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Clause 26—(Amendment Of S 38 (3) Of 5 D 6 Geo 5, C 89)

Volume 155: debated on Wednesday 21 June 1922

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Where the interest or any part of the interest in any trade or business of any person, being the proprietor thereof or a partner therein, passes by a voluntary disposition inter vivos made by that person or under his will or on his intestacy to the husband or the wife or any lineal descendant of that person, that last-named person shall, for the purposes of Sub-section (3) of Section thirty-eight of the principal Act (which allows a repayment of or set-off against Excess Profits Duty in case of a deficiency or loss), be treated as if he were the person from whom the interest passed.

On a point of Order. Would it be in my power to ask you, Mr. Chairman, to allow me to draw attention to something which looks like a drafting oversight in the earlier part of this Clause? The Clause refers to a disposition made by a person "to the husband or the wife," and so on. Ought not the words "or for the benefit of" to be put in before "the husband"? Otherwise, the Clause does not include cases where only the income of shares passes to the wife for life.

It is for the hon. Member to move to insert certain words if he wishes to do so. It cannot be discussed without an Amendment.

I beg to move, after the word "to" ["on his intestacy to"], to insert the words "or for the benefit of."

My reason is that if these words are not put in, the Clause does not include cases where only the income of shares passes to the wife for life.

I cannot quite follow the point of the Amendment. It seems to me that all the cases meant to be covered are contained in the phraseology of the Clause as it stands. It is a case in which a business is transmitted, and the question arises as to whether the person to whom the business is transmitted would have the opportunity of obtaining a setoff in respect of losses incurred against the amount of Excess Profits Duty paid in a previous period. Under these circumstances, I confess I cannot quite follow the effect of my hon. Friend's Amendment.

I think the point raised by the hon. Member is really covered by the earlier words in the Clause, "Where the interest or any part of the interest."

Amendment negatived.

The first Amendment on the Paper to Clause 26, standing in the name of the hon. and gallant Member for South-West St. Pancras (Major Barnett)—

"after the word 'Where,' to insert the words the ownership of a business has nominally changed hands, but there is substantial identity of interest between the old owner and the new owner, such new owner shall, for the purposes of Sub-section (3) of Section 38 of the principal Act, be treated as if he were the old owner, and where'"—
is out of place. The natural course is to put such amplifications as this after the Section. The same point can be raised on the next Amendment on the Paper.

May I point out that Clause 26 is an Amendment of Section 38, Sub-section (3), of the principal Act? The principal Act is the Finance (No. 2) Act, 1915, which establishes the Excess Profits Duty. What I have embodied in my Amendment, I submit, can only be put in the place where it is. What I have put forward does not involve a change of ownership at all. There is a substantial identity of interest, and I submit that the proper and only place for this Amendment is at the beginning of this Clause.

On a point of Order. You have already put an Amendment relating to subsequent words in this Clause, and I understand my hon. and gallant Friend wants to move an Amendment in the first line of the Clause.

That is so. It may be that I omitted to see that the hon. and gallant Member had a new point to make. I ruled that the natural place was at the end of the Clause. If I am wrong, I am afraid I cannot go back on it now, but, of course, there is the usual remedy on Report.

I beg to move, at the end of the Clause, to add the words

"and in ally other case where there has been a change in ownership of a business, repayment of or set-off against Excess Profits Duty shall be made to the new owner in a similar manner, if there is, and to the extent to which there is, substantial identity of interest by reason of persons beneficially interested in the old owner being beneficially interested in the new owner."
This Amendment arises as the result of a case known as the Gittus case, which was decided in the House of Lords on the 18th April, 1921. I will point out what, has arisen as the result of that case. In the original Act, the Finance (No. 2) Act, 1915, by which Excess Profits Duty was first imposed, Section 38 reads as follows:
"There shall be charged, levied, and paid on the amount by which the profits arising from any trade or business to which this Part of this Act applies,"
and so on. I want the Committee to note that it refers to "any trade or business." Then, at the beginning of Section 39, the Act describes the kind of trades and businesses that will be liable, and those that will be exempt. It says:
"The trades and businesses to which this Part of this Act applies are all trades or businesses (whether continuously carried on or not) of any description,"
and so on. Then, in Section 45, in Subsection (2), it is enacted:
"The duty may be assessed on any person for the time being owning or carrying on the trade or business."
I want the Committee to note those words. In Section 38, Sub-section (3), the right is given of repayment or set-off, that is to say, a man is liable in a given year to pay Excess Profits Duty, having made more profit that his pre War standard, and if in the following year he made a profit below his pre-War standard, he would be entitled to get a proportionate amount of Excess Profits Duty, which he had already paid. If in a given year he was below the standard, and, therefore, not liable, he had a set-off in any year in which he became liable to Excess Profits Duty in respect of any deficiencies in previous years, that is to say, the amount by which his profits in previous years were below his pre-War standard. That, we may take it, is the position of the law with regard to the payment of Excess Profits Duty; that persons who would be assessed, namely, trades and businesses, had the right of repayment or set-off. The Gittus case, which was decided in the House of Lords, in April, 1921, was in respect of a wagon builder named Gittus, of Penistone, Yorkshire. The business belonged to his father, who died, leaving it to his son. The father had paid Excess Profits Duty. The son succeeded to his father's business, in which he had been previously employed, made a loss, and claimed repayment of the Excess Profits Duty which his father had paid. This was refused on the ground that it was not the same person. It was refused because of the actual words in the Act of 1915 with regard to this question -of set-off. Perhaps the Committee will allow me to read Sub-section (3) of Section 38, to which this refers:
"Where a person proves that in any accounting period which ended after the fourth day of August, nineteen hundred and fourteen, his profits have not reached the point which involves liability to Excess Profits Duty, or that he has sustained a loss in his trade or business, he shall be entitled to repayment of such amount paid by him as Excess Profits Duty in respect of any previous accounting period, or to set off against any Excess Profits Duty payable by him in respect of any succeeding accounting period such an amount as will make the total amount of Excess Profits Duty paid by him during the whole period accord with his profits or losses during that period."
The point to which I want to call the attention of the Committee is that, whereas in the first Section Excess Profits Duty was levied on trades and businesses, and those who were liable under Section 39 are referred to as trades and businesses, it is held that this set-off or repayment should apply to a person, and it was on that that the Gittus case turned. The effect of the Gittus case was that where a man had been carrying on business in his own name up to, we will say, the end of 1916, and had paid Excess Profits Duty, and then turned his business into a private limited company, taking all the shares himself, by so doing he lost all his right to reclaim Excess Profits Duty. That is about the most extreme case one can give, but it would apply to all similar cases. Four men in partnership forming a company and each having 25 per cent. of the shares in the limited company, lose all right of set-off or repayment as the result of the Gittus case, and the injustice, the inequity, of it was aggravated by the fact that a limited company right through is treated for Excess Profits Duty as the same entity. A, B, C and D may be four shareholders in a private company carrying on trade or business. They may sell all their shares to E, F, G and H. The proprietors become entirely different, but E, F, G and H can get back, if they make a loss, the whole of the Excess Profits Duty paid by A, B, C and D. One knows perfectly well that in large public companies the shareholding is almost completely changed between 1914 and 1921; yet in those cases the money is paid back, and, except for administrative concessions, to which I am coming in a moment, if a man turned his own business into a limited company, and though no one has ever taken a penny out of it, he has no right to recover the Excess Profits Duty which he has paid.

