them down—we gave incentives, by which he clearly meant rewards, to the industrialists, the salesmen and the workers in those industries which were concerned with making articles to be sold in hard currency areas.
I wonder whether the hon. Member would do for me what his hon. Friend declined to do on that occasion, because it really is of the utmost importance that we should know what it is that the Opposition are advising us to do about this matter. Does the hon. Member want us to improve the rewards of the workers in the industries which are working for hard currency export markets without increasing the rewards of workers in other industries? Let us deal with the workers' side of it first, as there one sees the argument as clearly. I should like to know whether he is proposing that we should in some way arrange our economy in such a way as to give a bonus to those who work in industries producing for hard currency markets. I do not know whether the hon. Gentleman would like to answer that or not. It is what he said, and we are entitled to know what he means, if he knows what he means.
Whether it is a Debate or a duet and whether the hon. Gentleman wishes to engage in a Debate or in a duet, he ought at least to be able to contribute to the Debate or the duet something intelligible, otherwise he is neither a duettist nor a debater.
It is most important that we should know whether we are to divert their rewards from those industries which are doing very essential and necessary work and are a vital part of our national economy but which are not producing for the hard currency export market, in order to give a bonus to those who happen to be employed in the other industries. It can be done by such a diversion or by doing what the hon. Member for Chippenham suggested—and I think rather ran away from afterwards or was repudiated by his Front Bench and then began to have second thoughts about it—by saying "Raise everybody's rewards, scrap the White Paper on personal incomes." Is the hon. Member in favour of that? Does he want to maintain restraint on personal expenditure or not? Does he want to prevent inflationary pressure by avoiding increases of wages or does he not want to prevent an increase of inflationary pressure by increases of wages.
The last thing I wish to do is to extend the area of the Debate. A little earlier this afternoon I did my modest best to attempt to limit the Debate, without much success. The hon. Member was allowed to advance an argument which depended upon the proposition that his Amendment was a good Amendment because it increased the incentives to manufacture for hard currency export markets and to sell those products there. In order to make his argument sound more plausible, because it is quite clear from his refusal to answer that he did not really mean it, he brought the workers into his argument. All that I was doing—and I think one is surely entitled to do it—was to take that part of the argument he advanced which seemed to me to be the easiest to expose to the Committee, and to deal with that, hoping by so doing to persuade the Committee that if his argument about increasing the incentives to workers was as insincere and hopelessly unjustifiable as it quite clearly is, the same adjectives might not unfairly be used to describe his other proposals because—
The hon. Member has missed an opportunity. He might have put down an Amendment himself, but he cannot go very wide on this one, which is very limited. It seeks to reduce by a proportion the Profits Tax on profits earned by certain companies exporting to certain countries.
I leave the workers' part of the hon. Member's argument because quite clearly he did not intend to be taken seriously about that part of his argument at least.
Let us, then, turn to the other part of the hon. Member's argument, which is directly relevant to his Amendment. He is saying "Let us give an extra advantage to those who earn dividends—and who to some extent restrain themselves in the distribution of them—according to whether they happen to be producing for hard currency markets or not." I am now dealing with the Amendment itself and not with the hon. Member's alleged arguments in support of it. There are a great many people producing goods which are not for the dollar market. I suppose that it will still be necessary, in spite of our difficulties over the dollar deficit, to go on producing some goods for the home market. Otherwise, the hon. Member's incentive will not be very valuable. If we are to give people an incentive only to produce for hard currency export markets and are to send the whole of our products there, the incentive will be purely a paper one because those concerned will not be able to do anything with their reward. To make the incentive real one must be able to spend it on something.
One sector, or at any rate some modest proportion, of the industry of this country might still be allowed now and again to produce something for our own market or for other markets that are not dollar markets but which need our products just the same, products which will be some contribution towards the reconstruction of the general economy of Western Europe. Or is the hon. Gentleman suggesting that they should be penalised, because his Amendment would penalise them? He is suggesting that we should provide an incentive for those who happen to be engaged in these industries at the expense of their colleagues, friends and competitors, and the hon. Member does that in the name of realism and incentive. He knows perfectly well that his argument is a tissue of ridiculous nonsense, and that is why he is so reluctant to answer any question addressed to him.
I gather from your Ruling, Mr. Bowles, that it would be out of Order to attempt to answer the hon. Member's question as to how labour should be encouraged to move into the export trades. I shall content myself with one sentence by saying that on this side of the Committee, we would much prefer to do it by incentives than by the measure of direction that the Home Secretary appears to advocate.
The object of devaluation presumably is to encourage industry to expand in the export trade. The Chancellor must have realised the urgency of this, even though he did it rather late in the day, because obviously a very heavy price has to be paid. There is a general cut in the standard of living, in the social services and in pensions. Therefore, there must have been in the Chancellor's mind a very urgent need to encourage the export trade. He must have realised that it is not a question of traders altering labels and directing goods to America instead of to Europe. It means the undertaking of a considerable risk and a great re-organising of their businesses. At a time when, owing to the inflationary conditions created by the Government at home, it is so very easy to sell at home, there has to be an immense inducement to make it worth while to sell abroad.
In so far as the Chancellor brings in a tax on traders who export, to that extent he is quite clearly discouraging exporting. He is therefore taking away with his left hand what he has given with his right. That would seem to me to be a very clumsy and expensive way of doing it. Or is it, in fact, that he thought he had fixed devaluation too low and must counteract it by that clumsy method? There is no indication that it is so, as the premium was 35 per cent. before devaluation and fell to 5 per cent. after, and is now back to 21 per cent.
The Chancellor has told us in his own words that the Government have rushed from one expedient to another and that as each series of expedients became exhausted a crisis has arisen. In this case the Chancellor seems to have gone rather further, and in a panic to be attempting to rush in two opposite directions at one time. If this is a bad tax, as I believe it to be, it ought at any rate to be much less bad if the Amendment of my hon. Friend is adopted, and if this discouragement to exporting is dropped from it. In fact, I suggest that if the Chancellor were a realist he would actually go further. He might even consider not taxing those companies which are doing well. It is the companies that are doing badly which need to be taxed, because in the present situation the Government have created conditions of abnormal profits in order to keep employment at full level until the General Election.
I quite accept that I was going rather far; I became carried away with what might have been in Order on another occasion. I will content myself with urging that this bad tax, for reasons which have been amplified so well this afternoon by other speakers, should be modified, and the worst sting taken out of it, by accepting this Amendment and the encouragement of exports for which presumably the whole devaluation risk was undertaken.
The hon. Member for Monmouth (Mr. P. Thorneycroft) began by asking whether the Government thought that a firm which exported to the dollar market should get an advantage by so doing. The answer to that is that it certainly should, in our opinion, in this sense; it should be enabled to get a greater advantage by exporting to the dollar market than by exporting similar or corresponding goods to some other market.
Indeed, this suggestion before us today was originally put forward in this House by my hon. Friend the Member for Bolton (Mr. J. Lewis) in the Debates on the Finance Bill in the summer. I thought that he put the case rather better than the hon. Member for Monmouth, because he left out the concentration camps and machine guns, which did not seem to me to improve the argument of the hon. Member for Monmouth. In reply to my hon. Friend the Member for Bolton in those Debates, I said that the Government would consider this suggestion very carefully. In the weeks that followed we did consider it carefully and thoroughly, and I should like to mention some of the formidable objections which can be raised against a proposal of this kind.
In the case of the actual Amendment, the hon. Member for Monmouth proposes that remission should be given for exports to hard currency areas. I think that, though it is a small point, he will agree that that definition could not be placed on the Statute Book in those words. But no doubt we could somehow get over that particular difficulty. The next obvious objection is that a remission of tax of this kind on the profits of a firm exporting to the dollar area would make a very large and totally unnecessary present to certain industries, such as the whisky industry, which, of course, is exporting to a very large extent to the dollar area already, and which could not export more, even if the remission were given. I think that perhaps that is an objection which might be faced, but it is obviously one of the difficulties.
