It may be convenient to the Committee if I indicate my view as to some of the earlier Amendments on the Notice Paper. The first Amendment, to leave out Sub-section (1), is clearly equivalent to a negative of the whole Clause, and therefore is out of order. There are several other Amendments set down to Clause 34, which properly belong to Clause 35 or Clause 36, and in some cases to Schedule No. 4. Hon. Members will observe that Clause 34 is a charging Clause laying down the broad lines of the proposed tax. Clause 35 deals with exemptions and inclusions. Clause 36 deals with the method of determining the profits to be taxed, and hon. Members will do well to bear that in mind when they consider the place at which they put their Amendments down. The second Amendment on the Paper in the name of the hon. Member for Liverpool (Mr. Rutherford), does not read, and therefore that falls to the ground. The third Amendment, in the name of the hon. Member for Westmeath (Mr. Ginnell), deals with two matters, one of which is pertinent to Clause 35, and the other pertinent to Clause 36. There are two Amendments on the Paper which I think may permit a short discussion on the general principles of this proposed tax, one standing in the name of the right hon. Gentleman the Member for Islington (Mr. Lough), and the other standing in the name of the hon. Member for Hexham (Mr. Holt), but in front of these there is one Amendment which is in order, and is, I imagine, a drafting point. It is in the name of the hon. Member for the Partick Division (Sir Robert Balfour). That I propose to call first, and the next one after that in order will be either that of the right hon. Gentleman the Member for Islington or that of the hon. Member for Hexham.

I beg to move, in Sub-section (1), to leave out the words "profits arising from," and to insert instead therof the words "actual profits earned in respect of the carrying on of."

The reason for putting down this Amendment is in order to make it clear that there are certain classes of business which, without these words, would be hit very hard. Take the case of large contracts running for a number of years, perhaps more particularly shipbuilding contracts. The practice in those cases is not to credit every year with the amount of profits, but to wait until the conclusion of the contract when the full amount of the profit can be ascertained. It has been represented to the hon. Member (Sir E. Balfour), whose name appears before mine, and to myself and other Members, by the Shipbuilding Employers' Federation in particular, that, if such words as these are not included, the tax will not in regard to that class of work be accurately ascertained or fairly charged. It so happens that the year 1914 comes at the end of three years during which there was a revival in the demand for ships, and consequently a large number of ships were laid down about 1912, the contracts for which were not completed and the profit ascertained until the first year—in some cases the beginning of the first year—to which it is proposed to debit excess profits, and consequently they ask that there may be inserted here the words "actual profits earned in respect of the carrying on of." As soon as a contract is completed, of course it is easy to allocate the amount of profit actually earned in each of the two or three years in which the contract was carried on. But if the Bill remains as worded, and is put into the form of an Act of Parliament, the Treasury would really be taking, as excess profits for 1914–15, in some cases very large sums which were really earned in 1912 and 1913. I hope the right hon. Gentleman will see his way to insert these words so as to meet the special cases of contractors, which I think have already been laid personally before him, and to which, I understood, he has promised to give favourable consideration.

This is. purely a drafting Amendment. If the hon. Member will accept the view of those responsible for the drafting of the Bill, the words which he proposes have precisely the same meaning as the words in the Bill. Profits must be actual profits. How do you arrive at actual profits? By an estimate. How do you arrive at profits? By an estimate. The words bear the same meaning, and I would suggest to the hon. Member that it is far better to express your meaning in three words than in ten.

I can only ask the right hon. Gentleman to bear in mind that the profits as understood by the Income Tax Commissioners have in these particular cases been actually taken as returned by the contracting companies, and, therefore, if his interpretation of this Bill is correct, it may mean it is in order to reopen cases where profits are definitely stated and carry back portions of those profits in previous years.

I am not disputing the hon. Member's statement, though I do not admit it; but his words do not alter the effect of the Clause. I can only repeat he is stating in ten words what the Clause states in three, and the meaning is precisely the same.

Amendment negatived.

The first two Amendments standing in the name of the right hon. Gentleman the Member for Islington are out of order, because they go beyond the Resolution in Ways and Means. That ruling applies also to several other Amendments in regard to occupations and professions. The third Amendment of the right hon. Gentleman is in order, but I think it should be moved after the word "business" ["arising from any trade or business"].

I desire to accept your suggestion, Mr. Whitley, and beg to move, in Sub-section (1), after the word "business" ["arising from any trade or business"], to insert the words "engaged in the manufacture or provision of material used in the War."