Last year this decision of the House of Lords was given just as the Budget was introduced, and, in an effort to get a statement from the Chancellor of the Exchequer, I moved an Amendment on the 20th June, 1921, to reverse the Gittus case. I said frankly that that was the purpose of it, and the proposal I made then was that, instead of a person having the right to recover Excess Profits Duty, each trade or business should have the right. The entity should remain the trade or business, and the owner for the time being should have the right to obtain repayment, just as he had the liability to be assessed if he made excess profits. The Financial Secretary to the Treasury replied on that occasion. I had suggested it was possibly a question of drafting when the 1915 Act was before the House, and that no one noticed how the use of the word "person" would affect the future administration of the Section, but the Financial Secretary said:
"There is no question of it being a result of thoughtless drafting. I should be inclined to say that the word "person" does really carry out what is the bedrock principle of the Excess Profits Duty, that it is a charge personal to the man who pays it, and the man who carries on the business, and that for very practical reasons it cannot be attached to the business as an entity distinct from the person or persons who carry on the business. I do not really think there will he any dispute between the view I have advanced, and that advanced by the hon. Member, as regards the great majority of ordinary cases of the transference of a business to a successor."
Then he went on to say:
"I quite agree that there would be hardships possible in the too punctilious application of the Statute in some cases. I believe they are not hardships which it is possible to frame legislation to overcome, but they more approach matters of administrative action."—[OFFICIAL REPORT, 20th June, 1921; cols. 949 and 951, Vol. 143.]
That was a sort of promise given as a result of that Amendment last year. On the 20th February this year I put this question to the Chancellor of the Exchequer:
"What instructions he has given to the Board of Inland Revenue for dealing administratively with hard cases which are primâ facie governed by the Gittus case in respect of claims for the repayment of Excess Profits Duty, in accordance with the promise made by the Financial Secretary to the Treasury on 20th June, 1921?"
The Financial Secretary to the Treasury replied:
"The Commissioners of Inland Revenue have been instructed to deal administratively with eases of the character to which the hon. Member refers. The cases coming within their purview are numerous and present widely divergent features, and no detailed instructions could be framed to cover the various circumstances arising. Broadly speaking, however, where there has been a change of ownership of a business, repayment of Excess Profits Duty is made if there is, and to the extent to which there is, substantial identity of interest between the old and the new owner."—[OFFICIAL REPORT, 20th February, 1922; col. 1526, Vol. 150.]
That is still carrying out the idea of a person having the right to repayment. That answer of the right hon. Gentleman was printed in most of the well-known newspapers of the Kingdom, and a construction was put upon it by business people which is quite different, I understand, from the construction which the Inland Revenue authorities themselves put upon it. They are construing this in an extremely narrow sense. The words which the Financial Secretary used were:
"If there is, and to the extent to which there is, substantial identity of interest between the old and the new owner."
The Inland Revenue say that if a man has been carrying on a business and turns it into a company and holds 80 per cent. of the shares, then they recognise that that is substantial identity of interest, but if, say, there are four partners in a firm, each of whom has a quarter share in the partnership and they turn themselves into a limited company, and hold 25 per cent. of the shares each, that is not substantial identity of interest, because no man has more than 25 per cent. of the new ownership. That surely, is a misconstruction of the words of the Financial Secretary, and are, I say, narrow in the extreme.

I want to give some instances which are, perhaps, more to the point in exhibiting the inequality and injustice than mere general statements. I want first to tell of a partnership in a well- known town in the North of England where there were four partners, all having various shares in the business. In 1918 they formed themselves into a private company and took shares in that private company in the exact proportion of their share in the private firm. No one has ever had anything to do with the business except themselves, or has taken a penny out of it. The four men have been partners for years, yet because none of them have 50 per cent. or 40 per cent. of interest in the company, they are denied any repayment of Excess Profits Duty which they paid before. The second instance is that of a big company in Yorkshire with a capital of £500,000. They had distributed very small dividends, had put large sums to reserve, and had a reserve actually more than double the capital. They wanted fresh capital during the War for extensions so they decided to form a new company with £2,000,000 capital. They decided that each shareholder should have two bonus shares for each one held, which absorbed £1,500,000, on condition that they subscribed for one new share per share, thus bringing in £500,000 new money. This arrangement 99 per cent. of the shareholders accepted. One per cent. renounced the arrangement. The rest of the old shareholders remain in that company to the extent of 99 per cent., and in the exact proportion as before, yet they are denied any return of Excess Profits Duty resulting from the narrow reading of the answer given by the Financial Secretary to the question put to him.

The third illustration relates to a company in Scotland. A number of the shares were bought by someone interested in the trade, but the original shareholders remained behind, and it was not, indeed, a change in the company at all. In that case, as in the case of the companies I have explained, the company was admitted as of the same entity, and therefore it was said the Excess Profits Duty would be repaid. It was found, however, when four-fifths of the shares had been actually paid for that this man was buying, that the other one-fifth could not, under the will of the founder of the business—made about 60 years ago, by which the shares were to be handed down from generation to generation—be transferred for fear that certain grandchildren, on becoming 21, might object to the transfer, and it was decided to cancel the whole transaction. The money was paid back, a new company was formed, exactly the same, without any promotion money paid, and so on; the transaction was simply to get out of the difficulty, and affairs went on exactly as under the old company, but no Excess Profits Duty could be returned. The fourth case relates to a company in Cheshire where one individual carried on a business. He died in September, 1916, and his wife carried on the business until 1st June, 1919—a period of nearly three years. Then she formed the business into a limited company. She and her sons took 96 per cent. of the shares themselves. They afterwards admitted one or two outsiders with fresh money. She and her sons still hold 79 per cent. of the shares in that family business, yet they have been refused all repayment. This is one the cases where they have actually gone into liquidation and been wound up. There were two private companies, one in London and the other in Manchester. They found their businesses almost identical in the way of profits and assets. They therefore agreed to form a company with £250,000 capital. Of this, £200,000 was to be paid-up capital. Two Shareholders in the one works took £100,000 worth of shares, and, I think, five shareholders in the other took the £100,000. The businesses were simply amalgamated. They were all working partners in their companies, seven all together. There was no difference whatever in the businesses except that the two firms came together and worked both, and had paid Excess Profits Duty, yet because they amalgamated, there being, as I say, no alteration whatever in their businesses—although their accounts were kept entirely separate—they are refused all repayment of Excess Profits Duty.

My last example is one of a firm that is joined to three private companies. They agreed to a basis upon which they would amalgamate. They took shares in their new company in exactly the same way as I have described. There was no alteration practically in the shareholding during all the years for Excess Profits Duty. Each separate business had prior to amalgamation paid Excess Profits Duty, and the accounts are still kept separately and separately audited; yet although they have the figures and there is no confusion whatever, and they can be put before the Inland Revenue, the repayment of Excess Profits Duty is entirely refused. I suppose the answer will be, as it was last night from the Solicitor-General, that it costs money. The right hon. Gentleman justified Clause 14, and, I think, another Clause, on the ground that certain people were trying to avoid paying their fair share of taxation and that they were making other people pay their share for them. This seems to be a case in which we are making certain of the taxpayers pay a further share of the taxes which we ought not to ask them to do. We say, "We are going to cut down the Income Tax, and do this, that and the other, and we are going to make you pay for it. By the construction put upon the Gittus case the Inland Revenue are going to make those concerned unable to recover. "Therefore," they say, "we are going to reduce income-tax—at your expense."

I want to point out to the Solicitor-General that the effect of the Gittus case was to say this: that the right of repayment is a personal one; it belongs to the individual who has paid the Excess Profits Duty. The result of the speech last year of the Financial Secretary, his answer to me in February, and the actual judgment in the Gittus case, and the wording of Section 38, Sub-section (3), of the principal Act shows that this right of repayment now generally accepted is a personal one—personal to the person who has already paid the Excess Profits Duty. Let me read a portion of Lord Cave's Judgment in the House of Lords. He said:
"The relief there provided is given to a 'person' and that person must prove a deficiency in 'his profits' in order to be entitled to a return or set off in respect of duty paid or payable 'by him.' The object of the Sub-section is expressed to be to make the total amount of duty paid by him 'during the whole period accord with his profits or losses' during that period. In my opinion it would be doing violence to the express terms of the Act to construe these expressions as including a previous owner of the business. There is in this Statute just that 'personal note' which in the case cited to your Lordships (Scottish Shire Line v. Lethem) (1912, 6 Tax Cases 91) was found by the Court of Session to be absent from the Statute there in question. This being so, I agree with the opinion expressed by Mr. Justice Rowlatt, and adopted by the Court of Appeal, that, taking this Section alone, it clearly points to the case of an individual and means that the loss in his business which a person is to be entitled to set off against the Excess Profits Duty payable by him is a loss personal to himself."
I put it to the Solicitor-General that the words "substantial identity of interest" must not be taken to mean only where one man retains 80 per cent. of the old business. If there are four partners in a. firm which paid Excess Profits Duty, and they form a limited company and take shares in the correct proportions, there is substantial identity of interest; they are the persons who paid the Excess Profits Duty, and they are the persons who have the right to get it back. The judgment of Lord Cave brings that out—there is "the personal note," as he says, that personal note which was absent from another Statute.

To try and ride off in that very narrow, unjust, and inequitable way by that narrow construction is doing an injustice to a number of firms. It is bringing them to the ground, and making them pay a share of taxation which other people ought to share with them. It is causing a very considerable amount of distress and fear, and the consequences and effect of it must he that where businesses are closed down, not merely are the proprietors sent to another method of earning their living, but work-people are thrown into the streets.

6.0 p.m.