The next difficulty is one which the hon. Member for Monmouth mentioned himself, namely, that of course the remission would be made in favour of the actual exporting firm. In many cases the actual exporting firm would not have had so much to do with the manufacture of the products as many other firms further down the line. The hon. Member for Edgbaston (Sir P. Bennett), who has just left the Chamber, has a great knowledge of a group of firms making motor-car components; and if this suggestion were introduced the whole of the remission of tax would be in favour of the motorcar assembly firm. I wonder whether the hon. Member for Edgbaston, and managements of other firms making components, would think it fair or reasonable that none of this remission should percolate through to them. Beyond that there is the further formidable difficulty, that if this bounty were given to the shareholders, as it would be if the Amendment of the hon. Member for Monmouth were adopted, we should almost certainly find that the workers would argue that to a very large extent they produced the goods, but that the whole advantage accrued to the shareholders and none at all to the wage earners.
Though, therefore, there is much to be said for this proposal, there is a very great deal to be said against it. That is, of course, without mentioning at all the question whether it would be administratively practical in the simple tax collection sense. Therefore, we came to the conclusion at the time when the decision in favour of devaluation was taken that the case for this proposal was not conclusive enough to make it worth pursuing. I do not think that the hon. Member has realised that the incentive given by devaluation in many cases is far and away greater than any incentive given by the proposal which he puts forward. If, for instance, we take the case of an industry, of which whisky is usually mentioned as an example, which does not reduce its dollar price at all after devaluation, the export firms there, of course, enjoy a sterling price after devaluation which is 40 per cent. higher than it was before. Therefore, in that case, if the firm was previously selling the product, whatever it was, for £100, of which £5 represented profit, the price now goes up to £140 and, on the assumption that the sterling costs have not altered for the time at any rate, the profit goes up from £5 to £45. That is an increase in profit of 800 per cent.
My hon. Friend the Member for Blackley (Mr. Diamond) explained on the Second Reading, with a lot of arithmetical eloquence, that the increase in tax amounted, as I think he proved, to 2¾ per cent. The fact of the matter is that the incentive arising out of devaluation is vastly greater than could be achieved by this sort of proposal. Indeed, if one takes, not the extreme case where the dollar price is not reduced, but what is probably the normal case where the price goes up, shall we say, from £100 to £120, whereas the profit before was £5 it now becomes £25. I think it is right to say that even there the increase in profit is one of 400 per cent.
The hon. Member was going very much astray, as indeed was the right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler) in the Second Reading Debate, when he suggested that the Government had not carried out their undertaking in the Washington communiqué to give incentives to exporters to the dollar area. Of course, as I said, that undertaking was carried out to a very considerable extent by the actual act of devaluation which was in the minds of those who signed the Washington communiqué, so that if the hon. Member really wishes to accuse the Chancellor of the Exchequer of double-dealing, or whatever he said, which is a ridiculous enough accusation to make at any time, there could be no more ridiculous peg on which to hang it than this charge that incentives, for dollar exporters are insufficient.
Why is the hon. Gentleman always so anxious to make suggestions that the Chancellor is being accused of deliberate dishonesty? The hon. Gentleman is always trying to drag this in. What I said was that I made no such imputation and shared it with no one, but that if he went on like this it was manifest that his words were bearing less and less relation to the actions taken afterwards.
There are two schools of thought at the moment. One school wishes to impose a heavy tax on special devaluation profits, which would wipe out the extra incentive altogether, and the other school wishes, by tax relief, to give an additional incentive on top of the incentive already given by devaluation. The Government take a middle view. In our opinion the proper action at this time is not to remove the incentive given by devaluation but, on the other hand, not to add a further incentive by way of tax relief.
I think that our friends in America are going to laugh once more at the Economic Secretary's statement. Fancy telling us that devaluation was considered by the Americans to be the sort of incentive which the Government should offer to exporters to the North American market!
I must correct the hon. Gentleman. That was not quite what I said. I made two comments. The first was that, in the opinion of the Government, devaluation carried out that obligation, and the second was that the knowledge that devaluation was to come was in the minds of those who signed the Washington communiqué.
I am asking what was in the minds of the Americans. It is clear that in their minds devaluation was not considered a special incentive to exporters to the North American market. What is the proof of that? Mr. Hoffman recently made a speech in Paris, which has gone all round the world, in which, long after devaluation, he called upon the Governments of the Marshall countries to give special incentives to press their goods into the North American market. It is clear that the Financial Secretary's explanation will make no sense at all in Washington. I agree with the spirit of what my hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) has suggested in his Amendment, but I agree with the Financial Secretary that the Amendment itself certainly will not do.
I am sorry. I am referring to the Economic Secretary. I suggest that whoever drafted the Amendment had his tongue in his cheek, because it is clear that we could not press this bounty in this way without causing a vast number of injustices. However, we are left with the question, "What should we do by way of steering labour, materials, factory space and enterprise into the export market?" I do not draw any distinction, as my hon. Friend does in his Amendment, between the North American market and many other markets. We must increase our exports to all parts. It will not really do us very much good to divert exports from, say, India to North America, because all that will happen will be that the Indians will say that they require more dollars from the dollar pool, and we shall be in no better situation. We must increase our exports all round. We are in a position of full employment. Therefore, we must decide, if we do not adopt this Amendment, what method shall be taken to divert our resources to the export trade. Is it to be by compulsion or not? If it is not to be by compulsion, it must be by some form of incentive. People will not go for purely patriotic reasons—
The hon. Gentleman has certainly put the Chair, if not the Committee, in rather an awkward position at the moment. He has suggested that the hon. Member for Monmouth (Mr. P. Thorneycroft) drafted this Amendment with his tongue in his cheek. This Amendment was selected by the Chair because it was regarded as a serious suggestion. We cannot always tell, when we are considering these things, whether tongues are in cheeks of not. The hon. Gentleman can speak either for or against this Amendment. He cannot make some other alternative proposal on this Amendment.
I am sorry that I used that phrase about the drafting of this Amendment. I am sure that it was very seriously meant, but it happens to be an Amendment which I submit is not practical, and the Economic Secretary agrees with me.
I still think that we ought to do what we can to improve the situation—by reducing taxation or by other methods—of those who are in the export trade. If this is not the right moment to answer the argument which was clearly put to me—my name was used by the hon. Member for Nelson and Colne (Mr. S. Silverman)—I will seek another opportunity to do so.
When I saw this Amendment on the Order Paper, I hoped that the Chancellor of the Exchequer would be here to deal with it. I realised the difficulties which the Financial Secretary, or whoever was put up to deal with the matter, would face. I think that I could have written the speech almost as well as the Treasury could have done it for them.
I agree that there are parts of this Amendment which I do not entirely support, but what I understand by it is that it suggests a definite method whereby the hon. Member for Monmouth (Mr. P. Thorneycroft) desires to increase the amount of goods exported to hard currency countries. He has given a very clear and definite reason why that should take place, and the least the Government might have done with this suggestion was not to have given an ordinary answer of the sort that has been given, but to have said that the idea was fundamentally good and that they would look into it to see whether an alternative Amendment could be put down.
I want to know how I am to explain to my constituents the fact that the Chancellor tells the country of the necessity for every one of us to do all we can to increase dollar exports, and yet, when a practical suggestion is made, as in this Amendment, which might very well help to increase dollar exports, he rejects it. Surely, we might have expected, on an occasion like this and with an Amendment of this quality, that the Chancellor himself would have been here to explain the position to us. I am in very close touch with my constituents, and when they ask me why I do not ask the Chancellor questions about these matters, my answer is that he is never, or very rarely, in the House to answer anything. I do not wish to be personal, but I do say that when we have an Amendment of this sort—
I quite accept that, and I will not continue the protest. I am sorry that the Government have not been able to take a different view about this matter, which is one that plainly concerns the small people, and not the monopolists. I am speaking for the small people, and I express my grave disappointment at the attitude of the Government on this matter. The whole country will realise that the rejection of this Amendment merely indicates that the Government have no idea where they are going.
The Economic Secretary to the Treasury, in his very careful reply to my hon. Friend the Member for Monmouth (Mr. P. Thorneycroft), refuted the purely political attack which was made by the hon. Member for Nelson and Colne (Mr. S. Silverman).