I gather from the words which you have used, Sir, and for which I think we are all indebted to you, that on this Amendment we may have a brief general discussion on the proposed tax, and, although you have been a little reluctant to give us that permission, I venture to say it will be of great help to the Committee, and it will also be of great assistance to my right hon. Friend who is in charge of the Bill, because this tax, if the Committee will look at it, has been very slightly examined by the House up to the present. There was only one short Debate on it, though it embodies many Clauses. The proposal of the tax covers six pages of the Bill, and there are thirty pages of Amendments put down, which proves, I think, that the House takes considerable interest in it, and there is perhaps considerable confusion in the public mind with regard to it. I ask the Government to give us some further information on this point. I know the right hon. Gentleman was in a great difficulty on the Second Reading in doing so, because he had all the other criticisms to deal with, and I make due allowance for the very scanty information which we obtained on that occasion. The fact is that the proposal remains in somewhat the same obscure state as it was when the House began to consider it. The proposed new tax is entirely retrospective, and as I understand it nothing can be done after the period of the 30th June last without legislation, and that has been compulsorily fixed by the Government. Another proposal to which the House has assented is in regard to controlled businesses. The Amendment I have proposed will enable the Government to deal with any profits directly arising out of the War. The scheme of the Bill is general, and breaks out into areas which it is very hard for us to examine properly. The precise scheme of applying this tax to war profits is one which has seized upon the mind of the country, and that is why I desire to move this Amendment. I would like to call attention to the explanations which we have had from the Secretary to the Treasury as to the principle on which this tax is founded. My right hon. Friend will excuse me saying that he seemed to find great difficulty in basing the tax in this Bill on any principle. Speaking of the people who would be taxed the right hon. Gentleman said:— trying to widen this tax and make it more general they are always harking back and calling it a war tax. If the right hon. Gentleman will refer to the Debate he will find that that is the description given of the tax. On the same occasion the Chancellor of the Exchequer said:—

The hon. Member is taking a much wider scope than I had anticipated. I decided to allow a fairly wide discussion as to the principles on which this tax is based on this Amendment, but I think it ought to be confined to the question whether all excess profits should be included or only those made in the manufacture or provision of material used in the War.

I was trying to show, Mr. Whitley, when I was interrupted, that all excess profits which could be traced to the War should be included, and I specially mentioned lawyers in the Prize Courts.

The point is that we are bound in this Committee by the Ways and Means Resolution, which only authorises us to deal with trades and businesses, and we certainly ought not to debate proposals in regard to which, if Amendments were suggested, they would be out of order as being beyond the Ways and Means Resolution. It would be a waste of time to argue something which cannot be put into practical effect in the Bill.

I wish to press this point, because there are a large number of Amendments upon it I would like to ask if the discussion is to be out of order simply because the Bill is cleverly drawn and is not capable of amendment in the direction in which the House thinks it should be amended. Is there any way in which we can raise this point?

That would not be a proper use of the time of the Committee. This Bill is based upon a Resolution passed in Committee of Ways and Means, and therefore we ought not in our discussion to go beyond matters which we can make effective in the form of Amendments.

The right hon. Gentleman's Amendment simply refers to trade. According to that Amendment he cuts out business altogether, and he could not describe the occupation of the Law Officers of the Crown or the occupation of Members of this House as a trade; therefore it must be out of order for him to refer to that in an Amendment simply dealing with trade.

I am sure the Chairman is much obliged to the hon. Member for assisting him, but the hon. Gentleman is mistaken, because I have moved my Amendment to come in after the word "business." I will entirely obey your ruling and try to confine myself to the principle. I was alluding to what the Government has said about this tax, and especially in reply to the hon. Member for Mansfield (Sir A. Markham). The hon. Member, who was specially thanked by the right hon. Gentleman for his support, used these words:

"In so far as the Government have applied the tax to those who have benefited financially owing to the War, it meets with my hearty approval."—[OFFICIAL REPORT. 13th October, 1915, col. 1400, Vol. LXXIV.]

That was an excellent statement of the basis on which the hon. Member put the tax, and that is the scope of my Amendment: "those who have benefited financially by the War. The hon. Member also said:—

"A great many people have made money in this War who never made money before."—[OFFICIAL REPORT, 13th October, 1915, col. 1399, Vol. LXXIV.]

Exactly, and the right hon. Gentleman approved entirely of the principle of the tax as stated by the hon. Member. I want to show that wherever the Government have described the tax it has been in the sense of it being special profits arising out of the War. The hon. Member mentioned certain hard cases, and certain points which I had raised, and said that he agreed with them all.

The right hon. Gentleman must forgive me. I said that I entirely dissented from every single statement which the right hon. Gentleman had made.

I am sure that the hon. Member intended to do so since he says so, but I will quote from the OFFICIAL REPORT what he said. I very often think that he does not say exactly what he means to say. Here are his words:—

According to the Bill, and for want of a definition of excess profits, the whole stream of great excess profits of great businesses in this country will go by untaxed. It may be said that these businesses made excess profits before the War, and that they have only made the same after the War broke out. There is, however, this point. Many of them made their profits in the year before the War in one line of business, and then plunged into another line of business and made up their profits to nearly that which they were before by doing work for the Government in connection with the War. There may be, therefore, in that case huge excess profits, but as the Bill is drawn the main bulk of the excess profits in this country will not be touched. It appears perfectly clear to me that this is the principle of the tax. Where the profits of the War period, however small, exceed those of an artificial pre-war period, even if they be not made by reason of the War at all, they must be taxed; but where profits, however large, and however much made out of the War do not exceed those of pre-war periods, no payment will be exacted. That is an impossible basis on which to found a proposal that is seriously addressed to a legislative assembly. My right hon. Friend has not really thought the proposal out. He ought to define what should be excess profits. Under the scheme as drawn the greater proportion of excess profits will go by untaxed, and the few where hardship is most likely to arise, will be subject to the tax. There are other great anomalies under the tax. I would ask the attention of the Committee to one.