I beg to second the Amendment. I do so because I, with others, have Amendments on the Paper aiming at the same thing, which is an Amendment of Sub-section (3) of Section 38 of the principal Act, and deals with the substantial identity of interest between the new owner and the old. I must not, however, be taken to be associating myself with the exact wording of the Amendment on the Paper. The words of the Amendment are:

"Substantial identity of interest by reason of persons beneficially interested in the old owner being beneficially interested in the new owner."
If those words be placed upon the Statute Book they will simply constitute an anomaly. The Amendment standing in the name of the hon. Member for Farnham (Mr. A. M. Samuel) seems to me to be the first Amendment on this subject which has passed through the hands of a lawyer. The words he uses are:
"identity of interest by reason of any person, or persons, beneficially interested in the original ownership being beneficially interested in the new ownership."
I think that makes the point clearer. After all, this is a drafting matter, but I hope the Chancellor of the Exchequer will accept the principle of this Amendment. I cannot help thinking that the hon. Member for North-East Derbyshire (Mr. Holmes) has missed the principal argument in favour of his own Amendment, which is the very existence in the Bill of Clause 26. The Government comes forward with a Finance Bill containing a Clause which makes a far wider extension of the original privilege given by the principal Act than is contained in any of these Amendments. The Clause lays down that where there is devolution of ownership, without any identity of ownership, the new owner shall in certain cases be put into the same position as the original owner. In other words, this means that as long as the devolution is on the usual lines of husband to wife, wife to husband, father to son or daughter, grandfather to grandson or granddaughter, so long as the devolution is in accord with that principle of legitimate expectation which Jeremy Bentham terms the basis of security, the new owner shall be recognised as having the rights of the old owner.

We are now asking for something very much less than that, for the Clause deals with cases where there is no identity of ownership at all. No one quarrels with Clause 26, but if we put that Clause on the Statute Book how can we refuse the Amendment? An answer has been quoted from by the Mover of this Amendment which was given in this House on the 20th February last dealing with administrative action in these cases. I protest most strongly against the idea of correcting these hardships by administrative action, because such action in matters of taxation is only a temporary makeshift at the best, and it is always bad. The words are so important in the answer which has been quoted by the hon. Member for North-East Derbyshire that I will venture to repeat them:
"The Commissioners of Inland Revenue have been instructed to deal administratively with cases of the character to which the hon. Member refers. The cases corning within their purview are numerous and present widely divergent features, and no detailed instructions could be framed to cover the various circumstances arising."
My submission is that it is for the House of Commons to decide the principles upon which people are to be taxed, and it is not for us to leave it to administrative action. I trust my right hon. Friend will see his way to accept this Amendment, but if he is not able to do so, I hope at least he will be able to assure us that the administrative method of dealing with taxation will be strictly limited.

I would like to give my support to this Amendment, because I have one on the Paper very much of the same nature. How can the right hon. Gentleman justify the operation of this Clause on lines of justice, reason or honesty? The Chancellor of the Exchequer said something about legal decisions and common sense, or something of that kind, but here is a case where the Treasury talk about adopting administrative action in order to deal with certain hard cases. To me this proposal looks very much like repayment dodging. If you wish the taxpayer to deal out equity to you then you must deal out equity to the taxpayer.

On this subject which is one of very great importance, the Committee will, of course, naturally expect the Chancellor of the Exchequer to deal with the main question. I wish to disarm hostility at the outset by saying that I am not going to attempt to deal with the main question, but I will put before the Committee certain preliminary considerations which I submit are of the utmost importance to a proper appreciation of the question which the Committee has to decide. With the aphorism of the hon. Member for St. Pancras (Major Barnett) that administrative action in matters of taxation should not include a discretion to tax or not to tax, I for one am in profound agreement as a general principle. The reason why administrative action in certain cases exercises a discretion as to whether a given case comes within the tax or not, is because it is one of practical difficulty, and that is the only justification for administrative action. In certain cases it is a fact that it is so extraordinarily difficult by general language such as must be used in an Act of Parliament to cover the variety of cases which arise that sometimes resort must be had of necessity to minor degrees of discretion in administrative action in order to prevent hardships in individual cases which cannot have been intended by the spirit of the taxing Act.

Subject to these general remarks, I agree and accept the challenge on behalf of the Government that the question which has to be decided to-day is a legislative question. We have to decide whether or not the proposal contained in Clause 26 of this Bill is a right or a wrong proposal, and if it is wrong, we have to decide how it should be altered. I accept that proposition, and it is from the point of view of endeavouring to help the Committee in this matter that I want to deal with a certain aspect of the case which seems not to have received quite sufficient attention in the speeches which have been made to-day, and in the various discussions which have taken place on this subject in the past. The speech of the hon. Member who moved this Amendment, if I may say so, was like all his speeches, extraordinarily clear and lucid.

I wish to point out, however, that the aspect of the case, with which I want to deal, was not faced by the hon. Member. The fundamental error made by the hon. Member is that he treated the Excess Profits Duty as a tax on the businesses, instead of being similar in character to the Income Tax, the Super-tax, and other taxes payable by the individual person. He said, practically, that whereas the duty by the Act is levied upon businesses, and whereas those who are liable to the duty are the owners of trades and businesses, under Sub-section (3) of the Section in question an individual is entitled to repayment if he makes a loss and asks for a recoupment out of the tax paid in a previous accounting period. The reason why that is important is, that this question of identity, of continuing identity, is really at the bottom of the views of most of those who feel that there is a moral force in the claim for a wide extension of the law as it is to-day, in order to give recoupment under Sub-section (3) to a great many persons and companies who do not at present by the law get it. If the subject of taxation had been intended by Parliament to be the business, then continuity of the business would, ex hypothesi, also come under the same provision. According to the assumption of the Mover of the Amendment, that was the basis of the legislation the continuous business, and that would seem to carry a right to repayment where, having made a profit in one accounting period, it made a loss in another accounting period, even though the ownership of the business may have been more or less changed.

That is not the point of view from which Parliament imposed this duty. Parliament imposed it as a personal tax, and that is the whole point of the decision in the Gittus case. No one is more sensible than a lawyer—and no one is less inclined to boast than a lawyer—of the disinclination of this House to be lectured on legal questions, but I hope the Committee will listen to me for a few moments while I submit what I think is the true view of this case. The point I want to make clear to the Committee is that this legislation as to Excess Profits Duty is based on the taxation of the person with certain necessary limitations when you come to work it out, and we have worked it out in this country to be for a period of seven years. That is the question the Committee has really to decide. An hon. Member has suggested, by way of interjection, that it is a question of honesty and of moral obligation, but those are questions which one cannot decide until it is known what Parliament intended to do by this particular legislation. It is only when one appreciates the character of the tax that you get the real object of the Section. A question which, I agree, is of great importance is the question of what is right and what is wrong. The hon. Member said that that was the whole issue. It is not the whole issue. Necessarily these questions of taxation involve a degree of right or wrong. You cannot help hardships in individual cases, but in considering the moral obligation you have to consider the question of what you can afford. You can conceivably have a case where the moral claim to the remission of taxation which was well founded would yet result in such a cost to the Exchequer that it could not simply be made. These questions are necessarily questions of degree, and assuming they are questions of degree, you get to the point that where it is right a thing should be done, it has to be done at whatever cost. We have not been through the Great War without learning that lesson.

I want to say a few words on the purely legal question as to what Parliament intended by this legislation as expressed in the Act itself. In the Section which imposes the duty, Section 38 of the Finance (No. 2) Act, 1915, it is provided that:
"There shall be charged, levied, and paid on the amount by which the profits arising from any trade or business to which this part of this Act applies in any accounting period…exceeding by more than £200 the pre-War standard of profits as defined for the purposes of this part of this Act a duty…of an amount equal to 50 per cent, of that excess."
And then Sub-section (3) says:
"Where a person proves that in any accounting period after the fourth day of August, 1914, his profits have not reached the point which involves liability to Excess Profits Duty or that he has sustained a loss in his trade or business, he shall lie entitled to repayment of such amount. paid by him as Excess Profits Duty in respect of any previous accounting period, or to set off against any Excess Profits Duty payable by him in respect of any succeeding accounting period such an amount as will make the total amount of Excess Profits Duty paid by him during the whole period accord with his profits or losses during that period."
Those of us who were in that Parliament remember the Debates that took place on this Averaging Clause. The point that was made was that if a man made a profit in one accounting period and lost in the next it was fair to him that he should be able to set off one against the other. There is nothing in the Statute which goes back upon or modifies that fundamental position as contained in Sub-section (3) of Section 38. On the contrary all the other provisos bear out that view because it is laid down that the calculation of profits shall be made in the same manner as the calculation of Income Tax profits, and Income Tax methods, and the Income Tax point of view runs through the whole Schedule and the whole of the provisions of the Act. Throughout it is treated as a sort of Income Tax. I need not trouble the Committee with details. There is only a single case where there is a reference to change of ownership of the business—and that is for a purely subsidiary purpose, namely, for the purpose of calculating the profits of the accounting period for which the duty is to be paid. What the House of Lords pointed out in the Gittus case was that that was a subsidiary purpose with the object of getting at the pre-War standard, but that the basis of the legislation all through was that the individual must make the payment.