Will the hon. Gentleman allow me? I agree that I made a political reply to what I thought was a political speech. I said nothing as hard about the hon. Member for Monmouth (Mr. P. Thorneycroft) as was said by his colleague, when he described the hon. Member as having drafted the Amendment with his tongue in his cheek.
I think that is a typical reply from the hon. Gentleman, showing that he really cannot bring himself to think in economic terms on an economic matter.
The Economic Secretary drew a picture of devaluation having produced fortuitous profits for a great many firms which are already in the export trade. The object of the Amendment, surely, is to increase the export drive by increasing the number of firms engaged in it. If we are to increase the volume and value of our exports, whether to the dollar area or not, we must have new people brought in, and in that case the argument which has been used from the Treasury Bench illustrating the case of whisky falls to the ground entirely.
It may be that it would be very difficult to carry out the proposal of the Amendment with every firm which is manufacturing for export partly to hard currency and partly to soft currency countries, but the idea behind it is perfectly correct. Yet, when we hear from the Economic Secretary that the Government are not going to adopt it, it seems to me to be almost a counsel of despair. If the Government are going to turn down every Amendment because it is in a form in which it would be difficult to work and they are to continue with that non pos-sumus attitude, then they are not carrying out the exhortations of the Chancellor, the Prime Minister and everybody else.
I believe, therefore, that though this is possibly an impracticable scheme, we should have had something a little better than a refusal based on non-reality and a failure to realise that to get more exports we need to increase the number of exporting firms. I hope that we shall hear something a little more positive from the Treasury Bench.
Whatever may be felt on the other side of the Committee about the drafting of this Amendment, I think we are much indebted to my hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) for initiating a debate of very great importance. The Economic Secretary, in reply to it, paraded before us, as he was entitled to do, various objections to my hon. Friend's proposal, and he rested himself, I thought with comfort, upon the act of devaluation itself. I urge upon hon. Members opposite that the effect of devaluation is very short-lived. It is a shot in the arm, a drug, the effect of which will very rapidly wear off, and the Government must address themselves to measures of infinitely more permanent character than that.
May I remind the Committee that, when the Chancellor of the Exchequer announced the new value of the pound, he said that he had been criticised that the rate had been fixed perhaps unduly low but that he had fixed it at a level which could be comfortably held. Since then, it has slipped through the floor, so that this question of export is one that requires the greatest possible attention. Of course, it can be said that this Amendment contains a large number of anomalies, but so does the Profits Tax itself, and the Chancellor was the first to tell us that the Profits Tax produced what he described as rough justice. This Amendment has the same object, and I urge the Financial Secretary and his colleague not to be merely pedantic about it.
The Economic Secretary told us that there are two schools of thought on the matter and that the Government stand comfortably in the middle of the road. That will not do, for the urgency of this problem requires not two schools of thought, but one school of action—and action taken before it is too late. Every day we see Government credit and the credit of the country fall. I urge the Government, since the Amendment is open to so many objections, to formulate some action that will stimulate exports to hard currency areas. I could give a number of illustrations, but I will not do so. I understand that in France they have a scheme—
It may be in Order a little later when we are discussing the Motion "That the Clause stand part of the Bill." I am sorry about that Ruling, Mr. Bowles, because I had wanted to make one comment on a remark of the hon. Member for Nelson and Colne (Mr. S. Silverman) about workers' participation; but as the workers are not included in this Amendment, I think I had better reserve my remarks on that matter also until we are discussing the Motion "That the Clause stand part of the Bill."
I beg to move, in page 2, line 48, at the end, to add:
(6) This section shall not apply when the profits arising in any chargeable accounting period from a trade or business computed in accordance with subsection (2) of section thirty-three of the Finance Act, 1947, are less than twelve thousand pounds.
After the two controversial Amendments which have been discussed, I think the Committee has now come into rather calmer waters. This is a very simple
and reasonable Amendment, and I hope it will receive support from all quarters of the Committee. The Committee will be aware that there is an abatement of Profits Tax for small businesses, and I am sure that hon. Members will remember the way in which that abatement is calculated by the formula given in the Finance Act, 1947. For example, if a company makes a profit of £5,000, that sum is deducted from the total of £12,000, leaving £7,000. The £7,000 is then divided by five, leaving £1,400, and that figure is the amount of the abatement, so that the company actually pays Profits Tax on the figure of £3,600. That principle has been accepted, and I think approved, on previous occasions from all quarters of the Committee.
On the occasion of the last Finance Bill, we on these benches sought to widen the scope of the abatement and to increase the total to £18,000, but we were then told—I think by the Financial Secretary—that the net cost of that proposal would be £3,500,000, and that it could not possibly be afforded. Today I am asking the Committee to accept this Amendment and to endorse that principle at a cost which, I suspect, would be very much less than the net figure of £3,500,000 which was put to the Committee on the previous occasion.
What are the reasons for exempting these small businesses from this increased rate of Profits Tax? I do not think that the hon. Member for Sowerby (Mr. Houghton) will be able to suggest that there will be any administrative difficulty over this because the principle is already accepted. In fact, it would be easy because there has to be a separate calculation for these companies. As regards purchasing power, acceptance of this Amendment would do no more than maintain the real value of the concession at the 1947 rate, because the pound has depreciated in that time to a greater extent than the concession.
But more important than those two preliminary points is the main principle which I wish to put to the Committee. It is the vital importance, particularly in this time of crisis, of supporting and sustaining small businesses. What are the reasons for this? I suggest that there are very sound economic reasons for the Committee taking special measures in the case of small businesses. First, the sup- port of small businesses involves the diffusion of ownership. One of the troubles today is that in the Socialist conception of society we are getting these vast aggregations or concentrations of ownership, with the resulting feeling of remote control. I accept at once that private enterprise also, to a certain extent, has been guilty of the same thing. There have been these great aggregations of ownership which have become too big for any single collection of individuals to handle.
If one can maintain small businesses, it means that one is maintaining competition, guarding against monopoly and producing a state of affairs in which capital, management and labour are in close association one with another. That is a very sound situation, and it gives more and more people the feeling that they have a stake in the country. That is the first general principle which I would pray in aid of this Amendment.
Then there is the second matter, which is also of very great importance. We depend very largely on our small businesses for flexibility in the development of our industry. I admit at once that some technical developments are too big to be handled by small concerns. The control of atomic energy is probably a very good example of that. But in the past the great majority of our technical progress will be found to have been made by the small concerns, and the big businesses of the future will again grow from small beginnings. If that is to happen, it must involve a small man taking big risks, and to do that he must have every possible incentive.
The third reason why support should be given to the small businesses is that they can be of very real assistance to the export drive. My hon. Friend the Member for Scarborough and Whitby (Mr. Spearman) talked about people thinking they could switch exports from one market to another merely by altering the label. Others think that we could have a National Export Corporation switching exports by compulsion. People who think that are very much mistaken. The export drive, particularly in the hard currency areas, will depend very much on the personality of the exporter. Although the phrase is a very old one, I think that we do want the merchant adventurer. The buyer, particularly in a market like the American or Canadian markets, must feel that he is going to get the personal and individual attention of some salesman.
A very good example of that is the relation which existed under the old arrangements between the grower and the spinner of cotton. There were 150 firms on the Liverpool cotton market before the war, simply because they were able to give individual attention to the requirements of individual spinners. That is why so many firms remained in existence on that market. Exactly the same thing is going to be of importance in the export drive. The buyers have got to feel that they will get individual treatment from those who seek to sell them goods. I have in mind one firm which contributes substantially to our dollar earnings, where three generations of the same family have been carrying on a business in goods of a very special quality. I know that they get a good deal of their business because of the personal association of the family with those to whom they have been selling their goods. That is a relationship which is of tremendous importance when trying to get into the American market.