On a point of Order. The right hon. Gentleman moved an Amendment which solely deals with profits arising "from any trade or business engaged in the manufacture or provision of material used in the War." I would call your attention to the fact that he has not directed a single one of his arguments to the Amendment. Is he in order in bringing in outside questions wholly irrelevant to the Amendment?

I have done my best to guide the right hon. Gentleman. Certainly, it would be quite an abuse of the liberty which I have offered to the Committee on this Amendment to deal with subjects which must come up on subsequent Amendments. The Committee, I am sure, is approaching these rather difficult problems in a business spirit, and it would be much better to deal with each detailed point as it arises. The only matter I conceive to be open on this Amendment is the broad question of whether or not this proposed tax should be confined to businesses concerned in the manufacture of war material or whether all businesses ought to be treated alike.

With great deference to my hon. Friend, I think I have said a good deal on that point. It may be that the hon. Member did not catch what I said. I am sure that the unhappy Member behind me (Sir F. Lowe) did not do so. when he interrupted. I did suggest that certain businesses made their 50 per cent. in a certain line of business before the War, and now their 48 per cent. out of the War exclusively. Those are war profits, but they are not taxed under the scheme at all. The Committee is unanimous that where excess profits are made out of the War or in connection with the War the State is perfectly justified in asking that a large proportion of them should be contributed towards the cost of the War. There would be the greatest unanimity in the Committee for that principle. I am trying to show that that is not put in the Bill at all. But as you have indicated, we had better leave details till we come to the particular Amendments. I may possibly raise the question later on. I think we have need of a much more watertight scheme than the Government have proposed. In the first place, it does not apply to War profits, and in the second place we do not know exactly what it does apply to, because, among other reasons, we have not a sufficient definition of the term "excess profits." Then there is the question of the retrospective character of the tax. The question whether it applies to War profits or not ought to be considered by the Committee. As I have stated, this is a tax to be imposed for a period which has gone. How will the money be found with which to pay it? In the great majority of businesses the money has already been distributed, but now the Committee is going to arrest it and apply it to a different purpose. I think the Clause will require considerable amendment before it is passed. At this stage it would be very useful if the Government would throw a little clearer light on some of the questions I have raised.

My right hon. Friend the Chancellor of the Exchequer, and I, both endeavoured, on the Second Reading, to explain the principle of this tax to the right hon. Gentleman who has just spoken. Apparently we have both failed, because he does not understand it yet. I do not think I could do better, so far as I am concerned, than quote from the OFFICIAL REPORT the words which I used on that occasion. They were:—

"The principle is simply this, that war is, unfortunately, for most of our fellow countrymen, a period of hardship, privation and reduced income; and at the same time those people have got to be called upon to pay their share of the cost of the War. Going about among them one finds that there are businesses or trades, or people enjoying businesses or trades, who luckily differ from the majority of their fellow countrymen by enjoying profits larger than those which were enjoyed in time of peace. That is the whole case. They are wealthier and therefore they can afford to pay more than those who are poorer to the burden which we have to face. It is a question of the enjoyment of profits during a time of misfortune."—[OFFICIAL REPORT, 13th October, 1015, cols. 1345–1346, Vol. LXXIV.]

That is the principle upon which the Government have gone If a trade or business is in a position to distribute during the War profits on a larger scale than it was able to distribute during the time of peace, we contend—and we thought the majority of the House had endorsed that principle on the Second Reading—that they were fit subjects for special and heavy taxation. The right hon. Gentleman comes forward to-day with a proposal to limit the tax to those engaged in the manufacture or provision of material used in the War. I submit that such a limitation would be most unfair. Those whose fortunes have been made during the time of War mainly by economic forces which have resulted in the inflation of prices of wheat, flour, meat, and a hundred other commodities would, under the Amendment, escape altogether from this tax. If you keep your taxation to the bigger profits made during the War you follow on the principle we laid down; but if you try and differentiate in this way, and confine it to trades which enjoy large profits because they are making material for the War, you arrive at a definition which does not include profits that you ought to tax, and you do not arrive at a definition which can be translated into an Act of Parliament. Therefore, I suggest once again that the Committee should take this opportunity of endorsing the principle which my right hon. Friend the Chancellor of the Exchequer tried to explain on the Second Reading, and should refrain from limiting the scope of the tax in the sense suggested by the right hon. Gentleman.

I hope I shall be in order if I call the attention of the Chancellor of the Exchequer to the very injurious effect which this Excess Profits Tax will have upon British capital abroad. Take the question of the Argentine railways, which are British owned, and largely due to British capital. There are, of course, many Argentine shareholders, and you are already imposing a tax of 3s. 6d. in the £ on those foreign shareholders as well as on the English shareholders by col- lecting it at the source. You are now going to impose a tax of 50 per cent. on the excess profits. It cannot be argued that these railways have made 1d. piece out of the War, because their profits entirely depend on operations abroad. I do not want to labour this point but I wish to warn the right hon. Gentleman of the disastrous-effect this proposal may have. These are English companies at the present time. They have boards of directors and managers in London. But they also have local managers and local boards of directors where their operations are conducted.

On a point of Order. Clearly those of us who have been pressed by various people to show the hardship they may suffer under this proposal may be taken severely to task if the case for the Argentine railways is allowed to be put forward, and we are not also permitted to take the same course.