With regard to the interpretation which the hon. and learned Gentleman has put on Sub-section (3) of Section 38, that it is the man who paid the Excess Profits Duty and that no one else has a right to claim repayment, will the hon. and learned Gentleman explain the position in a case where, say, four partners in a private firm turn it into a private company each with a quarter share in the company? Are they not, in making a claim for repayment, asking for the return of the Excess Profits Duty which they themselves have paid?

I paid such close attention to the hon. Member that I quite understood the point he made, and I shall deal with it; but by his permission I think it would be more convenient to take it in what seems to be its logical place rather than at this moment. Perhaps he will forgive me if I postpone my reply to him on that point till later. I want to read a few of the remarks of Lord Sterndale, the Master of the Rolls, who presided over the Court of Appeal in the Gittus case—a man of extraordinarily sound judgment and with a great knowledge of business. He pointed out that the issue in the case was whether there was a continuing identity in a- business which had been owned by the father and which by him was left to the son who, before the father's death, had had no part in the business. It was claimed that the tax was payable out of the business and was a tax on the business, and that therefore a claim for repayment attached because of the continuing identity of the business. After quoting Sub-section (3), which I have read to the Committee, Lord Sterndale in the course of his judgment said:

"In order to make that argument good you would have to alter the language of Sub-section (3) as enacted by Parliament and introduce into it a number of words that were not there, referring in each case to the owner of the business for the time being, instead of, as the Section does, simply to him and his business. You would then find that you would have to read the Sub-section thus: 'The person carrying on the business for the time being shall be entitled to repayment of such an amount paid by the person carrying on the business for the time being, whether himself or another person, as Excess Profits Duty in respect of any previous accounting period, or to set off against any Excess Profits Duty payable by the person carrying on the business for the time being in respect of any succeeding accounting period such an amount as shall make the total amount of Excess Profits Duty paid by the person for the time being carrying on the business, whether the same person as before-mentioned or not, accord with his profits or losses during that period.'"
Lord Sterndale remarked that these words were not in the Act, and they seemed to him to be entirely foreign to the idea of the Act. The repayment was intended by Parliament to be given to the man who had paid the tax and because he had paid it. It follows from that, that where the business passes to somebody else, whether by sale or by assignment at law, the person who succeeds to the business may find he has made a bad purchase, or he may find he has succeeded to an unprofitable concern, but Parliament took the view that the tax had to be paid and that that kind of hardship was not to be taken into account. I venture to submit that that is the first fundamental principle. It is essential to realise in regard to this scheme of taxation that it was not intended by Parliament to give to the successor in a business any right to recover payment. I am expressing no opinion whether that is right or wrong I am dealing with what was the scheme of Parliament when the legislation was passed. Let us consider the result of the scheme introduced by Parliament—a result not from a legal point of view, but from a moral point of view. It is create undoubtedly a great anomaly, to cause greater disadvantages to the Exchequer, and to confer great advantages on individuals themselves who have never paid any Excess Profits Duty. In law a limited liability company, registered under the Companies Act, is a legal person. The result of the framework of that legislation is that where a legal person continues from one accounting period to the other a company is just as much entitled to repayment as if the company had been a natural person. What is the moral aspect of that? The moral aspect of it may be, as has been already said, that the shareholders' list may be completely changed at the end of one accounting period, and there may be an entirely new list of shareholders at the commencement of the next accounting period; and, if that business in the next accounting period makes a loss, then, under this legislation, the Exchequer has to pay back what has been previously paid in Excess Profits Duty. Why? There is no moral justice in it. You do not have these moral questions existing in cases of taxation nearly so much as has been generally supposed. I now come at once to the case which has been put by the hon. Member who moved the Amendment. We all agree that in that particular case, where, say, four persons pay Excess Profits Duty in one accounting period, at the end of which they turn themselves into a limited liability company, keeping each the same share in the concern and taking in no new person, it seems to be a hardship on moral grounds that they could not be entitled to recover. Why? Because you are concerned with persons. But is the Exchequer to be hit both ways? Is it to be "Heads I lose, tails you win?" You must face this inevitable result of all taxation, that there are cases which fall on each side of the line. Some are hard on the Exchequer, some are hard on the individual, and sufficient allowance has not been made for the legal necessity that follows from all taxing Statutes.

May I interrupt for just a moment? I only want to follow the argument of my hon. and learned Friend. Why is not this case covered by the Clause as it stands, it being a voluntary disposition?

Because the company, which is the person who owns the business, is not the husband or the wife of the previous owner. I hope my Noble Friend will not think I am being facetious at his expense, because it is not very clear. Approaching the matter, not from the legal, but from the moral point of view, which even the Chancellor of the Exchequer wants to do if he can—

Even the Solicitor-General agrees with that. Approaching the question, so far as possible, from the point of view of the moral plane, I would ask the Committee one question: What is the hardest case of all? Is it not just the Gittus case, where the father has paid large sums in Excess Profits Duty, hands over his business, whether as a gift or upon his death, to his son, and, in the next accounting period there is a great loss and the son cannot get back one penny?

I am glad to find myself in agreement with the hon. Member. That case has been met by this Clause, and in addition we include a grandfather as well as a husband or a wife. We all feel that those are the hardest cases, and the ones which ought to come first on the list if we are to meet any of them. We have met those cases; but I say it is quite illogical, as, I think, the hon. Member who moved the. Amendment remarked, that we should have done so. He says the Clause is founded on no principle, that it is illogical. I agree. It is not founded on any taxing principle; it does not follow by any logical relevance from any provision whatever in Excess Profits Duty legislation. For the purpose of dealing humanly by administrative action with such cases, we have attempted to put into the Statute the cases which we think are those which are most clamant for treatment—and at what price? At the price of some three millions sterling. Do let us face these taxing questions as taxing questions. There is no rhyme or reason for the extensions that have been asked for based upon any provision in the original legislation. It was an artificial tax, arbitrary, capricious, in many ways bad. It has gone, but it has left a heritage of trouble behind it. Can the Exchequer afford, because the tax was an unfortunate one in some of its effects, to pay a number of claims, because, from a certain point of view, as I am sure the Chancellor will be the first to admit, some of these claims—not all by any means, but some of them—are claims which he would like to meet if he could.

I do not propose to follow the Solicitor-General in the legal argument which he has just put before the Committee. It seemed to me that the greater part of that argument was directed against the Government's own Clause. Be that as it may, I rise simply to follow the example of the hon. Member for North-East Derbyshire (Mr. Holmes), and to give to the Committee a definite, concrete case, which I believe will satisfy them that some Amendment on the lines of that which has just been proposed is absolutely necessary. The Committee will notice that the Clause covers a disposition from a. father to a son. I have a concrete case of a private company in which a father and son were shareholders. The son was killed, and his share devolved to his father. Under the Government's Clause, the company is not entitled to make a claim for repayment of Excess Profits Duty in respect of the son's share. I venture to think that that is a very hard case, and that, whatever the Government may do with this Amendment, which is of a more general character, they ought., at any rate, to extend this Clause to cover a disposition, not merely from a. father to a son, but from a son to a. father. I can give the right hon. Gentleman the actual facts, which I have in my possession here, and I very much hope that he will be able to make this small and very reasonable concession, even though he may find that, for financial reasons, he cannot accept an. Amendment of general scope. The case is a very hard one, and is a very genuine case. The son was killed in the War, and the father is unable to claim the repayment to which he would otherwise be entitled. I venture to make this appeal on that concrete case to my right hon. Friend.

The case which the last speaker has mentioned is just an example, not only of the difficulty of dealing with this kind of case, but also of the possibility of the Chancellor of the Exchequer doing something at any rate to meet it. Everyone will agree that the case of the succession of a father to the share of his son is as strong as that of a son succeeding to his father. In fact, the Solicitor-General, only a minute or two ago, stated, apparently in error, that the Government's Clause did cover the succession of an ancestor as well as of a descendant. I only hope it may be the case that he was merely intelligently anticipating what the Chancellor of the Exchequer was intending to do, namely, to make that slight concession. The Solicitor-General referred to the Gittus case, which was a case of the succession of a son to a father, as being the hardest one that could be imagined, and the one that it was most necessary to relieve. I am not quite so sure about that. I think that, perhaps, a harder case still is that of the man himself who succeeds to his own business and cannot get relief. May I put this case? The owner of a business, or it may be a partnership form of three or four individuals, find themselves in the difficulty in which so many firms found themselves at the end of the War. They are absolutely unable, without further funds, to purchase the necessary stock or plant for carrying on their business. They have not the money, and they have practically very little security upon which they can borrow it, owing to their liability for Excess Profits Duty. What is that firm to do if it can? The first thing that occurs to one's mind is that it must borrow that money, and many of them, those who were able to do so, did. Many of the oldest and most substantial firms in this country borrowed money at 8 or even 10 per cent. But suppose that they say they cannot get anyone to lend them money, even at 10 per cent., because their security is not good, what can they do? They look about and find a man who has not only money, but youth, ability and the power to work, who wants a chance to become a partner in a business, and they take that man into their business as a partner instead of borrowing the money from him. Is that a change in the ownership of the business which is to disqualify the original partners in the firm from recovering the Excess Profits Duty?