Those are three reasons why I think we should support and sustain the small business. There is the further factor which bears a little on part of our previous discussion that in the case of small companies the link between distributed profits and the efforts made by capital, management and labour is very much greater than in the case of a large company. In the case of the small firm, the proposal that, say, £30,000 should be risked on some new venture has a much more direct and personal effect on the shareholders than would possibly be the case in a larger concern. The share-holders know that if things go wrong it means that their dividends for years ahead are at stake. Where there is that direct personal link between distributed profits and the amount of effort put in both by those who own the capital and those who manage the concern, the amount of the distributed profits is of great importance to the efficiency of the business.
To give an example, I had put in my hand a few minutes ago particulars of a
family business in the City of London. I quote:
Our family business is that of merchant tailors, which has been carried on in the City of London for over 80 years. Except for my elder brother, now retired, the shareholders are all directors; they are myself and my three nephews. We all work full time, are skilled in our craft, and perform the duties of selling, cutting and fitting, so that all the work of a managerial nature is carried out by us. The normal salary which our company would have to pay in this class of business to an employee with corresponding qualities and experience would be about £1,200 a year and—if this work was not done by the directors—our salaries bill would be at least £5,000 a year more than it is, and this £5,000 would be allowed as an expense for Profits Tax purposes. Because the work is done by the directors we can only charge £2,500 a year. This allows £625 a year for each director, and we have to pay Profits Tax on any remuneration paid to them in excess of this amount.
That is an example which bears out my point in the case of the small business.
Perhaps the hon. and learned Gentleman will permit me to interrupt because he is always so accurate and what he says is always worth listening to. I must draw attention to the fact that he is not quite correct. Perhaps he will be good enough to tell the House that it is quite incorrect that only £625 is allowed to each director. There is the abatement which arises here.
I quite agree with the hon. Member that in this letter there arises the other principle of the director-owned company for which there is rather special treatment. I also concede that if the profits of this concern are less than £12,000, they will be given the abatement. I am not putting this forward as a specific case dealing with the point I was making; I used it as an illustration of a case where the directors of a small company, the management of a small company, are also the shareholders and where there is that direct link between the distributed profits and the remuneration of those who are managing the concern. That was the reason I mentioned this letter, and I agree that there is the other aspect of this example to which the hon. Member for Blackley (Mr. Diamond) referred.
If I may sum up, we maintain that at this time there are special reasons for trying to assist and support these small businesses. I am told that the other day, referring to the present crisis, the Lord President of the Council used the phrase, "If we are to live at all" we must do so and so. That is a pretty serious statement and it comes, very ill from the mouths of hon. Members opposite when they state that we on these benches are the people who are always dismal and gloomy about the future. That was an expression of the Lord President of the Council and, if I may quote his words, if we are to live at all economically in these difficult days, I cannot conceive anything more foolish or more shortsighted than to place an additional burden upon the efforts of small businesses and small concerns. I therefore hope that the Committee will accept this very reasonable Amendment.
The appeal made by my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) was frankly an appeal for preference. He is asking the Committee to give something to a particular class of person, a particular group of industrialists, and we have to make our case for this highly preferential treatment. I think the case which can best be made is on the quality of the types of business which we have named and the work expected from them. First of all, as to quality. They are small businesses, individually and personally managed, they have admirable labour relations, in the main, and the employees are called by their Christian names while, behind his back, the employer is called by his Christian name. The relations are of a very happy and domestic character.
These businesses, depending on their character, employ from 20 to 200 or 300 persons and they form a very valuable part of our economy. In many cases these businesses are not in large centres of industry. They are in small towns where, because of the development of the industry, a family business has grown up from one generation to another. They are a very important aspect of the life of many of the small communities. They may not be engaged in the main engineering centres or the main textile centres, for often they are in relatively remote places. These businesses have continued because of the devotion of families, in many instances, to family businesses. These people have resisted the temptation to go into large-scale businesses because they like the business in their own craft, and that is an admirable feature in our economy. It is a strengthening factor in our economic arrangements. It is for that class of person that I particularly appeal, and it is to that class that this Amendment applies.
The second aspect of this enterprise is that the Government of the day—and in fact, more than the Government of the day, the country—demand persons who will enter the markets of the world, particularly the American markets, and sell the goods which they manufacture. The people to do that are not the highly-paid salesmen representing the great companies, because they have rarely the individuality and personality which commands the attention of the American and Canadian buyer. If a man goes to the United States and says, "I represent the A.B.C. Electricity Company, Ltd.," his chances of making an entry into the buyers' parlour are remote, but if he says, "I represent John Smith and Company, established in X for the last 300 years, and I am John Smith, the Sixth," then such a person will find his way right past the management into the buyers' parlour and will get a very good welcome.
I ask the Government to consider who are the people we want to encourage to enter these markets? Who are the merchant adventurers to whom the President of the Board of Trade so eloquently appealed? They are not the salaried employees of the great concerns; they are the men who are soaked and steeped in their businesses and are passionately devoted to them. They want encouragement, but they are discouraged. The penal taxation of the last 25 years, especially following the death or retirement of partners, has been a weakening factor in such businesses and they are not now well equipped for these new economic trials upon which they are engaged. Their temptation is to hold up their hands and say, "This Government is ruining the country; I will take a little more sleep, and I will retire. The country has gone to the dogs." The temptation is for them to devote their concluding years to a pessimistic rumination on the Britain that once was. That is the tendency and I regret to say that, despite the moral exhortations of the Lord President of the Council and others, none of which is adequate, numbers of these people in these days are tending to say, "Well, it has lasted my time and I am going to give up the unequal struggle."
I suggest that we should put some vigour and encouragement into these persons. We should say to them, "The struggle does avail and it is worth while to fight the battle." We can send them forth into the markets of the world with, at any rate a secure economic background, at any rate the right to retain a reasonable proportion of the profits which they so precariously earn. It is not easy for a firm which has never done any overseas trade to find a way across the Atlantic in these difficult and unexpected circumstances, and to sell. I doubt if there is anyone in this House who has attempted to sell in New York or Detroit or New Orleans or Vancouver or Toronto, and who knows the procedure. It is not as simple as fighting an election or as making a speech in this House or as selling to the home trade.
The difficulties of selling to the American and Canadian public cannot be overestimated. We are entering into a market which is the fullest and richest in the world. Has anyone ever looked at an American critically, and said, 'What can I sell you? Can I sell you a hat?" He says he has one already. It is a Stetson, which is as good as a Christy. He says he does not know a better. Can you sell him a shirt? He says he has one and he names one—an "Arrow." He says you cannot give him a better. A suit? Or shoes or a watch and chain or a fountain pen or a scarf? What can you sell him? That is the task which the British merchant adventurer has to undertake. I want to tell hon. and right hon. Members who have had no experience of selling, even in this country—in which they have been singularly unsuccessful—that the salesmanship needed is not easy, especially when we are selling to someone who has all he wants and all he thinks he needs. And so it seems to me that we must select very carefully, and give every encouragement to, the men and women who are to undertake this task. They are the men and women referred to in this Amendment.
They are not engaged in large scale businesses. There is, for instance, the knitwear business. The Board of Trade would tell any one of us that the produce of that trade is not sold by great companies but by individuals who stamp the goods they make with their own names. The produce of the leather trade is not made by vast companies in thousands or millions of articles, but by comparatively small individual companies specialising in various sorts of goods. The linen trade is conducted by small firms, not by large combines, and the individual firms are the ones to make an entry into the dollar markets of the United States and Canada. Another instance is that of the Scotch tweed trade, which I know so well. Every piece, every yard of material is sold, not by multiple companies or groups of large companies or monopolists, but by men who make those tweeds themselves, whose fathers made them before them, and whose grandfathers did so, too. A man in that trade knows by the feel of the cloth the person who handled the loom. Then there is the book trade. All these special trades, these British luxury trades, are not and probably could not be conducted as large scale industry. These goods must be the output of comparatively small firms with small capital, and relying on individuality and personality.
This Amendment is a suggestion that, if we are to capture that dollar market, we cannot send over tanks, but must send over light artillery and light cavalry, and the real adventurers of commerce, not the salesmen with large expenses books representing large companies and reputations, the million pound companies. Those men are not the people to get into that market, but the small men, to whom my hon. and learned Friend referred.