I think the remarks of the hon. Member for the West Toxteth Division of Liverpool would come up better on the early part of Clause 35, which deals with the question of particular exemptions. I beg the Committee to keep to the broad. principles of Clause 34. Nearly all these matters are the subject of Amendments on the Notice Paper and we can deal with them as they arise.

Shall we be entitled, on the Question "That the Clause stands part of the Bill," to argue that it ought not to stand part of the Bill, on the ground that exemptions have been improperly given by the Government?

On the Question: "That the Clause stand part of the Bill," it is, of course, open to hon. Members to argue that the scheme is unworkable, and that therefore the Clause ought to be omitted.

And that the Bill should pass without the exemptions?

When it is proposed1 "That Clause 35 stand part of the Bill," the hon. Member can propose to leave it out because it deals with exemptions.

But would it be in order to leave out the exemptions?

I am bound to put the Question "That Clause 35 stand part of the Bill."

Would not the rejection of the exemptions increase the charge on the subject?

The Committee has power to leave out any Clause it likes.

I regret that, owing to the conversation which was going on around me, I did not quite follow your ruling. Was it that I am out of order in dealing briefly with the question of the Argentine railways?

Yes.

I take it I may have an opportunity when you put the Question, "That the Clause stand part of the Bill," of dealing with this particular question?

4.0 P.M.

The Financial Secretary to the Treasury has asked the Committee to endorse the principle laid down by the Chancellor of the Exchequer on the Second Reading, and to say that it is in favour of this Excess Profits Tax, which is to be a tax upon all persons who have been fortunate enough to make larger profits during the War than in the years preceding it—than in the two or three years which may be called the pre-War period. I gathered from the cheers that greeted the statement of the right hon. Gentleman, that the opinion prevailing in the Committee was that this tax was a proper one; therefore I feel it my duty to get up, because I am not at all sure that I agree with that feeling. So far as I am concerned, I think it is a very dangerous precedent, and I am not at all sure that it is the proper course to pursue. The original idea was that there should be a tax on war profits. The right hon. Gentleman says that that is very difficult to define. I do not see where the difficulty lies. It would be perfectly easy and perfectly right for the Government to have said to those persons or companies with whom they had transactions and from whom they had purchased munitions or any other articles necessary for the War, "Your profit on these articles must be limited to the profit you would have made if the War had not been in existence, because you have no business to take advantage of the situation of the country in order to make an exorbitant or increased profit on these particular articles which are required for the War." I should have been strongly in favour of that. It is a very doubtful thing to change that and to say that wherever anybody, either by increased application or increased industry, or because he is fortunate enough to have got rather a larger amount of capital than he had before, and happens to make more money, that that money is to be taken away from him. It goes back to the old Oriental idea of the Sultan or Governor of an Eastern State, who looked round to see who had any money, and said that that was a fit person to have money taken away from him. No doubt the hon. Member for Blackburn (Mr. Snowden) will agree with that, but I do not hold those opinions. It would have been very much better if the Government had adhered to its original scheme, and had not departed into these new regions. I am not sure that they are right, or that they will be successful, or that they will achieve in the long run the aims the right hon. Gentleman desires. It must be remembered that the profits are not all going to be spent. If they were left to the individual concerned, they would probably be used in extending the businesses of the country. If you take away all the capital, you naturally decrease the facilities for the trade of the country.

I gathered from your ruling, Sir, that it would not be in Order at this point to bring before the Committee the special position of underwriters at Lloyd's and the marine insurance companies. I leave that case out, with the intimation that in due course it will be raised by the hon. Member for Lowestoft (Sir E. Beauchamp) and probably myself. This Amendment deserves recognition from the fact that it takes out of the Bill the insurance companies of this country. If the right hon. Gentleman's Amendment is carried they will escape. That I take to be the effect of this particular Amendment. Therefore, while I do not touch upon the special case of the marine underwriters, I think I might point out to the Committee that if this is passed, it would withdraw from taxation the whole of the insurance companies of this country, because it cannot be said that a life, fire, or accident company is really making war materials for the Government. As the Bill is at present drawn, if they had an exceptionally good year in 1914, they would make a very large contribution to the revenue. So far as I know—I do not know for whom the right hon. Gentleman (Mr. Lough) speaks—the insurance companies do not ask that they should be taken from under the purview of this taxation. It may be that some of them might ask for a little differentiation. If the right hon. Gentleman the Member for the Spen Valley (Sir T. Whittaker) were here, I think he would support the statement that there is no general feeling among insurance companies that at this time, if they have had good years, they want this taxation taken off. Although I do not approve very much of this form of taxation, I say quite frankly that when the Question is put, that the Clause stand part, I hope to put before the Committee some general considerations, but at the same time, if there is to be taxation of this kind upon excess profits, I do not see how the right hon. Gentleman can justify his Amendment. As far as I know, the feeling of the insurance companies is that if there is to be an Excess Profits Tax of this kind they do not ask to be favoured and to be exempted. The position has not been covered by the arguments of the right hon. Gentleman or by his Amendment. If he limits the operation of this tax practically to armament firms and to those who are engaged in making actual supplies to the Government, I think it would be rightly regarded somewhat as a fraud by the working classes of this country. I think they would have a good case for saying they had been deceived. Many working men have enlisted, and many are enlisting now. I know for a fact that this legislation, and this tax itself—it is no use blinking matters—has weighed with some of those men.