Let me go one step further. An individual or a set of individuals in partnership are in the position which I have described, and they have to get further money which they cannot borrow. The only way in which they can get it is by getting a number of people to come in as sleeping partners, or, in other words, to turn their business into a limited liability company, and get these other people to take shares in it. The Chancellor of the Exchequer and the Solicitor-General both, I have no doubt, know the case that I have in mind. It happened a very short time ago. The partners in that case formed their business into a limited liability company and let in other persons as equal shareholders with themselves. They took their purchase money entirely in shares. They did not take one penny of cash, and, in fact, bound themselves not to part with those shares, putting it out of their power, therefore, to take cash. There is no clearer case in this world of a man who himself has made a loss in a business in which he himself has made the profits which made him liable to pay the Excess Profits Duty, and if the Chancellor of the. Exchequer cannot go so far as the Amendment would go, there are cases of this kind where there is personal identity of interest, even if it may be only in a part of the business instead of the whole, where you can trace that actual personal identity in which that man should not be debarred from getting back his share by reason of the fact that he has been obliged to part with part of his business owing to the stress of the times and the difficulties in which he finds himself.

Dealing administratively with hard cases may be justified as a temporary measure till the time when you are able to legislate for them, and if the Government has been able to deal with certain cases administratively in the past that: s one very strong reason why they should deal legislatively with the question now, and it is not an answer to their argument that owing to the complexity and the glaring number of cases which have to be dealt with, it cannot be dealt with satisfactorily by this Bill. I say it can. You have only to get a certain form of words, which will carry you some way at any rate, and if the Chancellor will not go the whole way we want him to, let him go a little way. Then he can still reserve to the Government the power of dealing administratively with cases which are on the border line, or to put it more easily for him still, give himself by legislation the definite power to deal administratively with cases which come within a certain limit and the Inland Revenue can be left perhaps a discretion to deal according to the circumstances of the case with any deserving case as long as it comes within the limit.

I quite appreciate the Solicitor-General's point that where a company is still the owner of a business the shareholders in that company may have changed, but surely the answer to that is something like this. Where a company can get back this benefit, notwithstanding the fact that the beneficial owner has changed by reason of the shares changing hands, that is a case in which the Chancellor has left a hole in his tax-collecting net, and because he has allowed some people to get a benefit which they are entitled to legally, but not in equity or according to the higher standards of morality, it is not for him to say, "I will stop other people who are most thoroughly entitled to get this money back from getting it back. I cannot afford to let them have what they ought to have because I have allowed someone else to have it." I suggest that something should be done on the lines of this Amendment, and I hope the right hon. Gentleman will hold out some hope that on the Report stage we may have some slight modification of Clause 26 so as to cover the case of the individual who remains the owner, and is practically bound to remain the owner of the business, notwithstanding the fact that he has been driven by stress of circumstances to share it with someone else either in a partnership or, through necessity sometimes, turning that partnership into a private limited liability company.

I could not vote for the Amendment as it stands, because it seems to me, whatever view you take of this, that it goes a great deal too far. As I understand it, even if a man had sold the business completely, provided there is an identity of interest between the purchaser and the vendor, the purchaser would be entitled to come upon the Exchequer for repayment of the Excess Profits Duty paid by his vendor. I cannot think that that is just.

Does it not? I think it does—

"and in any other case where there has been a change in ownership of a business, repayment of or set off against Excess Profits Duty shall be made to the new owner in a similar manner, if there is, and to the extent to which there is, substantial identity of interest by reason of persons beneficially interested in the old owner being beneficially interested in the new owner."

That means that if A had 25 per cent. of the old business and continues to have 25 per cent. of the new business and there is no one else who has an interest in the old and the new business, A himself will have the right to get back 25 per cent. of the total which the new company would have the right to get back from the Inland Revenue, and the other 75 per cent. would not be recovered by the other owners.

As the thing stands, I think it goes a great deal further than that. So I read it. I do not know whether that is the view of the Chancellor of the Exchequer, but it appears to me to go a great deal further than that.

Is it only the case of the owner continuing in the business in fact that is dealt with by the Amendment? I do not so understand it. If that be so, you must have entirely different drafting. Is not the real conclusion of this that the moment you try to meet hard cases under the Excess Profits Duty, you are launched on an absolutely endless quest? You cannot meet all the hard cases that arise, and the real question is where you are to draw the line. Wherever you draw the line, there will be some cases on the other side which will be hard cases.

We are not asking really for relief for hard cases. We are asking for what we consider to be the truly equitable and right interpretation of the old Act, which says that where an individual has made profits in a business on which he has paid and has afterwards made losses he may reclaim those losses We ask the Government to say that that person who has made a loss in a business represented by 100 per cent., and who has lost 50 per cent. of that business, may be able to get back in respect of what he has lost on the 50 per cent. of the business which he has retained. We keep entirely to the person. We say that if that person instead of being a partner in a firm is shareholder in a limited liability company who has not parted with his shares he is still the person who has made the profit, paid the tax, sustained the losses and should get the repayment.

I quite realise, indeed it was because of the hon. Member's speech that I realised, the great hardship of the case that he puts. I think it will be quite easy—I am sure my hon. Friend can do it with great ease—to extend that and to show other hard cases a little further on and so on.

I am not sure that he is right in saying they come outside. I am not against any remission of taxation which is called for by justice, but it appears to me that this Amendment, as drafted, goes a great deal too far, and I could not possibly vote for it as it stands, and if there is a Division I shall vote for the Government.

I have been asked by an organisation which is representative of a very large number of smaller manufacturers, who are the persons very largely interested in the recovery of this tax, to press the Chancellor of the Exchequer to make some wide and generous concession. The point he has to remember is that this tax was hasty War legislation. I remember when it was passed through the House, I think in an Autumn Session. It was rushed through with very little consideration of the Clauses. There was no opposition or criticism at all from the point of view of the people who would be ultimately liable to pay the tax. It was just that the money had to be raised, and there was no grousing on the part of the manufacturing interests as to what they would have to pay. They paid willingly. They were only too glad to give their profits and to give everything to help to win the War. [Interruption.] Of course, there was a great distinction between their attitude and that of the Labour party, who incited strikes and harassed the Government in every possible way and who were profiteers. So far as the taxpayers were concerned, they were only too glad to do what they possibly could to find the money for the purposes of the War.

Now our case is that this is a very great hardship, and it is necessary for my right hon. Friend to look at all these things from the point of view of whether or not the demands which the Treasury are making are or are not honest. We do not want to deal with this matter now from the strictly legal standpoint. You want the principle of give and take. Is it right and is it fair? I think my right hon. Friend will be well advised if he makes some concession in the direction of meeting this Amendment. There is a feeling in the mind of a very great number of taxpayers that they have been harshly used by the Treasury, which is taking a far too technical view. Instead of taking a broad view, it is making demands from a purely technical point of view. The cases which have been stated to-day show that there is a very great measure of justice in this claim which has not been met by the purely legal argument which has been addressed to the Committee by the Solicitor-General. I want to make an appeal to the Chancellor of the Exchequer if he cannot see his way to meet it at this moment to reserve this question till the Report stage and see if he cannot find some words which will to some extent meet these great cases of hardship.

7.0 p.m.

I hope the Chancellor of the Exchequer can see his way, if he cannot accept the actual wording of the Amendment, at any rate to substitute something which will give more or less the same effect. I think the Mover of the Amendment put his case so ably and clearly that there is very little left for anyone else to say, but I have been particularly asked to bring what seems to me an extraordinarily hard case to the notice of the Committee. The case I have in mind is that of an amalgamation prior to 1920. Three firms which were separate, individual entities; during the years prior to 1920 they made large profits, and between them they paid something from £400,000 to £500,000 to the Chancellor of the Exchequer. In 1920 they amalgamated. Since then, as every-one knows, times have been extremely bad and much money has been lost. It was a perfectly genuine amalgamation; these firms did not go out of existence with the idea of avoiding the Income Tax or anything of that kind. This is not only a case of substantial identity of interest, but they are, to all intents and purposes, the same identical firms. Yet the fact remains that on account of the amalgamation they are not entitled to recover any of the excess profits they have paid, and they are not entitled to any repayment or set-off on excess profits. If they had not amalgamated these three separate, individual firms would have been entitled to that set-off; but owing to the amalgamation and to what, to me, is the most extraordinary state of the law, they are apparently not entitled to recover anything. I am no lawyer. I am perfectly well aware of the fundamental fallacies with which every layman approaches all these legal technicalities. What the taxpayers of the country want, however, are not legal quibbles, but common elementary justice, and nothing will convince them that it is fair or just that three firms, who would have been entitled to recover or to have a set-off in regard to this tax, should, by the mere fact of amalgamation, lose that right. Therefore I hope the Chancellor of the Exchequer will see his way to do something to put right what seems to me to be an extraordinary anomaly in the ordinary tax-paying law.