A further difficulty the small firms labour under, which this Amendment, if carried, would, to some extent, alleviate, is this. The Financial Secretary to the Treasury is here, and will be aware that the banks have been instructed recently by his right hon. and learned Friend to limit the amount of loans which are to be made available to industry. These small firms will not be able to get the additional capital which may be necessary even from the banks nowadays, and so they will be driven back to the only resources left to them—the right to obtain a larger measure of the profits which they have honestly earned in a field in which the Government desire them to be earned.
Frankly, I am making an appeal for a special class. I am making an appeal for a group of persons who are irreplaceable, whose numbers are probably declining, but who are, in this grave, anxious moment in our national affairs, the very essence of our existence, and the people who will break the backbone of the sales resistance of the United States and Canada. Have the Government no encouragement for those soldiers? When soldiers went up the line in war, when the infantry went up the line, they got some advantages over the rest of the troops. The men who stayed in the dugouts, as some sometimes had to, or who remained at the base, did not expect to be fed quite so heartily and so well as those who entered the firing line. Is there not a drop of rum for the fighting troops?
I hope we can dispose of this Amendment fairly easily, because the point raised by the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) is quite a simple one, and, I think, a single one. The present position is that all profits of a company, whose profits for the year are not more than £2,000, are exempt from Profits Tax. That is, any company which does not make a profit of more than £2,000 does not pay Profits Tax at all. A company which makes a profit of between £2,000 and £12,000 pays the tax at a lower rate. It has a certain abatement dependent on its franked investment income and on its ordinary profits. What the hon. and learned Gentleman wants, as I understand his Amendment, is that those companies that do not make as much profit as £12,000 should not be subject to the incidence of the extra five per cent. which we are now discussing.
He bases his plea on the fact that they are small companies, and, because they are small companies, ought to be entitled to consideration. I want to put it to the Committee that they are already getting it, in that they do pay at a lower rate if their profits do not amount to £12,000. I feel, that being so, when one remembers the reasons why this proposal was made, that it would be grossly unfair to the great body of taxpayers if we acceded to the hon. and learned Gentleman's request.
Let me remind the Committee once more that the main reason why my right hon. and learned Friend has imposed this extra 5 per cent. is that other sections of the community are likely, because the cost of living is to rise, to be penalised to a certain extent by paying more, certainly for their bread. That is to say, the lower paid citizens of this country, because of devaluation and the increase of 1d. on the price of the loaf, will find, to that extent, that the cost of living will be more than it was. We see no reason, and I am positive that the Committee in all quarters will see that there is no reason, why, if we are not doing anything for those people, we should do something, in addition to what is already being done, for those companies whose profits do not reach £12,000.
Now, the hon. Gentleman the Member for South Edinburgh (Sir W. Darling) said that many of these people could not now get advances from the banks because my right hon. and learned Friend had suggested to the banks that they should be rather cautious about making, advances to industry during the next months—or whatever the period may be—and that, therefore, those particular companies needing money would find that their banks would not be as accommodating as they previously were. He said they would be driven back to the right to retain their additional profits, and he put that forward as a plea for our support for this Amendment. In other words, his suggestion is that, as they want extra capital and they cannot get it from the banks, they ought to be allowed to retain the additional profits which they will make because of devaluation.
Well, we are not stopping their retaining them. In fact, we are inviting them to keep those profits. It is only if they distribute the profits that this extra charge falls on them, and it is because we do not want them to distribute those profits, and so increase the amount of money in circulation at this particular time, that the Profits Tax is being increased. Therefore, we are acceding to the request of the hon. Gentleman the Member for Edinburgh—is it North or East?
I have very little to add to what I have already said. This is a simple proposition, and there is a simple answer to it. We ought not to do, for those in the position described by the hon. and learned Member for Wirral, what we are not prepared to do for the greater body of poor people, who will find they have to pay more for their bread during the coming weeks. If the suggestion is that we ought to do this to help them, then the answer is that they can easily help themselves by not distributing those profits. We are not taking the profits from them. We are asking them to keep them. If they keep them nobody will be better pleased than my right hon. and learned Friend.
I should like to make clear that we on this side propose to carry this matter to a Division. We feel that the Amendment moved by my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) has very much to commend it. I am afraid I could not follow the argument of the Financial Secretary when he was talking about doing this or that for somebody or other. What he is doing is imposing an extra penal tax, and we on this side of the Committee do not regard that as doing anything for them, except in the rather obnoxious sense of "doing them in." If that is what the right hon. Gentleman means, then we can understand his use of the English word "do."
We find it very difficult to understand the argument of the Financial Secretary that these people in small businesses who make profits between £2,000 and £12,000 are obtaining a preference, and are, therefore, very satisfactorily situated. That is exactly the same argument as he tried to make when he told us not to be sorry for the exporters to hard currency countries when they had this new tax imposed upon them because they could look with satisfaction on the fact that they were now being taxed the same as all other profit makers. Those arguments are futile.
In either case, he is imposing extra taxation of a penal character on people whom the Government ought to be encouraging at the present time. There is no one who ought to be encouraged more than the small business man. The Chancellor of the Exchequer when he imposed this tax—and the real reason was given on 27th September and in the later Debate when this penal taxation was promoted to "cuts" level—said, in the original Debate, that it was put on because certain people would make extra profits and, on the whole, would benefit by the change, especially in the case of exports. It was put on as a penal taxation on exporters to hard currency markets, and it is no good the Government now trying to make out that it has some social significance.
We are convinced that many of these small businesses are doing useful work by helping the drive for exports in hard currency areas. I have in mind handicrafts, on which the right hon. Gentleman's chief is particularly keen, and which should be encouraged at the present time, and with which I myself am associated in a variety of capacities. Handicraft industries are very small industies. Some would come under the £2,000 level and would not be affected, but others would fall within the range. I think it is very discouraging to the small types of business and industry at the present time to have this extra taxation imposed, when they ought to be encouraged to do their best for the national economy.
What is more important is the vast range of these small businesses which will not be making extra profits at all, and which will find themselves obliged, in the case of any equity shareholders they may have, to pay out to those shareholders the proportion which they are in the habit of doing. These people are going to be hit by this tax, and we think they ought to be relieved. The Chancellor of the Exchequer said that this tax involved rough justice. We are attempting in this Amendment to introduce a small degree of justice for the small business.
I support this Amendment on much the same grounds as the hon. Member for South Edinburgh (Sir W. Darling). I also have been engaged in selling goods in America as a "drummer." I was surprised that the Financial Secretary revived the argument used last week by the hon. Member for Sowerby (Mr. Houghton) that the real object of this tax is to placate the workers. It is time that we dropped that argument, because it does not carry well in the House and even less well in the country.
I do not think that I used the word "placate." I move about among the workers a fair amount, and they do not want placating; they want justice. All this talk of placating and incentives is coming from the other side.
I think that when the right hon. Gentleman looks at HANSARD he will see that I am quoting the hon. Member for Sowerby very accurately. They want justice, but they do not want that dog-in-the-manger form of justice which consists in saying, "Because I have been hurt, I want to see the other fellow hurt." That is a very bad psychological approach which is very common on the benches opposite.
Let us get back to the small firm and to what will be the effect of this Amendment. Anyone who has tried to sell goods in America knows perfectly well that the greatest appeal to the Americans, who live in a land of mass production, is individuality. All the mass producers of America try to sell their goods as if they were small individual productions. I hope that the Financial Secretary will believe me when I say that there is a much greater pool of dollars to be collected in America by encouraging the small exporter here than he imagines. The small exporter cannot make use of the Export Credits Department because it too complicated and does not fit in very well. Therefore, it is important that he should receive some encouragement such as that put forward in this Amendment.
It is also important that goods from this country should not always come from London, Liverpool, Manchester, or any of the other great cities. The Americans follow British history and geography very closely and they like something which is not a mass product of Britain coming from a big centre but which has a tang of the countryside and comes from a small locality of which they know. That has a great sales appeal. I think that it is a great mistake to underrate the importance of aggregating the dollars that will be collected by helping the small people who are distributed over the whole of Great Britain, Scotland and Wales. I hope that a little more consideration will be given to those people, not only because I do not think it will cost very much—we have not been told what the cost will be—but because it will be a notable sign of encouragement which will cash in very well.