On a point of Order. As the hon. Member objected to the hon. Member for the West Toxteth Division of Liverpool (Mr. Houston) on the ground that he was not in order, I wish to ask you is he in order on this Amendment, which says "engaged in the manufacture or provision of material used in the War," to speak about insurance companies?

The hon. and learned Member has been asleep. The present argument I am addressing to the Committee has nothing to do with insurance companies.

I have said already that these questions of exemption or special provision might arise on the later Clauses of the Bill, or upon the Schedule, and that the proper opportunity must be taken then to deal with them.

I am recognising that. I am sorry that the hon. and learned Member cannot pay attention to what I am saying. The point I am now making is solely concerned with armament and munition firms.

General supplies.

The right hon. Gentleman seeks to confine this tax especially to those. I was making the point that working men have enlisted all over the country who will consider that they have been deceived if the right hon. Gentleman's Amendment is carried, because the tax has not been so limited in public discussion. I am quite sure that armament firms will make profits out of other parts of their businesses. A great many firms have huge complicated businesses, and to limit the tax to a certain class of firms, or, on the other hand, to limit it to a certain class of interests, will not accomplish what we want. I quite sympathise with the Government's difficulties. They have drawn the Bill as broad as they can. While I think that the right hon. Gentleman has a good argument when we come to the Question, "That the Clause stand part of the Bill," I cannot join with him on this particular Amendment, because I think it will be most unfair. I go further: Is there any desire on the part of the general businesses of this country that the right hon. Gentleman's view should prevail? I do not think so. The hon. Baronet the Member for Mansfield (Sir A. Markham), who is a big employer, gives no evidence of it, and to some extent my own experience is similar. There is a large number of business men in this Committee; why are they not getting up and objecting? I am not including professional men, like my hon. Friend behind me (Mr. J. M. Henderson). We have not had business men getting up and saying that they would like armament firms to be specially taxed because they are making war material and not any other kind of firms. There has been no claim of that kind. The general business community, if there is to be a tax at all and if it can be justified in some detailed form, want to stand together. That I take to be the general view.

If the Amendment of the right hon. Gentleman were accepted it would involve a definition of a very difficult kind. "Material used in the War" would obviously include food, clothes and a variety of articles, which, although used in the War, are also necessary to the civil population. From a broad point of view the Government are perfectly justified in saying that in regard to any business or trade in which larger profits have been made during the period of the War they are justified in putting a special tax on those profits, quite irrespective of whether or not they can be directly traced to the War. Of course, legislation which, designed as this is, may be said to have the effect of discouraging enterprise, is not logic. You cannot logically defend it, but I am quite prepared to say that although not logical, it is expedient that this taxation of large profits should be carried into effect. Therefore I sincerely support generally the view taken by the Government. As regards the differences between trades which directly get their increased profits out of the War, and other trades, there is one difference that will have to be taken into consideration. There are certain businesses which, with a view to assisting the Government in the conduct of the War, have been obliged to put down special plant and special machinery. Some step should be taken in such cases to allow a considerably larger rate of depreciation before calculating the war profits. In the case of a business which has not had to do that, and which has therefore merely made larger profits from causes, perhaps accidentally connected with the War, and which has not had to put down any special plant which from its nature will become useless at the end of the War, in a case of that kind allowance should not be specially made for depreciation, but in the case of businesses which are directly making munitions of war depreciation will have to be taken into account seriously. I was not present during the earlier part of the Debate and therefore am not quite sure whether the question was raised as to whether Income Tax was deducted after or before the application of this special tax on war profits. [HON. MEMBERS: "After."] I may say that, generally speaking, this is a very fair and expedient form of taxation, and I do not think it ought to be limited to business arising out of the War, chiefly because I believe that a definition of those businesses would be impossible.

I cannot support the limiting Amendment moved by the right hon. Gentleman the Member for West Islington (Mr. Lough), because in my judgment the tax proposed to be imposed on trades and businesses is equitable and necessary. There is a general consensus of opinion throughout the country that no one ought to be allowed to enrich them- selves by enjoying increased income arising from war conditions. If it had been open to me, I would have liked to have argued that the scope of the Government's proposal is not nearly wide enough; it is not as wide as it might have been under the Budget Resolution on which it is. based. The Budget Resolution reads:—

"That the profits or gains arising from any trade, manufacture, concern in the nature of trade or business, including agencies."

I do not know why those words were not introduced into Clause 34 (1) as the basis. of the imposition of this taxation. With those words introduced and with the widest interpretation that could be put upon them, we could, in Clause 35, extend the operation and application of the tax-It seems to me that we are forgetting that our duty as a Committee is to secure as far as possible the equitable and equal incidence of taxation. If you propose, by legislative measures, to take away half the excess profits from certain trades and industries, why should other trades and industries who equally have made excess, profits be let go scot free? I am afraid I cannot enlarge upon that point, but I would draw the attention of the Financial Secretary to the Treasury to my suggestion that the actual words of the Budget Resolution should be inserted, so that as. we proceed with the consideration of the Bill we might add somewhat to the scope of the taxation proposal. It would be a decided improvement, and enable us to a greater extent to fashion these proposals on more equitable lines.

