I wish to ask the Prime Minister if he can say what the business will be later in the week?

To-day and to-morrow the Committee stage of the finance Bill will be continued, and we hope to conclude that stage to-morrow night.

If that be done, we shall take on Wednesday the Second Reading of the Parliamentary and Registration Bill, which will be introduced by the Home Secretary under the Ten Minutes' Rule tomorrow. We shall then take the Committee stage of the Indian Civil Service (Temporary Provisions) Bill, and the Second Reading of the Indictments Bill.

As to Thursday, I would rather say nothing at present.

I beg to ask the Prime Minister a question, of which I have given him private notice, as to the date on which the Government propose to introduce legislation on rent-raising and threatened evictions, and if the Prime Minister can give us any indications as to the scope of the legislation?

In a few days.

Can the Prime Minister say whether the Parliament and Registration Bill will deal with the duration of the present Parliament? The right hon. Gentleman promised just now, in answer to Question 36, to deal with that question when he made that statement. He has not done so.

The Bill will be introduced to-morrow, and I think my hon. Friend will find it does deal with it.

Can the Prime Minister say when he hopes to give any information to the House with regard to the situation in Greece?

I should like to have notice of that question. I cannot say at this moment.

May I ask whether the Chancellor of the Exchequer intends to bring in a Bill relating to American Securities, and on what date he is likely to introduce that measure?

I should like my hon. Friend to give me a little time to consider that point.

With the leave of the House I desire to make a brief statement with regard to the sale of scrip vouchers and scrip certificates in small denominations, the arrangements for which come to an end on 1st December. The total of such sales have amounted to £5,000,000. In view of the large amount paid in weekly wages which could and ought to be saved, this is not by any means as great a total as we had anticipated. Experience has taught us, first, that the working classes do not like to invest their money in securities which are subject to fluctuations, and that they prefer deposit in the Savings Banks which, though carrying only 2½ per cent. interest, ensures them the return of their money in full in any circumstances. Secondly, I think it has taught us that we require to organise the assistance of those with influence in inducing the people to take advantage of our proposals. In any future scheme devised with the object of making saving and investment more attractive, these considerations must be kept in view.

The outline of a scheme has been prepared on the following basis: The issue of bonds in multiples of £l is contemplated, carrying 5 per cent. interest. In order to meet the desire to obtain the return of the money in full, we suggest that these bonds should be cashed on demand at their face value at any time. On the other hand, in return for this facility, the bonds should carry no interest for the first six months. The effect of a scheme of this kind would be that money deposited with the State on these terms, and left uncalled for a year, would carry interest at the rate of 2½ per cent. If left for two years the total interest would amount to 7½ per cent., or 3¾ per cent. per annum. If left for three, years, the total interest would be 12½ per cent., or at the rate of 4 1/6 per cent. per annum, and so on. I put forward this proposal now, not by any means as a settled scheme. A scheme which is not disclosed until settled, though this course is inevitable in such matters as a War Loan, has the disadvantage of being unamendable.

I make this announcement now in order to obtain the benefit in good time of the public discussion which I invite. Not less important, however, than the scheme itself, whatever it may be when ultimately adopted, is the method used to obtain the public assistance necessary to make it popular, and to bring home to the large classes who are now enjoying exceptional wages, the urgent necessity in their own interest, and in the interest of the State, to save a considerable part of their earnings. For this purpose, and in order to avail myself of suggestions, I propose to appoint a strong Committee to consider and report, both on the scheme itself and on the best method of popularising it. The work of the Committee will be of the greatest importance, and I hope their labours will result in devising suitable means for ensuring that great and necessary savings are made. Extravagant expenditure in any class cannot be tolerated at the present time, and this truth must be appreciated by the public. If the community will save all that part of the national income which need not be spent, such saving will strengthen our national finances during the War, and will benefit the individual after the War and during the possible stress of a return to normal conditions. Economy in expenditure is vitally necessary. The nation must be made to understand this, and a suitable instrument must be devised by means of which we may avail ourselves of the nation's savings.