I am obliged to the right hon. Gentleman, and my reason for asking was to bring out how very small is this amount. My other object is to put forward a case on behalf of an entirely different section of the community. In my Division, in Plymouth and many other places a great number of comparatively small businesses were bombed or destroyed in the war. They have at last by means of licences, got their businesses going again. Many of them have had many years without any distribution of profits, and we want to give them a change in the way of distribution of profits. It is all very well for the Financial Secretary to say that the absence of any profits, practically, for five or six years is a good reason why they should put some profits back. These small people want something to live on and they have often a comparatively large number of shareholders That is why I am glad this Amendment has been proposed by our party, because in the many areas which I have mentioned these people will he hit by this tax.
What about the re-developed hotels, which are in exactly the same position, and which have been hit by various rules and restrictions? They are just beginning to become real dollar earners today. I will say nothing more except to state this one simple fact: when I saw this Amendment, knowing that it affected small men and small business people of no great distinction—of great distinction and character so far as output of goods is concerned, but not the type of people who are able to influence the Government—I knew that the first thing the Government would do would be to turn it down, because the one thing which they hate above everything else is the small business man who is free and independent.
I would not intervene were it not that I represent the city of a thousand trades. A little while ago I spoke on behalf of the larger industries, and I feel that I must speak in support of this Amendment which is designed to help the smaller industries of my constituency. Last night I was at a meeting of businessmen, urging small manufacturers to make efforts to go overseas to attempt to sell their goods. I can assure the Committee that many of them would like to go, but they are frightened and worried. The hon. Member for Bury (Mr. W. Fletcher) knows that going round America or Canada as a stranger is a worrying job; we are trying to persuade them to do it, but they are thinking of all the trouble, risk and difficulty. The reason we support this Amendment is so that we can show these men that they are getting encouragement in taking these risks and sympathy in making the effort.
I have heard the speeches of the Financial Secretary and others, but, like my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler), I am reminded of the old gag that repartee is what one thinks of on the way home. We heard the Chancellor of the Exchequer, and in his speech there was no suggestion that this was an equalising measure to try to equal out the sacrifice. It was quite clear that the Chancellor thought there would be some people who would get additional profit; he did not know how to put his hand on it, and in order to get it he included everybody. That is the impression that I and others received. There was no suggestion that it was because everybody had to bear an equal share of any sacrifice. The Chancellor thought that extra profit would be earned and that he ought to tax it; he did not know how to do it, so he said. "We will tax the lot."
The hon. Gentleman told us of a meeting which actually took place, which of course interests us a great deal more than theoretical arguments. I understand it was a meeting at which he was encouraging small traders to export, and they were telling him that it was difficult, which we all appreciate. Would he mind telling us as a matter of fact how many of those would-be exporters said: "The reason why we are not prepared to export in our country's hour of need is because of the possible 2¾ per cent. additional tax on such profits as we may distribute"?
The hon. Gentleman is very good at setting up ninepins of his own and knocking them down. He knows perfectly well that that sort of thing would not be said. These men were not chartered accountants but ordinary businessmen concerned about taking risks. We were not going into this sort of details, but merely trying to persuade them to go overseas, and they were telling us the difficulties.
My point is that this was the opportunity for which the Chancellor said he was looking; he wanted to catch the people who were going to make profits, and he is taking the lot because he does not know how to get those who are making the extra profit and leave the others out. We are trying to get these small traders to take additional risks, and this gesture for which we ask would be much appreciated. The hon. Member for Blackley (Mr. Diamond) knows that in working out these things this sort of businessman does not take a slide rule, but rather takes a general view and considers, "Shall I? Shan't I?" What we ask for is the sort of thing that may sway him; it is a little bit of encouragement which may persuade him to do what we want. If this Amendment is accepted, we can go to these businessmen and say. "The Government want you to carry on; they are doing what they can, and they appreciate that you are taking risks." This gesture would be a help in persuading these people who are at present doubtful whether they ought to do this.
There ought to be a little more common sense and not quite so much sentiment in this discussion, because hon. Members opposite are working upon their own emotions and playing upon ours. We have heard of the family business, and have had painted for us the romantic picture of old ladies sitting about doing their crochet work while their merchant adventurer sons carry on the family tradition, and how they want the encouragement and incentive which exemption from additional Profits Tax would give to small businesses. It must be remembered that the Amendment amounts to exempting small businesses making less than £12,000 profit a year from four-fifths of 5 per cent. additional Profits Tax—less than 1s. in the £1 on distributed profits. I must again emphasise that on undistributed profits there is no additional impost; it is only on distributed profits that this small increase is asked for.
I ask those who press this Amendment to consider whether the disturbance of the equilibrium of the present tax structure is justified by the incentive which this additional abatement would give. The Chancellor has made a pro-
I suggest in all seriousness that if we tamper with the abatements and reliefs, especially on the ground that the value of money has fallen, then, as the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) suggested, we shall get into very deep water. On his argument we are entitled to increase all the Income Tax allowances and abatements on the ground that the value of the £ has fallen since they were fixed at their present level, and any disturbance of present Profits Tax arrangements obviously opens up opportunities for additional relief claims and special consideration on the incidence of the increased tax. It is far better to accept the proposal of my right hon. and learned Friend to confine this Bill and what we are doing in it to the simple proposition of increasing the tax on distributed profits by the almost derisory sum of 1s. in the £.
|Division No. 276.]||AYES||[7.40 p.m.|
|Amory, D. Heathcoat||Granville, E. (Eye)||Prior-Palmer, Brig. O.|
|Baldwin, A. E.||Hare, Hon. J. H. (Woodbridge)||Raikes, H. V.|
|Barlow, Sir J.||Harris, H. Wilson (Cambridge Univ.)||Reed, Sir S. (Aylesbury)|