I brought forward this Amendment in the hope that it might afford a basis for a general discussion. For various reasons, which you, Sir, laid down very clearly, that discussion would have to be of a very limited character. I feel, therefore, that we are not turning our time to the best advantage in going forward with the discussion. For that reason, and also because another opportunity may arise, I would ask leave to withdraw the Amendment.

There would be more scope when we come to the Question, "That the Clause stand part of the Bill," than on an Amendment of this nature.

I wish to make a suggestion to the Government which I think will shorten debate. If the Government announced at an early stage that they would grant relief to a larger extent than 6 per cent., a great deal of the feeling which now exists would be dispelled. I know that this is not strictly in order; I am surprised that there is not a single Amendment about the 6 per cent.

There are Amendments down on that point which will come on in due course.

Amendment, by leave, withdrawn.

The Amendment standing in the name of the hon. Member for the West Derby Division of Liverpool (Mr. Watson Rutherford) has been covered.

On a point of Order, Mr. Chairman. On the Second Reading of the Bill, it was promised to me individually that when we came to this question of excess profits we should have an opportunity of debating the principle of this new tax. It was midnight, and I was very loth to keep the few Members who were in the House. I therefore put it to the Chancellor of the Exchequer that, seeing that this was an absolutely new suggestion, it was only fair and right that before proceeding with it in detail, some opportunity should be given in Committee for a discussion upon it. The Chancellor of the Exchequer agreed that that should be done, and it was on that express promise from the Treasury Bench that we allowed the Second Reading to be taken without further debate.

That is not a point of Order for the Chair. The Chair is independent of the Chancellor of the Exchequer. I have to observe the rules, whatever a Minister may say. With regard to the Amendment standing in the name of the hon. Member for St. Pancras (Mr. Dickinson) the first part appears to me to involve a charge. The second question involved, if it is not already included in the Bill, which I rather think is the case, is a point which should be raised on Clause 35.

I put down the words here because I anticipated that when we arrived at Clause 35 we should not be able to discuss the omission of exceptions. All that we should be in a position to discuss would be whether or not Clause 35 should stand part. If that is the only possibility we shall be in a very difficult position, because it would be almost impossible for us to strike out the whole of Clause 35, and we shall have no opportunity of discussing the general question whether this tax ought or ought not to apply to all businesses without any exceptions.

The Chancellor of the Exchequer yesterday gave us a distinct pledge that he would put down such an Amendment as would allow a general discussion upon whether this particular tax is right or wrong. The right hon. Gentleman who shakes his head could not have been in the House. My recollection is that the Chancellor of the Exchequer asked you, Sir, how it could be done, but you shook your head and said you would deal with the question when it arose.

I am quite clear as to what happened on that point. It is quite true that the Treasury Bench asked me whether it was possible to have a general discussion on an early part of the Clause. I replied that the proper place would be when we came to the Question, "That the Clause stand part of the Bill," but that if I could devise a way by which it could be done earlier in the Clause I would do so. I considered the point, and I suggested the Amendment recently moved by the right hon. Member for West Islington, but no Member, with the exception of the hon. Baronet, found himself able to keep within the scope of that Amendment. The Amendment was therefore withdrawn and the discussion deferred to the Question, "That the Clause stand part of the Bill." In reference to the point raised by the right hon. Member for St. Pancras (Mr. Dickinson), I think his apprenhensions are unnecessary, because it is competent to deal with Clause 35 by means of an Amendment, provided the effect of the Amendment is not wider than the Resolution. These exceptions were not contained in the Ways and Means Resolution, therefore it can be proposed to deal with them on that Clause.

Am I to understand that when we come to Clause 35 we can move to leave out certain of the exceptions there mentioned?

Clause 35 is a definition Clause which was not included in the Ways and Means Resolution. It is competent therefore for an hon Member to move any Amendment the effect of which does not go beyond the Ways and Means Resolution. There may be something in the Bill which constitutes a diminution of the Ways and Means Resolution. It is open to hon. Members to propose the elimination of that proposal.

The right hon. Member for St. Pancras proposes to include something within the scope of the tax. How can he possibly do that on a Clause which deals with exceptions?

The hon. Member will see that in Clause 35 there are both exceptions and inclusions, or inclusions by way of definition. It says: "Excepting certain things ( a ), ( b ), and ( c )," and then it goes on to say "but including." So that if it is merely by way of definition it is not necessarily putting in a new subject beyond the Ways and Means Resolution.

Is it open to the Committee to increase the proposed charge upon the subject beyond what is proposed in the Bill provided the Amendment does not go beyond the terms of the Ways and Means Resolution? Is that the effect of your ruling?

That is so. In drafting the Bill the Government may have proposed something less than was authorised by the Ways and Means Resolution. It is competent for an hon. Member to propose to remove that diminution from the Bill provided the result of the Amendment does not exceed what was authorised in Committee of Ways and Means. The second Amendment standing in the name of the right hon. Member for St. Pancras is clearly a matter for Clause 35. We come now to the definition of the period on which the tax is to be levied.

I beg to move, in Sub-section (1), to leave out the word "ended," and to insert instead thereof the word "commenced."