On a point of Order. The Chancellor of the Exchequer has made a statement which is extremely important. Is it not right that the House of Commons should have an opportunity of asking a question on it or even debating it? The Chancellor of the Exchequer can put himself readily in order by moving the Adjournment, which it is not possible for anyone else to do.

That would be out of Order. Questions were concluded when I called on the hon. Gentleman. If the hon. Gentleman wishes to put any questions, of course, he can do so in the formal and regular manner, or even tomorrow, after giving private notice.

The Amendment standing in the name of the hon. Member for Radcliffe (Mr. T. C. Taylor), to omit the second column, deals with a matter which was disposed of on Clause 6.

I beg to move, to add at the end of the second paragraph, the words,

No, I cannot accept it.

In opposing this Amendment, the right hon. Gentleman is taking up a position wholly inconsistent with the principle on which our taxation has been carried out. The proposal I make is to allow a drawback on any sugar used in the brewing of beer for exportation to the extent and amount of any excess of the Excise Duty which that article has paid. It has been the principle of our law and practice that wherever a duty of that kind existed a corresponding drawback was always paid on the exportation of the article whether re-exported or not. I should like to know on what kind of principle the right hon. Gentleman is entitled to refuse this Amendment. When the Import Duties on motor cars were being violently attacked the right hon. Gentleman and the Financial Secretary to the Treasury were most persistent in their assurance that if any tiny part of a motor car which had paid duty was used in a car that was re-exported a drawback would be given. That was made very clear and the right hon. Gentleman agreed that that drawback should be paid. If this proposal had been made some time ago I could understand the right hon. Gentleman might have said it was a difficult one to carry out, because it would be difficult to follow the precise way in which this sugar was used in export beer, such beer often not being exported for a year afterwards. Consequently it would be difficult to follow the sugar and give the necessary drawback. The conditions, however, have now changed. Such beer is placed in bond and cannot be brewed without twenty-four hours' notice, and the amount of sugar used must be stated under the Regulations. Consequently, it does not require to be followed at all. The objection which could have been raised a year or so ago is now entirely set aside by the new conditions under the Budget Act of November, 1914. I have no idea what reasons the right hon. Gentleman will give for refusing this drawback, but as I shall probably have an opportunity of saying a word or two before this Schedule ultimately passes, I think I had better not anticipate the right hon. Gentleman's arguments, but wait until he has replied.

I should be only too glad to accept this Amendment if it were practical. The difficulty is that in no circumstances could we identify the beer in respect of which the drawback would have to be paid. The case of motor cars is not in point. A drawback is allowed on a part on which duty has been paid provided it can be identified, but who is to identify liquid beer? How are you to stamp it? Unlike the hon. Baronet I am not an expert, but I am sure he will agree with me that in the present conditions of the brewing trade it is absolutely impossible to identify beer in which sugar has been used. No analysis shows it, and you have to rely upon the undertaking of the brewer. That would clearly be insufficient. The brewer very often does not sell for export direct, but through a bottler. How are we to identify the beer in the bottler's hands as to whether it is made with sugar or not? We have gone into this question with the most earnest desire to consider all the difficulties, and where it is practical we shall certainly do so. We have every desire to meet the hon. Baronet, and if we can do so without the most obvious liability to error we should be only too glad to do so, but with all our investigations we have not found any practical means of making sure that the beer drawback would be paid on beer in respect of which any sugar had been used. Consequently we are bound, in the present state of uor knowledge, to refuse this Amendment. Perhaps between now and the Report stage the hon. Baronet will be able to discover some more accurate means, and until that is done we cannot accept this Amendment.

In some cases I agree that it would be very difficult indeed to decide, and practically impossible. Before last November it would have been difficult, but we are now dealing with a state of things when it is not impossible to follow the sugar and give the drawback upon it. You could give twenty-four hours' notice to a brewer of export beer on Monday, and on Thursday it is put into casks under the notice of the officer who is measuring the sugar. On the Friday you put it into casks which are immediately put into bond and the duty is paid at once, and there is the beer. There is no difficulty whatever. There would be if you let it get out of your control, and that is why I am particular to say that the new circumstances enable them to pay it back, and therefore it ought to be paid. I am quite content with what the right hon. Gentleman has said. He says that wherever it is practical he will pay it, and in my case it will be quite practical.