|Bennett, Sir P.||Harvey, Air-Comdre. A. V.||Roberts, H. (Handsworth)|
|Boles, Lt.-Col. D. C. (Wells)||Headlam, Lieut.-Col. Rt. Hon. Sir C.||Roberts, P. G. (Ecclesall)|
|Bowen, R.||Hogg, Hon. Q.||Robinson, Roland (Blackpool, S.)|
|Braithwaite, Lt.-Cmdr. J. G.||Hollis, M. C.||Ropner, Col. L.|
|Bromley-Davenport, Lt.-Col. W.||Hurd, A.||Sanderson, Sir F.|
|Buchan-Hepburn, P. G. T.||Joynson-Hicks, Hon. L. W.||Savory, Prof. D. L.|
|Bullock, Capt. M.||Lambert, Hon. G.||Scott, Lord W.|
|Butcher, H. W.||Legge-Bourke, Maj. E. A. H.||Stewart, J. Henderson (Fife, E.)|
|Butler, Rt. Hn. R. A. (S'ffr'n W'ld'n)||Lennox-Boyd, A. T.||Stoddart-Scott, Col. M.|
|Byers, Frank||Lindsay, M. (Solihull)||Strauss, Henry (English Universities)|
|Channon, H.||Linstead, H. N.||Teeling, William|
|Clarke, Col. R. S.||Lloyd, Selwyn (Wirral)||Thorneycroft, G. E. P. (Monmouth)|
|Conant, Maj. R. J. E.||Low, A. R. W.||Thorp, Brigadier R. A. F.|
|Corbett, Lieut.-Col. U. (Ludlow)||McFarlane, C. S.||Touche, G. C.|
|Crookshank, Capt. Rt. Hon. H. F. C.||Mackeson, Brig. H. R.||Turton, R. H.|
|Crosthwaite-Eyre, Col. O. E.||Maclay, Hon. J. S.||Tweedsmuir, Lady|
|Darling, Sir W. Y.||Maclean, F. H. R. (Lancaster)||Vane, W. M. F.|
|Davidson, Viscountess||Macmillan, Rt. Hon. Harold (Bromley)||Wadsworth, G.|
|Digby, S. Wingfield||Maitland, Comdr. J. W.||Wakefield, Sir W. W.|
|Dodds-Parker, A. D.||Manningham-Buller, R. E.||Walker-Smith, D.|
|Dower, Col. A. V. G. (Penrith)||Marshall, D. (Bodmin)||Ward, Hon. G. R.|
|Dower, E. L. G. (Caithness)||Mellor, Sir J.||Williams, C. (Torquay)|
|Drewe, C.||Molson, A. H. E.||Williams, Gerald (Tonbridge)|
|Elliot, Lieut.-Col. Rt. Hon. Walter||Morrison, Maj. J. G. (Salisbury)||Willoughby de Eresby, Lord|
|Erroll, F. J.||Mott-Radclyffe, C. E.||York, C.|
|Fletcher, W. (Bury)||Nicholson, G.||Young, Sir A. S. L. (Partick)|
|Foster, J. G. (Northwich)||Nield, B. (Chester)|
|Fox, Sir G.||Odey, G. W.||TELLERS FOR THE AYES:|
|Fraser, Sir I. (Lonsdale)||Orr-Ewing, I. L.||Mr. Studholme and|
|Gage, C.||Pickthorn, K.||Colonel Wheatley.|
|Gomme-Duncan, Col. A.||Prescott, Stanley|
|Acland, Sir Richard||Gilzean, A.||Morris, P. (Swansea, W.)|
|Adams, Richard (Balham)||Glanville, J. E. (Consett)||Morrison, Rt. Hon. H. (Lewisham, E.)|
|Allen, A. C. (Bosworth)||Gooch, E. G.||Murray, J. D.|
|Allen, scholefield (Crewe)||Gordon-Walker, P. C.||Nally, W.|
|Anderson, A. (Motherwell)||Grenfell, D. R.||Naylor, T. E.|
|Attewell, H. C.||Grey, C. F.||Neal, H. (Claycross)|
|Austin, H. Lewis||Grierson, E.||Nicholls, H. R. (Stratford)|
|Awbery, S. S.||Griffiths, D. (Rother Valley)||Noel-Baker, Capt. F. E. (Brentford)|
|Ayles, W. H.||Griffiths, Rt. Hon. J. (Llanelly)||Noel-Buxton, Lady|
|Ayrton Gould, Mrs. B.||Griffiths, W. D. (Moss Side)||O'Brien, T.|
|Balfour, A.||Gunter, R. J.||Oldfield, W. H.|
|Barstow, P. G.||Guy, W. H.||Oliver, G. H.|
|Barton, C.||Haire, John E. (Wycombe)||Paling, Will T. (Dewsbury)|
|Battley, J. R.||Hale, Leslie||Palmer, A. M. F.|
|Bechervaise, A. E.||Hall, Rt. Hon. Glenvil||Pannell, T. C.|
|Benson, G.||Hamilton, Lieut.-Col. R.||Pargiter, G. A.|
|Berry, H.||Hannan, W. (Maryhill)||Parker, J.|
|Beswick, F.||Hardy, E. A.||Paton, Mrs. F. (Rushcliffe)|
|Bevan, Rt. Hon. A. (Ebbw Vale)||Hastings, Dr. Somerville||Pearson, A.|
|Blenkinsop, A.||Haworth J.||Peart, T. F.|
|Blyton, W. R.||Henderson, Rt. Hon. A. (Kingswinford)||Piratin, P.|
|Boardman, H.||Henderson, Joseph (Ardwick)||Platts-Mills, J. F. F.|
|Bottomley, A. G.||Herbison, Miss M.||Poole, Cecil (Lichfield)|
|Bowden, H. W.||Hobson, C. R.||Porter, E. (Warrington)|
|Braddock, Mrs. E. M. (L'pl. Exch'ge)||Holman, P.||Porter, G. (Leeds)|
|Braddock, T. (Mitcham)||Holmes, H. E. (Hemsworth)||Price, M. Philips|
|Bramall, E. A.||Horabin, T. L.||Pritt, D. N.|
|Brook, D. (Halifax)||Houghton, Douglas||Proctor, W. T.|
|Broughton, Dr. A. D. D.||Hoy, J.||Pryde, D. J.|
|Brown, T. J. (Ince)||Hubbard, T.||Ranger, J.|
|Burden, T. W.||Hudson, J. H. (Ealing, W.)||Rankin, J.|
|Burke, W. A.||Hughes, Emrys (S. Ayr)||Reeves, J.|
|Callaghan, James||Hughes, H. D. (W'lverh'pton, W.)||Reid, T. (Swindon)|
|Chamberlain, R. A.||Hutchinson, H. L. (Rusholme)||Rhodes, H.|
|Champion, A. J.||Hynd, J. B. (Attercliffe)||Richards, R.|
|Chetwynd, G. R.||Jay, D. P. T.||Roberts, Goronwy (Caernarvonshire)|
|Cluse, W. S.||Jeger, G. (Winchester)||Robertson, J. J. (Berwick)|
|Cobb, F. A.||Jeger, Dr. S. W. (St. Pancras, S. E.)||Robinson, Kenneth (St. Pancras, N.)|
|Cocks, F. S.||Jenkins, R. H.||Rogers, G. H. R.|
|Coldrick, W.||John, W.||Ross, William (Kilmarnock)|
|Collick, P.||Johnston, Douglas||Scollan, T.|
|Collins, V. J.||Jones, Rt. Hon. A. C. (Shipley)||Scott-Elliot, W.|
|Colman, Miss G. M.||Jones, D. T. (Hartlepool)||Segal, Dr. S.|
|Cook, T. F.||Kenyon, C.||Shackleton, E. A. A.|
|Cooper, G.||Key, Rt. Hon. C. W.||Sharp, Granville|
|Corbet, Mrs. F. K. (Camb'well, N. W.)||King, E. M.||Silverman, J. (Erdington)|
|Corlett, Dr. J.||Kinghorn, Sqn.-Ldr. E.||Silverman, S. S. (Nelson)|
|Cove, W. G.||Kinley, J.||Simmons, C. J.|
|Crossman, R. H. S.||Kirkwood, Rt. Hon. D.||Skinnard, F. W.|
|Cullen, Mrs.||Lang, G.||Smith, C. (Colchester)|
|Daines, P.||Lavers, S.||Smith, Ellis (Stoke)|
|Dalton, Rt. Hon. H.||Lee, Miss J. (Cannock)||Smith, H. N. (Nottingham, S.)|
|Davies, Edward (Burslem)||Leonard, W.||Smith, S. H. (Hull, S. W.)|
|Davies, Ernest (Enfield)||Leslie, J. R.||Snow, J. W.|
|Davies, Harold (Leek)||Lewis, A. W. J. (Upton)||Solley, L. J.|
|Davies, Haydn (St Pancras, S. W.)||Lewis, T. (Southampton)||Sorensen, R. W.|
|Davies, R. J. (Westhoughton)||Longden, F.||Sparks, J. A.|
|Davies, S. O. (Merthyr)||Lyne, A. W.||Steele, T.|
|Deer, G.||McAdam, W.||Stewart, Michael (Fulham, E.)|
|Delargy, H. J.||McAllister, G.||Stokes, R. R.|
|Diamond, J.||McGhee, H. G.||Summerskill, Rt. Hon. Edith|
|Dobbie, W.||McGovern, J.||Swingler, S.|
|Dodds, N. N.||Mack, J. D.||Sylvester, G. O.|
|Driberg, T. E. N.||McKay, J. (Wallsend)||Symonds, A. L.|
|Dugdale, J. (W. Bromwich)||McKinlay, A. S.||Taylor, H. B. (Mansfield)|
|Dye, S.||Maclean, N. (Govan)||Taylor, R. J. (Morpeth)|
|Ede, Rt. Hon. J. C.||McLeavy, F.||Taylor, Dr. S. (Barnet)|
|Edwards, Rt. Hon. Sir C. (Bedwellty)||MacPherson, Malcolm (Stirling)||Thomas, D. E. (Aberdare)|
|Evans, E. (Lowestoft)||Macpherson, T. (Romford)||Thomas, Ivor Owen (Wrekin)|
|Evans, John (Ogmore)||Mallalieu, E. L. (Brigg)||Thomas, John R. (Dover)|
|Evans, S. N. (Wednesbury)||Mallalieu, J. P. W. (Huddersfield)||Thorneycroft, Harry (Clayton)|
|Fairhurst, F.||Mann, Mrs. J.||Tiffany, S.|
|Farthing, W. J.||Manning, Mrs. L. (Epping)||Timmons, J.|
|Fernyhough, E.||Marquand, Rt. Hon. H. A.||Tolley, L.|
|Field, Capt. W. J.||Mathers, Rt. Hon. George||Turner-Samuels, M.|
|Fletcher, E. G. M. (Islington, E.)||Mayhew, C. P.||Ungoed-Thomas, L.|
|Follick, M.||Messer, F.||Viant, S. P.|
|Foot, M. M.||Middleton, Mrs. L.||Wallace, G. D. (Chislehurst)|
|Forman, J. C.||Monslow, W.||Warbey, W. N.|
|Fraser, T. (Hamilton)||Morgan, Dr. H. B.||Watkins, T. E.|
|Freeman, J. (Watford)||Morley, R.||Watson, W. M.|
|Ganley, Mrs. C. S.||Morris, Lt.-Col. H. (Sheffield, C.)||Webb, M. (Bradford, C.)|
|Weitzman, D.||Wilkins, W. A.||Willis, E.|
|Wells, P. L. (Faversham)||Willey, F. T. (Sunderland)||Wills, Mrs. E. A.|
|Wells, W. T. (Walsall)||Willey, O. G. (Cleveland)||Wilmot, Rt. Hon. J.|
|Wheatley, Rt. Hn. John (Edinb'gh, E.)||Williams, D. J. (Neath)||Woods, G. S.|
|White, H. (Derbyshire, N. E.)||Williams, J. L. (Kelvingrove)||Young, Sir R. (Newton)|
|Whiteley, Rt. Hon. W.||Williams, Ronald (Wigan)||Younger, Hon. Kenneth|
|Wigg, George||Williams, Rt. Hon. T. (Don Valley)|
|Wilcock, Group-Capt. C. A. B.||Williams, W. T. (Hammersmith, S.)||TELLERS FOR THE NOES:|
|Wilkes, L.||Williams, W. R. (Heston)||Mr. Collindridge and|
Question put, and agreed to.