This Amendment does not in any way traverse your ruling. I think I shall be able to convince the Committee and, I hope, the Chancellor of the Exchequer, that if justice is to be done to the various people, businesses, and private firms who are to be assessed for this large tax my Amendment ought to prevail. According to the Bill, every business which closes its financial year after the 1st September, 1914, will have to pay 50 per cent. of its excess profits. I submit that that would be most unjust, and I will tell the Committee why. The War began on the 4th August. This Bill captures all the profits made during the year, whether made on war munitions or anything else; they will be held to have been made during the War and not prior to the War. If a firm had a good year in the early part of 1914 and made good profit, and they made their balance sheet on the 31st August, a month after the War started, they are entirely free from excess profits. If, however, they happen to make their annual balance sheet a month later they have to pay, not only for the War period, but for ten months pre-war period. In fixing a tax like this you should not treat A B or C different from D, who escapes because of the circumstance that in his accounting period his balance sheet closes on the 31st August. I suggest that excess profits should start equally from the date of the War, that is, from the 1st or the 4th August, and should not include a prewar period. It may be said that there is a difficulty in ascertaining the facts in regard to a three months' war period and a nine months' pre-war period. There is no difficulty at all. It is a question of a percentage of overturn, and where the stocks have risen greatly during the three months' war period it is certainly a matter easily ascertained. It cannot be right that one person should be excluded from these Excess Profits Tax simply because he happens to have his balance sheet on the 31st of August, while the man who makes his balance sheet on the 30th September is mulcted in eleven months of war profits. That cannot be right. It is dead against the sense of justice. Let all fare alike. Tax them all from the date when the War began, and make the accounting period date back exactly to the beginning of the War. You have an example under the Munitions Act. The accounting period under the Munitions Act is the date on which you are declared a controlled firm. If there is any justice in this tax the incidence ought to be equal. One man ought not to escape for the reasons I have given, but all should be dealt with equally and the profits should date from the beginning of the War.

I do not think the hon. Member will achieve the purpose of uniformity if the Amendment is accepted, because there would still be inequalities. If the Amendment were accepted and the firm made up its books on the 31st March and if it made very large profits during the period of the War, then, because its accounting period did not commence after the 1st August, it would be excluded front this Bill.

HON. MEMBERS: No, no!

Certainly!

The right hon. Gentleman misunderstands me. The estimation of profits in the balance sheet must start from the beginning of the War—that is from the 4th August.

Wholly independent of accounts.

Accounting has nothing to do with it. Any accountant will tell you the ratio of profits for the months. Take a balance sheet for the 31st March that has been mentioned by the right hon. Gentleman. There is no difficulty in ascertaining from the overturn in the business, month by month, what was its profit in exact ratio to its standing charges, and having due regard in certain cases to the rise in prices during those months. There is no difficulty to any man who knows his business.

If the hon. Member will read the Bill he will find how the Clause stands when he has substituted the word "commenced" for the word "ended." There is nothing in his Amendment to show that he wants to substitute a new and different accounting period for the accounting period which is usual for that trade. It would read, "in any accounting period which commenced." That would mean the accounting period of a firm which began after the 1st August. That would leave a loophole during which certain profits would be bound to escape. If the hon. Member will allow the Bill to remain as it is the inequality of which he complains is bound to equalise itself in the long run, for although it is perfectly true that as the Bill is drawn it does not go beyond the accounting period ending before 1st July of this year, yet it has been clearly indicated by the Chancellor of the Exchequer, and it is clearly indicated in the Bill itself, that it is hoped by subsequent legislation to extend the tax over the whole period of the War. Therefore, when we come to the end of the War—when we come to the last accounting period, which contains a peace element and a war element—the difference depending upon the different dates on which firms make up their books will equalise themselves at the end of the War, exactly in the same way in which they are unequal at the commencement of the War.

:Not at all!

Certainly; that must be so!

Nothing of the sort.

How can it be equalised in the event of a man's death?

I presume in the case of a man's death the business goes on. I think there is an inconsistency in the Bill, but it is not in the direction which my hon. Friend suggests. I think that the next Amendment, in the name of the hon. and learned Member (Mr. Llewelyn Williams), is the right one, that the words "1st September" should be left out and the "4th day of August" should be substituted, so that we can tax any profits which are enjoyed during the whole, period of the War, from the date the War broke out. That, I think, is the right Amendment, and I venture to suggest the Amendment proposed by my hon. Friend (Mr. Henderson) is the wrong one.

On a point of Order. The right hon. Gentleman says that the Amendment standing in my name is the proper Amendment. I should like to ask whether it is in order for me to move it in view of your ruling, because it seems to increase the charge upon the subject?

My ruling recently given applies to that point. The Ways and Means Resolution did not put in a date, but referred merely to the period of the War. Therefore, the hon. and learned Member will be in order in moving his Amendment.

Whatever the merit of the Amendment that the Government now look upon with some favour, it is exactly the opposite in spirit to the Amendment moved by the hon. Member a few minutes ago. The second Amendment has an entirely opposite meaning. The object of the Amendment that has been moved is to deal with a situation such as this. You have got under this tax, which is supposed to be a tax for the time of the War, ten months of trading before the War.

Eleven months.