I congratulate the right hon. Gentleman on behalf of those interested in this matter upon the statement he has made. I do not think anything could be fairer, and it can only be done where it can be proved beyond all doubt, and I believe there are such cases.

I ask leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

First Schedule ordered to stand part of the Bill.

Schedules 2 and 3 ordered to stand part of the Bill.

Fourth Schedule

Part I.—Computation of Profits

1. The profits shall be taken to be the actual profits computed for the accounting period; and the principle of computing profits by reference to any other year or an average of years shall not be followed.

2. The principle of the Income Tax Acts under which deductions are not allowed for interest on money borrowed for the purpose of the trade or business, or for rent, or royalties, or for other payments Income Tax on which is collected at the source, and under which profits or gains arising from lands, tenements, or hereditaments forming part of the assets of the trade or business are excluded shall not be followed.

3. No deductions for wear and tear or for any expenditure of a capital nature for renewals, or for the development of the trade or business or otherwise in respect of the trade or business, shall be allowed except such as may be allowed under the Income Tax Acts, and only for such amount as appears to the Commissioners of Inland Revenue to be reasonable and to be properly attributable to the year or accounting period.

4. No deduction shall be allowed on account of the liability to pay, or the payment of, Income Tax or Excess Profits Duty.

5. The sums allowed for the remuneration of directors, managers, and persons concerned in the management of the trade or business shall not, unless the Commissioners of Inland Revenue, owing to any special circumstances, otherwise direct, exceed the sums allowed for those purposes in the last pre-war trade year or a proportionate part thereof as the case requires, and no deduction shall be allowed in respect of any transaction or operation of any nature, where it appears, or to the extent to which it appears, that the transaction or operation has artificially reduced the amount to be taken as the amount of the profits of the trade or business for the purposes of this Act.

6. In estimating the profits no account shall be taken of income received from investments except in the case of businesses such as those of investment, trust, or assurance companies where the business to a great extent consists of the making of investments.

7. In the case of societies registered under the Industrial and Provident Societies Acts the Excess Profits Duty shall be charged on the sum by which the profits per member for the accounting period (including any surplus arising from transactions with members) exceed the like profits per member in the pre-war trade year or years taken as the basis of computation for the purpose of pre-war standard of profits, multiplied by the number of members in the accounting period.

I beg to move, in Part I. (paragraph 1), to leave out the words "computed for" and to insert instead thereof the words "earned during."

I move this Amendment with a view of clearing up a matter partially but not satisfactorily or completely dealt with when we had Clause 36 before us. I then pointed out that in the case of shipbuilding contracts it is the custom of the trade not to take into account the profits that are earned on a contract which, perhaps, takes two or three years to complete, until those profits are ascertained, and then to put the profit on each contract when it is completed into the year's profits. That effects in a very direct manner the amount of the Excess Profits Tax. We have abandoned the idea that this is a war tax in the sense that it is a tax on profits earned during the period of the War; it is a tax on profits which came into enjoyment during the war period. The basis is to have certain standard years, two out of three years preceding the period to be taxed, and an accounting period, which is the period to be taxed. If you have a large contract being carried on for three years, the profits of which come into the third year, you naturally have the profits in the standard years diminished and the profits in the accounting period increased. Therefore, you have a double hardship. I should like to indicate that by a single instance from which the Chancellor of the Exchequer will see how very important it is that we should deal fairly with this question and not leave it to chance. In the case of the Palmer Shipbuilding and Iron Company I find that in the first of the standard years, 1912, they earned a profit of £660; in 1913 the profit was £36,262; and in 1914 it was £96,644, showing that the profits on contracts which were being commenced to be carried out in 1912 were accumulating and being carried over into the last standard year. Then we come to the year in which they will be assessed for Excess Profits Tax when, instead of £96,000, the profit is £197,253. If the Committee will bear in mind that for seven years this company have been unable to declare any dividend at all, they will see that the revival of shipbuilding which brought in large profits in the last of the standard years, and doubled the amount of profits in the year in which Excess Profits Tax will be charged, would operate very unfairly unless some words were introduced in the Bill which would make it quite clear that the actual profit earned—a percentage on the turnover, on the actual wages paid, the material employed, and the like—is really the profit which is going to be taken to be the standard upon which you are going to base this Excess Profits Tax. The amount involved in this particular company, whose accounting year ended in June in each year, would be £65,000, and the contention is that if the profits based upon the turnover for each of the years 1912–13–14 were really the measure or standard by which you would gauge what you would regard as the normal state of the company, a very much less sum would be claimed for Excess Profits Tax. I do not wish to say that the iron shipbuilding or any other trade in this country want to escape their fair Excess Profits Tax, but when we were dealing with this matter in Clause 36 both the Chancellor of the Exchequer and the Financial Secretary to the Treasury pointed out what was customary. The Chancellor of the Exchequer said:— fore ask to have it made perfectly plain, not only by this Amendment but by a further Amendment standing in my name, to insert the following words at the end of Part I. of the Schedule:—

