There shall be added to paragraph 3 of Part II of the Seventh Schedule to the Finance (No. 2) Act, 1939, a new sub-paragraph:
"In ascertaining the amount of any moneys not required for the purposes of the trade or business in any chargeable accounting period regard shall be paid not only to the current requirements but also to such other requirements as may be necessary or advisable for the maintenance and development of the trade or business."—(Sir P. Bennett.)
Brought up, and read the First time.
I beg to move, "That the Clause be read a Second time."The question is one of the capital which remains idle during certain periods in the life of a business. It will be within the knowledge of hon. Members haw this becomes important under present conditions. The amount of capital which is left in a business is part of the computation in arriving at the standard. Under normal conditions cash goes in and out of a business, but during the present conditions many of the tendencies are very much exaggerated. In every case new sets of conditions are set up. My hon. Friend the Member for Exeter (Mr. A. C. Reed) who would have moved the Clause had he been able to be present, would have told us the story of the paper pulp trade. There is an industry which must carry very considerable stocks. This is due to the fact that they have to get their stocks at a certain time of the year before the Baltic closes and hold them for the whole of the winter. What has happened in the present conditions is that control has come in and all their stocks have been taken over and paid for. They are allowed a certain amount of their own stock which they hold as storekeepers. Incidentally, they have to pay a considerable amount more for them after they have sold them to the Control, but that is not a matter for any grievance, because it comes under war conditions, and everybody understands it. The problem is that they have on hand a considerable amount of money. If that is treated as money which is not needed in the business, it will be disallowed, but they maintain, and must maintain, that that money is in the business because at a later date they will have to restock, probably suddenly. They cannot take the money out and return it to share- holders or invest it in other directions, because they may want it again very quickly. Therefore, they are holding it, but if the Revenue authorities say that this capital is no longer wanted in the business and they insist on its being deducted from the standard, it reduces the amount they are allowed to retain. Many of these industries are passing through a difficult period, and any amount that is deducted will be a serious matter for them. Other industries concerned are those dealing with oils and fats, which are in the same state. They have had to seal down their activities, and in consequence they have collected money and are very anxious that that money shall not be deducted in computing and working out the amount of their standard. There is another class of industry with which I am personally concerned—the production engineering industry—where the amount of cash which has to be carried varies considerably over a long period, particularly in the motor car and aeroplane industry. You cannot take one year and say that the average amount of cash you carry then is the figure. For instance, in making a model you have to put out a certain amount of cash at the start, and later you have to reduce this amount as the model is finished and then spend cash on making jigs and tools to start production. When the Chancellor of the Exchequer was Secretary of State for Air the aeroplanes that we have now were being talked about as models in the spring of 1939, when shops were being cleared to make way for their production. In due course those planes will fade out, and others will come in. So it can be seen that in manufacture of this description you have a cycle of cash which varies over a long period. We want the Revenue to differentiate between redundancy and reserve. If capital is redundant, of course we can understand that it could be taken out, but there is a great deal of difference between redundant and reserve capital, just as there is between redundant and reserve plant. The production engineering industry carries stand-by plant which is not used and which we hope will never be used, but that plant is not called redundant. It has to stand by in case of emergency. So it is in the case of this capital. When it is wanted at some period, we ask that it should be treated differently. The Revenue authorities should be empowered to treat each case on its merits. Yesterday I heard the Chancellor advise people that when they had a problem they should take it to the Revenue officers. Personally, that is the advice I have always followed, and I have always had their help. One of them once said to me, "Do not think that we are ordinary tax collectors whose only duty it is to see that the State gets everything it should get. It is also our duty to see that the State does not get anything it ought not to get. I am here to look after your interests as well as theirs." I maintain that this new Clause would help the Revenue authorities in dealing fairly as between the State and individual firms in cases where such treatment is necessary.
My hon. Friend has made a very clear statement of the position, and I am much indebted to him for the information which he has put before me and the Committee to-day. I will, of course, carefully study what he has said, but I would like to make one or two observations on the present position. The object of this new Clause, which relates to the treatment of money in computing capital for E.P.T. purposes, is to provide that money shall be included in such capital to the extent not only of current requirements but also of
Some hon. Members will recollect that under the Finance Act, 1939, in computing capital for E.P.T. purposes investments are to be excluded, with one or two exceptions which I need not go into now, and any moneys not required for the purposes of trade or business are to be left out of account. That is an essential condition to prevent taxpayers being able, by keeping surplus money in the form of cash, to take advantage of what is a compratively high percentage addition which is allowed on increases of capital. That percentage is to-day 8 per cent. I think the Committee and my hon. Friend will agree that it would clearly be unreasonable that a taxpayer should derive financial advantage by receiving an allowance for increased capital at 8 per cent. in respect of money which is, in fact, lying idle at the moment. The exclusion of the money not required is designed to prevent that state of affairs. My hon. Friend talked of money which might be required for certain purposes, and it occurred to me that it ought to be quite possible, with all the forms of investment now available, for a firm to invest that capital in any one of the lines of articles which I have on my counter to-day. It is true that the law does not define what money is "not required" for the purposes of E.P.T., but the amount of surplus cash is determined in practice in the light of the needs of the business, due regard being paid to impending liabilities and the cash which may be expected to become available to meet them. It may be interesting to the Committee to know how, broadly speaking, the Revenue treat cash balances. They treat them as not required only so far as they include surpluses unused throughout the period under consideration; they do not seek to eliminate temporary surpluses absorbed during the accounting period, or cash representing the accruing profits of the period, or a reasonable margin for contingencies. I suggest that in that way the Revenue is meeting the position, having regard to the requirements of industry and the position of the taxpayers. I think my hon. Friend will see that if I acceded to his request and accepted his new Clause it would give an undue advantage."such other requirements as may be necessary or advisable for the maintenance and development of the trade or business."
I fully appreciate the point which the Chancellor has made although I thought I emphasised particularly the fact that capital which was redundant should be taken out. He hinted at what could be done with Surplus cash, and, of course, that is being done, but a certain amount must be always kept on call. It is only a matter of discussion with the Revenue authorities as to what is the essential amount. As I have said, a certain amount must be kept ready for immediate use and I commend that point of view to the Chancellor in begging leave to withdraw the Motion.
Motion and Clause, by leave, withdrawn.