I should like to add my voice to the appeal of the Chancellor of the Exchequer and the Solicitor-General again to consider carefully whether, when the conduct of a business remains in the hands of the vendor and when the personnel is in no way changed, such a case cannot be dealt with on the basis of no change of ownership. I thoroughly appreciate the action of the Government in meeting the case of the one man, but is it fair to single out one man and to say, "We are going to give you this benefit," and then to take two or three men, or more, and say, "In your case we will continue the injustice which we confess exists in the case of the one man." I hope the Government, as they have admitted the injustice in the case of the one man and have met it under this Clause 26, will now carry the matter through and meet the injustice in the case of all those who come under the category in which the business and the personnel remain the same. As a chartered accountant I have many cases of this description and I trust that this injustice will be remedied. We all know the case in the Bible where, for the sake of 10 just men, it was promised that two cities should be saved from destruction. In this case we have to appeal in a reverse way. It is not a question of 10 just men saving a city from destruction, but you have one just man whom you are saving from destruction while there are two, three or more just men whom we ask you to save from penalties and from having their businesses destroyed. I hope the Chancellor of the Exchequer will look at the matter in this light, and will see that equity and justice demand that the principle which has been applied to the one man should be applied to all those who are in the same position, and who are suffering under the disability due to the non-return of the Excess Profits Duty.

I should like to emphasise what has been said with regard to the particularly malicious working of this intolerable tax and the continuation of this very dreadful injustice even after the War has concluded. Like the rest of hon. Members, I could give instance after instance where men have had their businesses denuded of capital in order to meet the payments of the Excess Profits Duty. They have been compelled, having no other resources open to them, to turn their businesses into private limited companies. Thousands of pounds have been paid by them previously under this compulsory Act, yet they have been precluded from claiming repayment of the duty. One could not help admiring the courage of the Solicitor-General in his defence of this Clause when one remembered that he, himself, belongs to a profession that has made vast profits during the War and which carefully excluded itself from the operation of this tax. When, however, he says that the Excess Profits Duty is on all fours with the Income Tax, the thing is untrue and in every way incorrect. I will proceed to prove that. The basis of the Excess Profits Duty is that it selects a certain section of the community and penalises them, leaving the rest of the community free from this special taxation. I invite the attention of hon. Members on the Labour Benches to the fact that half the land of this country changed hands at very huge profits during the War. Have the vendors been called upon to pay Excess Profits Duty?

No. Yet the Solicitor-General says that this tax is something which, in common with the Income Tax, applies to the whole of the community. I say that the Excess Profits Duty, as a whole, is a wrong tax. It is a tax that inflicts hardship on one special section of the community to the exclusion of the rest. I support most strongly the Amendment moved by the hon. Member for North-East Derbyshire (Mr. Holmes). It is pitiable to think that you are taking £80 and £90 out of each £100 from the profits of a man who, in pre-War days, was doing badly.

The hon. Member says "excess profits." Supposing, however, that a man was making nothing before the War. Perhaps he missed the market through some circumstance over which he had no control. He had a bad time. With this tax and Super-tax you take from him £90 out of each £100. Then, when he hopes to carry on after the War, the slump comes—take the case of cotton, where you had twist at 70d. a lb. and which dropped to 17d. He has to face that loss and the slump. The only chance he has of saving himself from bankruptcy is to go to the Government and ask them to hand back to him some of the profits which he paid them previously. If he has been compelled to change the ownership of his business in the slightest degree, and to call in someone else to give him financial aid, he is precluded definitely and for all time from getting that assistance which his more worthy competitor is able to receive purely and simply from the fact that the wealthier man has not had to call in outside assistance. I feel very strongly that that is not a position the House of Commons ever contemplated would arise when this legislation was passed, and I hope hon. Members will recognise that this Amendment simply offers an opportunity to remedy something that in previous Sessions was done wrongly, and which would not have been done had Members been fully acquainted with the way in which the thing was going to work out. Therefore, so far as I am concerned, I shall support the Amendment.

After the very improving lessons we have had, and after the exhibition we have been given of the humorous and interesting capitalistic virtues, I am rather sorry to introduce anything like an element of discord into the harmony of the proceedings. I want, however, to call on the Chancellor of the Exchequer not to concede one single inch or one single copper. I hope on this occasion he will remember something more than this present Budget, and recall what happened during the War. The only objection I ever had to the Excess Profits Duty was that it was not cent. per cent., and that it never went up above 80 per cent. What anybody wanted with excess profits I cannot imagine, nor can I imagine what title anybody could have to excess profits at a time when the nation was in such awful peril. This is another illustration of the nobility of private enterprise. You will adways notice that as soon as these private enterprisers get into a tight place they come snivelling to the Government, either for a subsidy, or for some remission of their natural and proper obligations to the State of which they are citizens. I do not think there is anything more deplorable—I am almost ready to say more depraved—than the attitude of some of these people who pretend that they are concerned with the interests of the small struggling traders and manufacturers. They are asking one for the small traders and two for themselves all the time and every time. It seems to me that under existing conditions, whether or not we agree with the method of the Chancellor of the Exchequer, we must all concede that he has to get the revenue. We know that he has to balance the national accounts somehow, and if he is going to listen to every importunate for release from natural and proper obligations, I do not know where he will be. I suggest that he should stick tight in this particular case and give no concession whatever.

I have listened to the discussion with very deep interest, and with a not unnatural anxiety to discover whether there was any method by which individual hard cases, to which reference has been made, could be alleviated. This problem has been continuously before me ever since I became Chancellor of the Exchequer. As the hon. Member for North-East Derbyshire (Mr. Holmes) has stated, the question was raised on the Finance Bill of last year, and at that time I gave certain indications of my desire to find a remedy in cases which, obviously, were hard. I also indicated that if such a method was discoverable I should be very glad to give it my most earnest consideration, but everything which has happened during the discussion this afternoon has made it clear to me that the problem is just as difficult to-day as I found it when I discussed it a year ago. The real fact is that when you cone to define the class of cases in which relief ought to be given, you find yourself in an absolutely impossible position. Nobody has really indicated where we can draw a line upon which what is supposed to be justice in this matter has to be done—if we look at the views on justice and equality put forward by hon. Members—rather than the rights which are given by Statute.

We find difficulties disclosed in the Amendments on the Paper. One of the Amendments talks about "substantial identity" of personality in the old firm and in the new. This is a phrase which is adopted from an answer to a question given by the Financial Secretary. It is a phrase which may be broad and may give a rough meaning, but it is a totally different thing when you come to put it into an Act of Parliament. I am certain that there is no possibility of construing "substantial identity" when you come down to actual practice. I have some difficulty, as had my Noble Friend the Member for Hitchin (Lord R. Cecil), in understanding the first Amendment moved by the hon. Member for North-East Derbyshire, where he speaks about
"substantial identity of interest by reason of persons beneficially interested in the old owner being beneficially interested in the new owner."
That seems to indicate a continuance of the personality of the old owner, although the business has passed entirely from him. I find it very difficult to arrive at any clear idea as to what is contained in these words, and I am not surprised, for the reason that I have found it just as difficult in every attempt I have made to frame any form of words which would at once give a remedy to some of the types of harsh cases which have been mentioned this afternoon, and deny a similar remedy to the people who in justice do not deserve it. The second Amendment obviously foresees a difficulty in defining "substantial identity," and tries to work the matter out as a mere question of proportion. However small an interest a man may have in a business, if he passes on from that business to another business he is supposed by the second Amendment to carry with him his right to get back any losses that he suffers, as against the Excess Profits Duty which he has paid. Obviously that is carrying the matter far beyond the limits of reason, and I find myself in precisely the same position as the Noble Lord the Member for Hitchin, when he said that he recognised great hardship was involved in certain cases, but, on the other hand, he also saw that any attempt to legislate on the line which the Amendments disclosed would result in claims upon the State which would be perfectly unjustifiable.