Really eleven months. The hon. Member who moved the Amendment made out a good case, showing the inequality that arises. If the Government would embody in their acceptance of an Amendment the date that the Secretary to the Treasury has just mentioned, namely, the 4th August, together with the word "commenced," the case raised might be met.

They have agreed to that.

No, they have not. If they would do so we might be unanimous at once. What we want to secure is the period of the War, and what the original Amendment aimed at was to cut out these eleven pre-war months, which somehow the Government have included. I assume that the Financial Secretary to the Treasury will accept the word "commenced."

indicated dissent.

The right hon. Gentleman shakes his head. Then why did he not answer the argument that has been put forward, that they have included in this Clause nearly a year before the War. We have not had a single word of answer from the Treasury Bench devoted to that point. I think the matter is one of very great importance and ought to be cleared up. I think the Government ought to accept the word "commenced" from the first Amendment, and the "4th August" from the second Amendment, and let us get to business.

The hon. Member thinks that the tax ought to be only on war profits, profits made and arising out of the War.

During the period of the War.

If the principle is accepted that all profits ought to be taxed, if they are enjoyed, if they come into the hands of the person who makes them, and if they are ascertained and distributed during the War period, which is the period at present, then, whatever the form of accountancy is, the Bill ought to stand as it is.

I will give a concrete case of a firm in Birmingham, and if the right hon. Gentleman desires, I will give him the name of the firm. This is a comparatively new firm, at present employed by the Admiralty as shipbuilders. Their books are made up on 31st October each year. In 1912–13 they made a profit of £7,000; during 1913–14 they made a profit of £18,444, made on peace orders, at peace prices, before the War broke out. If the Bill becomes law as it stands at the present time this firm—although they have hitherto paid no dividend, all the money which they have made having been put into the concern to make it sounder, and to put it on a better basis—will have to pay, simply because their books are made up on 31st October, something like £9,000 to the Treasury, whereas, a competitor in the same business, making the same profit, would not be mulcted in that sum if the books were made up on 31st August. Surely that is not fair. The whole idea of what has been said is that you are to tax war profits. As the Bill stands, simply because a certain day has been put into it for accountancy, some firms escape and other firms do not escape. Those firms which do not escape are taxed on a very much higher standard than the firms which are lucky to have their books made up at an earlier period. Cannot the right hon. Gentleman do something to remedy this injustice? I am not asking him not to tax war profits, and not to tax profits made since the commencement of the War, but I do ask him not to put one trading firm in a worse position than another trading firm, simply because you put 31st August in the Bill as the date after which firms who have their books made up must pay this 50 per cent. Excess Profits Tax. I hope that I have made my point clear. I do not profess to speak as a business man, because I am not; but I have had the matter made perfectly clear to me by my correspondents in Birmingham, and am quite willing to put the whole case in the hands of the right hon. Gentleman, simply asking him to do away with what will be a very great injustice to this firm if the Bill is allowed to pass in its present form.

I did not understand the hon. Member who has just sat down. I think that his friends in Birmingham must have given him incorrect information, or he cannot have given the correct information to the Committee. He told us that for the first year the profits of this firm were £7,000, and that in the next year they were £18,000. That is a difference of £11,000.

That is my fault, because I gave wrong figures myself. They gave me the right figures. I simply wanted to point out that they would have to pay 50 per cent. of the difference. What the hon. Member says does not touch the injustice of the case as it stands at the present time.

That is where we join issue. I think that the tax equalises itself, though hon. Members have said that it does not. Let us deal first with the real issue. This is not a pre-war tax at all. The Government simply want revenue, and they levy this tax for the purpose of getting money from the class of people who have the money coming in during the period of the War. This Amendment has the effect of limiting the scope by excluding the pre-war period, and the effect of it all, boiled down, is this, that certain business men who happen to have made up their accounts in a period of a few months one way or another pay for this period, and the people who have made up their accounts at an earlier period seem to be going to gain.

The point is that under this arrangement one firm is put into a much worse position than another.

I take it that that is so. That is inevitable under all systems of taxation. The right hon. Gentleman (Mr. Lough) says that I do not know my own mind. He aired his illuminating views on the Treasury Bench. He knew his mind, and the Government knew its mind so well that he disappeared from that place. He says that I say one thing and that then I say exactly the opposite.

I did not

The right hon. Gentleman came here and definitely charged me, in effect, with saying that I was in favour of supporting his proposal, and he took two extracts in which I said I wanted to extend the Bill to which he is opposed, and yet he said that I was in favour of his position.

I think that the hon. Member had better keep to the Amendment.

Leaving the right hon. Gentleman, whose only desire is to avoid this tax in the interests of the constituents whom he represents here—[HON. MEMBERS: "Order!"]. I am perfectly in order in saying that the right hon. Gentleman says that, in the interests of his constituents, he is against this tax.

I think that the statement of the hon. Member is quite unjustified. I quoted the words of the hon. Member. I can show them to him in the OFFICIAL REPORT. I limited myself to the words that he used. I limited myself just as he limited himself.

If the right hon. Gentleman—

This has nothing to do with the Amendment. If the hon. Member desired to give a personal explanation he could have made it at the earliest possible moment had he addressed himself to the Chair and not to the right hon. Gentleman the Member for Islington. He must not go back on it now.