Before we pass from this Clause, I desire to refer to a matter which fell just outside the scope of the previous Amendments we have been discussing, but which we were told would be in Order at this stage. Discussion on previous Amendments regarding the Profits Tax and preferential rates thereon centred on special incentives for the export trade. I desire to impress on the Government the fact that there are other incentives to which they can apply their minds. The Lord President of the Council seems to take the view that incentives are all bunk, but he made a speech last week which seemed to lead towards the direction of payments by result.
As I have said, there are other fields which can be explored. I understand that in France firms which export to the hard currency areas are permitted to retain a proportion of the dollars earned. That is one method, and perhaps there are others. There also came into our discussions on the Amendment moved by my hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) the question of incentives for workers. The hon. Member for Nelson and Colne (Mr. S. Silverman) took that up and asked what incentives could be offered. He said how unworkable it would be for special sections of the community to have incentives of some kind or another. But I would point out that the Government have already done this in one important respect.
The Government have taken action, of which all of us approved, to provide special inducements to the coalminers in the form of rations. I suggest that the Government should allow their minds to run along these lines. If it is their policy to freeze wages, they should consider other incentives for those engaged in the export industries. I suggest that on these lines they might do some hard thinking, because the situation is such as not to allow any further delay.
The whole basis of this Bill has been fairly well discussed, but there are still a few things to which I wish to call attention, although I do not wish to detain the Committee long. I think it has been made clear by the Opposition—indeed, it was made very clear by the right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler)—that they are bitterly opposed to the Bill and that the object of their Amendments is to wreck it, as the right hon. Gentleman in fact said. Those Members of the Opposition who have suggested that they are trying to make the Bill more balanced are overshadowed by the clear intention of the Opposition as a whole to kill the Bill.
It has been suggested that the Bill is misconceived, that its provisions will act as a disincentive to dollar earnings, and that the small additional tax which it imposes cannot possibly be borne by industry. I think all those statements are wholly fallacious. First, as regards the Bill being wrong in principle, I feel strongly that not enough has been done to bring into the Exchequer some of the additional profits which are being made and can be made, particularly in the dollar areas. Great profits are indeed being made everywhere. If the Bill had not been introduced, those least able to bear the increased burdens of today, particularly the lowest paid workers and old-age pensioners, would have had to suffer—they will in fact suffer to some extent—while those in industry, at the other end of the scale, would have been profiting.
Secondly, I think no one will deny that there are very considerable profits to be made out of devaluation in the Canadian and American markets. It is really not enough to put this Bill forward as a balancing factor. What is the net additional amount which industry will pay? I think it is in the region of £13 million. Workers and old age pensioners will certainly pay very much more than that to meet their increased burdens. The Bill goes a little way towards a fairer balance, but it does not go all the way, and it is absurd for the Opposition to suggest that harm will be done to industry by having to pay an extra £13 million in taxation. This Opposition has said that the extra tax is penal taxation. The right hon. Gentleman the Member for Saffron Walden spoke about its vindictiveness. I have already referred to the smallness of the new additional tax, and surely it is wrong to suggest that when there are large gains to be made, not only in the whisky trade and the motor trade, but also in other trades, the Treasury should not, to a small extent at least, reap the benefit.
Thirdly, the statement that the extra burden cannot be borne either by potentially distributive profits or by undistributed profits is fantastic, as I shall try to show. What is the real position in regard to profits and taxation? Profits have gone up consistently since the end of the war. I have here the figures for 1946, 1947 and 1948. Gross trading profits, as can be seen from the White Paper which has been referred to several times, the White Paper on the National Income and Expenditure of the United Kingdom, 1946–48, Cmd. 7649, were £1,496 million in 1946, rising to £1,684 million in 1947, rising to £1,945 million in 1948. I know they are gross trading profits but, nevertheless, they show a very steep rise. In these three years the total tax paid on income in respect of interest and profits has actually gone down, as the White Paper will show. In 1946, the total tax paid was £1,100 million. By 1948 this figure had decreased to £1,020 million, largely because in that tax there is contained the Profits Tax and an Excess Profits Tax. Excess Profits Tax finished in 1946, and I know there is a spill over from one year to another, but taking the three years 1946, 1947, and 1948, the amount paid in each of those years, respectively, was: £391 million; £286 million; and £283 million.
Thus while profits went up steeply, the amount paid in taxation on interest and profits income has gone down, and the amount paid in Profits Tax and Excess Profits Tax has likewise gone down. Taking these three years again, trading profits have gone up by £449 million, while Profits Tax and E.P.T. have gone down by £108 million. Industry is therefore £557 million to the good on these figures. Profits Tax and E.P.T. are in fact still going down, partly because E.P.T. has been tailing off. Profits for 1949 were £279 million, and the estimate for 1950 is down to £240 million. The chief reason is that, in general, there has been a ceiling put on dividends, though still enormously swollen dividends. For decency's sake, and because there has been a good deal of watering of capital, the dividend level has remained fairly stable. The result has been greatly to increase the amount which has been put into reserve as undistributed profits. This brings me to the other limb of the argument.
The statement of the Opposition that undistributed profits cannot bear this additional impost does not square with the facts. I have already pointed out—
I was here throughout the Debate on that Amendment, and although it was rather wide, and hon. Members were constantly called to Order, I do not think it touched the point I am making at all. I think hon. Members will bear me out on that.
I will now bring my argument to a conclusion. I have made my point to the satisfaction and, I hope, the edification of hon. Members opposite. The point I am making is that it is entirely fantastic to suggest that this small and anaemic little addition of £13 million net, which in my estimation is not nearly sufficient, cannot be borne either by profits which are distributed or profits which are not distributed. I would only reiterate what the Financial Secretary to the Treasury said about this very same thing on Second Reading, that the facts which have been submitted to the Committee from this side of the Chamber blow sky high that fantastic proposition.