When I say that, I do not attempt to conceal my own view that the legislation in regard to Excess Profits Duty has had results, in certain cases, of great hardship. I am afraid that that is the tendency of fixing legislation every time. There always will be some cases on one side of the line which seem to be harshly treated, wherever you draw the line, and in the present instance I think it is more difficult to draw the line than in any case I have known. The position which was stated by the Solicitor-General was that Parliament enacted that there should be certain privileges to persons who had paid Excess Profits Duty if at a certain period they suffered loss in the same business, but, as he explained, those benefits were conferred purely upon persons. Whether that is right or wrong, that is the enactment, and it has to be construed by the Courts. We have endeavoured by the Clause I have put forward to meet the harshness of certain cases. The case of a son succeeding a father in business and finding himself confronted with great losses, and deprived of the opportunity of claiming Excess Profits Duty paid while the business was in his father's control, is a case which, if you are to deal with the matter at all, we might appropriately treat. The hon. and gallant Member for Chelsea (Sir S. Hoare) mentioned a similar case, where a father succeeds a son in a business, where father and son were in partnership, and the father succeeds to the son's share by reason of his death. That is a case which comes precisely within the narrow category with which we have set ourselves to deal, and, so far as that is concerned, I am prepared to put in words which will bring that case within the bounds of the Clause. I must warn the Committee that even what seems a very restricted concession in this matter involves the Exchequer in a loss of £3,000,000.

No, the concession in the Clause. The last concession extends that loss slightly, but not to a very large amount. The concession in the Clause will cost the Exchequer £3,000,000. I would call the attention of the Committee to the fact that the Government at the present time is trying to get payment of Excess Profits Duty, and is finding very great difficulty in getting it, even by instalments. We are extending, by a Clause which has been passed this afternoon, the period within which instalments of Excess Profits Duty may be paid, to five years. Some hon. Members do not consider that period long enough, and it is possible that a longer extension may have to be given. While, on the one hand, the Exchequer are unable at the present time to collect the Excess Profits Duty which is due to them, nevertheless, the obligation to pay in respect of loss is immediate. Therefore, we are in the position of not being able to collect all that is owing to us, and, at the same time being compelled to pay what we owe. To extend that obligation means the creation of a very difficult situation for the Exchequer this year. If we were to give the concessions which are involved in these Amendments it would cost us, in addition to the £3,000,000 I have already mentioned, at least another £10,000,000. Whatever one may have desired to do under more advantageous circumstances, it is perfectly plain that the giving of concessions of that kind at this time would be to wreck the whole of the present Budget. We should have to start to reconstruct it, and, in the face of the circumstances, I must ask the Committee to reject the Amendment.

If we can find the right hon. Gentleman a line of demarcation to bring in one or two very hard cases, and also bring it to him with a proposition that a certain percentage should be paid in those cases, and that the repayment may be over a number of years, would he consider something on those lines?

I shall be very glad to consider any proposition of that kind which my hon. Friend puts before me, but I have some little doubt as to whether it will be possible to frame a practicable line of demarcation such as he suggests.

The impression made upon my mind by the speech of the Chancellor of the Exchequer is that the Exchequer have changed their minds very considerably since February. It almost appears to me that because times are bad and the -Exchequer are very hard up they are going to decline to repay Excess Profits Duty to those firms who are entitled to them. May I give the Committee a very glaring example, without mentioning names There is a firm in the North of England who, during the War, did a tremendous lot of work, and they had to extend their premises to a degree that they would never have contemplated during peace time. They had money advanced to them by the hank, and they paid Excess Profits Duty. Owing to the condition of the market and to the decision of the bank it was necessary that they should appeal to the public for preference shares. The constitution of the firm was not altered, except that the preference shares took the place of the bank. The identity of the firm was practically the same as it was before. Now it seems to me that because times are hard that the Chancellor of the Exchequer is taking refuge behind the hard times, and I do not think that he is treating these firms properly. Unless something it done to protect these firms they will be in bankruptcy, and good businesses, which men have spent their lives in building up, will be ruined. This particular firm employs about 1,200 men. These are cases to which the Chancellor of the Exchequer ought to give special consideration. I hope that my hon. Friend will press his Amendment to a Division.

Question put, "That those words be there added."

The Committee divided: Ayes, 54; Noes, 284.

Division No. 167.]

AYES

[7.31 p.m.

Armitage, RobertGould, James CPickering, Colonel Emil W.
Balfour, George (Hampstead)Gritten, W. G. HowardRae, Sir Henry N.
Banbury, Rt. Hon. Sir Frederick G.Hall, Rr-Adml Sir W. (Liv'p'l,W. D'by)Randles, Sir John Scurrab
Banner, Sir John S. Harmood-Hannon, Patrick Joseph HenryRemer, J. R.
Barrand, A. R.Herbert, Col. Hon. A. (Yeovil)Remnant, Sir James
Barrie, Sir Charles Coupar (Banff)Hinds, JohnRichardson, Sir Alex. (Gravesend)
Barton, Sir William (Oldham)Hogge, James MylesRutherford, Sir W. W. (Edge Hill)
Blgiand, AlfredHolbrook, Sir Arthur RichardSprot, Colonel Sir Alexander
Bird, Sir R. B. (Wolverhampton, W.)Holmes, J. StanleyStanton, Charles Butt
Blair, Sir ReginaldHurd, Percy A.Stephenson, Lieut.-Colonel H. K.
Chadwick, Sir Robert BurtonJames, Lieut.-Colonel Hon. CuthbertSykes, Sir Charles (Huddersfield)
Conway, Sir W. MartinKenworthy, Lieut.-Commander J. M.Terrell, George (Wilts, Chippenham)
Cory, Sir J. H. (Cardiff, South)Law, Alfred J. (Rochdale)Terrell, Captain R. (Oxford, Henley)
Davies, Sir William H. (Bristol, S.)Lyle, C. E. LeonardWindsor, Viscount
Dawson, Sir PhilipLyle-Samuel, AlexanderYate, Colonel Sir Charles Edward
Doyle, N. GrattanMacqulsten, F. A.
Erskine, James Malcolm MonteithMitchell, Sir William Lane

TELLERS FOR THE AYES.—

Fildes, HenryNall, Major JosephColonel Lambert Ward and Major
Foot, IsaacPennefather, De FonblanqueEntwistle.
Ganzoni, Sir John

