Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 7th April 1952.

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Photo of Hon. Hugh O'Neill Hon. Hugh O'Neill , North Antrim 12:00 am, 7th April 1952

In a debate of this kind, which ranges over the whole field of the Budget, it is obvious that any individual speaker can deal with only one or two special points. My object this afternoon is to deal with the question of the Excess Profits Levy and to point out how grossly unfair and harmful it is going to be in certain cases. The object of the Levy was stated to be to lop off excess profits from those industries which had been and were making large profits out of the re-armament programmes.

That may have been all very well, but it has not been confined to that object. The concerns to which I want specially to refer are British-owned companies operating abroad with what one may term risk capital. They are such companies as the gold producing companies in West Africa and other parts of the world, and the rubber producing companies in the Far East.

Surely, in our present balance of payments crisis, it is to our national advantage that enterprises producing gold should produce more gold. But this Excess Profits Levy will, in my view, effectually prevent increased production and may even bring about a serious diminution in the production of gold by these companies abroad. The concessions given to mines, and which were so much stressed in the White Paper, amount to so little as to make practically no difference at all.

I will give the House an example from my knowledge of a company carrying on the business of gold producing abroad. Due to bad development and the extraction of much of the higher grade ore profits in the standard years were abnormally low. Indeed, in one year, there was an actual loss. The Excess Profits Levy standard is consequently much below the normal profits level.

In 1949, after, as I have said, things had been going rather badly, the management was changed and an intensive programme of increased development and production was inaugurated which meant, of course, capital expenditure on new and more modern machinery and plant. This expenditure had to be financed out of surplus revenue.

In that case, the programme of expansion has so far been successful and the tonnage of ore and the ounces of gold produced have materially increased since the standard years with, of course, a consequent increase in profits. The lion's share of these profits, however, has been utilised in what is called ploughing back into the business in connection with this programme of development and expansion.

The effect of the Excess Profits Levy will be that practically the whole of this extra margin will be taken away and paid over to the Inland Revenue. It will no longer be available for modernisation and re-equipment. For a company in this situation dividend limitation would have been better than the new Levy, because for risk capital of this nature a reasonable dividend would surely have been allowed, and the surplus revenue would then have been available for capital expenditure.

In such a case there is obviously a very great temptation to curtail production and restrict profits to those of the standard years and, if it is a gold producing company, to leave the gold in the ground while the Excess Profits Levy lasts: or, if it is a rubber producing company, to leave the rubber untapped—if that is possible, I am not an expert—while Excess Profits Levy is in operation. If that were to happen the Treasury would receive no Revenue and there would be fewer dollars or gold for this country.

There is a very strong case indeed for giving special consideration to rubber producing companies. Unlike gold producing companies they have benefited from the re-armament programme because the stockpiling of rubber in the United States and elsewhere has led to a considerable increase in the price.

For the last four years of the war, however, the rubber producing companies in Malaya and the Dutch East Indies were occupied by Japan and had terrible losses in war damage. Plant and equipment were largely destroyed and, of course, during those four years their financial resources were reduced and their shareholders naturally received not one penny of dividend.

Now, admittedly, they are making profits but their requirements for the re-equipment and rehabilitation of their estates and for replanting and so on are colossal and must be found mainly, if not entirely, out of the better revenue and profits they are now making. In his opening speech today my hon. Friend the Financial Secretary to the Treasury referred to the Far Eastern companies, by which I suppose he meant the rubber producing companies in Malaya and the Dutch East Indies, and he indicated that in their case there might be a good argument for altering the standard years.

If I understood him aright, he suggested that possibly the year 1950 might be added to the standard years, which should give those companies a higher average standard. If the Government can do that so much the better, but I feel that that is a rather niggardly approach to this great industry.

Why not take the big view? Why not admit that industries like the rubber industry and the gold producing industry are not the kind which should be penalised in this way? They are running great risks. They have good years and they have very bad years. They are producing badly needed gold and dollars in large quantities, which will help our balance of payments difficulties at the present time.

I feel most strongly that these industries, on whose behalf I have said a few words today, can produce an unanswerable case for being completely removed from the ambit of this Excess Profits Levy. I hope that while this Bill is going through its Committee stage the Government will take their courage in both hands and remove them.