NOES

Adamson, Rt. Hon. WilliamEdgar, Clifford B.Inskip, Thomas Walker H.
Adkins, Sir William Ryland DentEdge, Captain Sir WilliamIrving, Dan
Agg-Gardner, Sir James TynteEdnam, ViscountJohn, William (Rhondda, West)
Amery, Rt. Hon. Leopold C. M. S.Edwards, C. (Monmouth, Bedwelity)Johnson, Sir Stanley
Ammon, Charles GeorgeEdwards, G. (Norfolk, South)Johnstone, Joseph
Armstrong, Henry BruceEdwards, Major J. (Aberavon)Jones, Henry Haydn (Merioneth)
Astbury, Lieut.-Com. Frederick W.Edwards, Hugh (Glam., Neath)Jones, J. J. (West Ham, Silvertown)
Baird, Sir John LawrenceEvans, ErnestJones, Morgan (Caerphilly)
Barker, G. (Monmouth, Abertillery)Eyres-Monsell, Com. Bolton M.Joynson-Hicks, Sir William
Barlow, Sir MontagueFalls, Major Sir Bertram GodfrayKellaway, Rt. Hon. Fredk. George
Barnes, Rt. Hon. G. (Glas., Gorbais)Farquharson, Major A. C.Kennedy, Thomas
Barnston, Major HarryFinney, SamuelKidd, James
Bartley-Denniss, Sir Edmund RobertFisher, Rt. Hon. Herbert A. L.King, Captain Henry Douglas
Beckett, Hon. Sir GervaseFitzRoy, Captain Hon. Edward A.Lambert, Rt. Hon. George
Bell, Lieut.-Col. W. C. H. (Devizes)Flannery, Sir James FortescueLarmor, Sir Joseph
Belialrs, Commander Canyon W.Foreman, Sir HenryLawson, John James
Benn, Captain Wedgwood (Leith)Forestler-Walker. L.Lewis, Rt. Hon. J. H. (Univ., Wales)
Betterton, Henry B.Forrest, WalterLewis, T. A. (Glam., Pontypridd)
Blake, Sir Francis DouglasFraser, Major Sir KeithLindsay, William Arthur
Boscawen, Rt. Hon. Sir A. GriffithFremantle, Lieut.-Colonel Francis E.Lister, Sir R. Ashton
Bowles, Colonel H. F.Galbraith, SamuelLloyd, George Butler
Bowyer, Captain G. W. E.Gibbs, Colonel George AbrahamLocker-Lampson, G. (Wood Green)
Bramsdon, Sir ThomasGilbert, James DanielLorden, John William
Brassey, H. L. C.Gillis, WilliamLort-Wililams, J.
Breese, Major Charles E.Gilmour, Lieut.-Colonel Sir JohnLunn, William
Brlant, FrankGoff, Sir R. ParkM'Donald, Dr. Bouverle F. P.
Bridgeman, Rt. Hon. William CliveGraham, D. M. (Lanark, Hamilton)Macdonald, Sir Murdoch (Inverness)
Briggs, HaroldGraham, R. (Nelson and Coins)Mackinder, Sir H. J. (Camiachie)
Brittain, Sir HarryGraham, W. (Edinburgh, Central)McLaren, Hon. H. D. (Leicester)
Broad, Thomas TuckerGreen, Joseph F. (Leicester, W.)Maclean, Nell (Glasgow, Govan)
Bromfield, WilliamGreene, Lt.-Col. Sir W. (Hack'y, N.)Maclean, Rt. Hn. Sir D. (Midlothian)
Brown, James (Ayr and Bute)Greenwood, William (Stockport)Macnaghten, Sir Malcolm
Bruton, Sir JamesGriffiths, T. (Monmouth, Pontypool)Macnamara, Rt. Hon. Dr. T. J.
Bull, Rt. Hon. Sir William JamesGrundy, T. W.Macpherson, Rt. Hon. James I.
Butcher, Sir John GeorgeGuest, Capt. Rt. Hon. Frederick E.Magnus, Sir Philip
Cairns, JohnGuest. J. (York. W. R., Hemsworth)Maitland, Sir Arthur D. Steel-
Campion, Lieut.-Colonel W. R.Gulnness, Lieut.-Col. Hon. W. E.Malone, Major P. B. (Tottenham, S.)
Carter, R. A. D. (Man., Withington)Hallwood, AugustineMarks, Sir George Croydon
Carter, W. (Nottingham, Mansfield)Hall, F. (York, W. R., Normanton)Marriott, John Arthur Ransoms
Casey, T. W.Hallas, EldredMatthews, David
Cautley, Henry StrotherHalls, WalterMiddlebrook, Sir William
Cecil, Rt. Hon. Sir Evelyn (Aston)Harmsworth, Hon. E. C. (Kent)Mildmay, Colonel Rt. Hon. F. B
Cecil, Rt. Hon. Lord R. (Hitchin)Haslam, LewisMills, John Edmund
Chamberlain, Rt. Hon. J. A.(Blrm.,W.)Hayday, ArthurMond, Rt. Hon. Sir Alfred Moritz
Chamberlain, N. (Birm., Ladywood)Hayward, EvanMoreing, Captain Algernon H.
Churchman, Sir ArthurHenderson, Rt. Hon. A. (Widnes)Mosley, Oswald
Clay, Lieut.-Colonel H. H. SpenderHenderson, Lt.-Col, V. L. (Tradeston)Murchison, C. K.
Clough, Sir RobertHerbert, Dennis (Hertford, Watford)Murray, Hon. A. C. (Aberdeen)
Cobb, Sir CyrilHilder, Lieut.-Colonel FrankMurray, Rt. Hon. C. D. (Edinburgh)
Colfox, Major Wm. PhillipsHirst, G. H.Murray, Dr. D. (Inverness & Ross)
Collins, Sir Godfrey (Greenock)Hoare, Lieut.-Colonel Sir S. J. G.Myers, Thomas
Cope, Major WilliamHodge, Rt. Hon. JohnNeal, Arthur
Cowan, D. M. (Scottish Universities)Hohler, Gerald FitzroyNewman, Colonel J. R. P. (Finchley)
Cralk, Rt. Hon. Sir HenryHope, Sir H. (Stirling & Cl'ckm'nn'W.)Newman, Sir R. H. S. D. L. (Exeter)
Daizlel, Sir D. (Lambeth, Brixton)Hope, Lt.-Col. Sir J. A. (Midlothian)Newton, Sir Percy Wilson
Davidson, J. C. C. (Hemel Hempstead)Hopkins, John W. W.Newton, Sir D. G. C. (Cambridge)
Davidson, Major-General Sir J. H.Hopkinson, A. (Lancaster, Mossley)Nicholson, Reginald (Doncaster)
Davies, A. (Lancaster, Clitheroe)Horne, Sir R. S. (Glasgow, Hillhead)Nicholson, William G. (Petersfield)
Davies, Evan (Ebbw Vale)Howard, Major S. G.Norris, Colonel Sir Henry G.
Davies, Thomas (Cirencester)Hunter, General Sir A. (Lancaster)Norton-Griffiths, Lieut.-Col. Sir John
Davison, J. E. (Smethwick)Hurst, Lieut.-Colonel Gerald B.O'Grady, Captain James

Ormsby-Gore, Hon. WilliamSanders, Colonel Sir Robert ArthurWallace, J.
Parker, JamesSassoon, Sir Philip Albert Gustave DWalsh, Stephen (Lancaster, Ince)
Parkinson, John Allen (Wigan)Scott, A. M. (Glasgow, Bridgeton)Walters, Rt. Hon. Sir John Tudor
Parry, Lieut.-Colonel Thomas HenryScott, Sir Leslie (Liverp'l, Exchange)Walton, J. (York, W. R., Don Valley)
Pearce, Sir WilliamScott, Sir Samuel (St. Marylebone)Ward, Col. J. (Stoke-upon-Trent)
Pease, Rt. Hon. Herbert PikeSeddon, J. A.Ward, William Dudley (Southampton)
Percy, Lord Eustace (Hastings)Sexton, JamesWarren, Sir Alfred H.
Perring, William GeorgeShaw, Hon. Alex. (Kilmarnock)Waterson, A. E.
Pollock, Rt. Hon. Sir Ernest MurrayShaw, William T. (Forfar)Watson, Captain John Bertrand
Pownall, Lieut.-Colonel AsshetonShort, Alfred (Wednesbury)Watts-Morgan, Lieut.-Col. D.
Pratt, John WilliamShortt, Rt. Hon. E. (N'castle-on-T.)Wedgwood, Colonel Josiah C.
Purchase, H G.Sitch, Charles H.White, Charles F. (Derby, Western)
Rattan, Peter WilsonSmith, Sir Harold (Warrington)White, Col. G. D. (Southport)
Rankin, Captain James StuartSmith, W. R. (Wellingborough)Wignall, James
Ratcliffe Henry ButlerSpencer, George A.Williams, C. (Tavistock)
Raw, Lieutenant-Colonel Dr. N.Stanley, Major Hon. G. (Preston)Willoughby, Lieut.-Col. Hon. Claud
Rawlinson, John Frederick PeelStewart, GershomWills, Lt.-Col. Sir Gilbert Alan H.
Rendall, AthelstanStrauss, Edward AnthonyWilson, James (Dudley)
Richardson, R. (Houghton-le-Spring)Sturrock, J. LengWilson, Rt. Hon. J. W. (Stourbridge)
Roberts, Frederick O. (W. Bromwich)Sugden, W. H.Wilson, Col. M. J. (Richmond)
Roberts, Rt. Hon. G. H. (Norwich)Surtees, Brigadier-General H. C.Wintringham, Margaret
Roberts, Samuel (Hereford, Hereford)Sutton, John EdwardWise, Frederick
Roberts, Sir S. (Sheffield, Ecclesall)Swan, J. E.Wood, Hon. Edward F. L. (Ripon)
Robertson, JohnTaylor, J.Wood, Sir H. K. (Woolwich, West)
Robinson, S. (Brecon and Radnor)Thomson, F. C. (Aberdeen, South)Wood, Sir J. (Stalybridge & Hyde)
Rodger, A. K.Thomson, Sir W. Mitchell- (Maryhill)Wood, Major M. M. (Aberdeen, C.)
Rose, Frank H.Thorne, G. R. (Wolverhampton, E.)Wood, Major Sir S. Hill (High Peak)
Rothschild, Lionel deThorne, W. (West Ham, Plaistow)Worthington-Evans, Rt. Hon. Sir L.
Roundell, Colonel R. F.Tickler, Thomas GeorgeYeo, Sir Alfred William
Royce, William StapletonTillett, BenjaminYoung, Sir Frederick W. (Swindon)
Royds, Lieut.-Colonel EdmundTownley, Maximilian G.Young, Robert (Lancaster, Newton)
Rutherford, Colonel Sir J. (Darwen)Tryon, Major George Clement
Samuel, A. M. (Surrey, Farnham)Turton, Edmund Russborough

TELLERS FOR THE NOES.—

Samuel, Samuel (W'dsworth, Putney)Waddington, R.Colonel Leslie Wilson and Mr.
McCurdy.

Clause ordered to stand part of the Bill.

CLAUSE 27 ( Interpretation) ordered to stand part of the Bill.