"In the case of any contract occupying more than twelve months from the date of its commencement for the completion thereof and only partially performed in any accounting period or pre-war trade year there shall (unless the Commissioners of Inland Revenue, owing to any special circumstances, otherwise direct) be attributed to each of the accounting periods or pre-war trade years in which such contract was partially performed, such proportion of the entire profits or estimated profits in respect of the complete performance of the contract as shall be properly attributable to such accounting periods and pre-war trade years, respectively, having regard to the extent to which the contract was performed in such periods or years."

The right hon. Gentleman told me when we were dealing with this subject before that we were all agreed what was the fair thing, and all we want is to make the position perfectly clear. I need only add one word with regard of the method of assessing these profits. In Section 36, Sub-section (1) it is provided:—

"The profits shall be separately determined on the same principle as for the purposes of Income Tax, subject to modifications,"

etc. We know how the profits are ascertained for Income Tax. Although the Income Tax is assessed upon an average of three years, the profits of each of those years are known to the Income Tax Commissioners, and have already been settled. If we do not have some very clear words, which will proportion the profit to the amount of work actually done in each period, and secure that it is put into that period whether it be the accounting period or the pre-war period, we shall certainly be doing an injustice, because, without some clear indication in the Bill of the intention of the Government, the Income Tax Commissioners, and the Referees as well, would naturally be influenced by their present practice in respect of Income Tax, and by the actually ascertained figures of the profits of these companies.

This is a point on which I think we are all more or less agreed, the only difficulty being as to the way in which the object aimed at can best be secured. Every adviser whom I have consulted, technical and legal, assures me that in Section 36, Sub-section (1), as it stands, this eccentricity, if I may so call it without disrespect, of a shipbuilding firm is adequately met, and we should have no difficulty in allowing for the computation of profits and in assigning to any particular year that portion of an unfinished contract which arises within it. There is always an objection to overloading a Bill with unnecessary words, but if the hon. Member and his Friends wish words inserted which will put this matter beyond doubt, I have not the slightest objection to recommending the Committee that they should accept words somewhat in the nature of those contained in his second Amendment to which he has referred. But with regard to the Amendment he has now moved, I venture to suggest to him that the words "earned during" are not very clear. Furthermore, the word "earned" would be imported for the first time into this Bill. The word "computed" is also being used for the first time in this Bill. I would suggest, in lieu of the words "earned during," the use of the words "arising in," which I suggest will secure his end. If he will withdraw the Amendment and subsequently move the substitution of the words "arising in" for "earned during," I shall be pleased to accept the proposal on the part of the Government.

I hope that the right hon. Gentleman will not overlook the fact that there are two systems of keeping accounts in marine insurance which may also arise in this connection. Some companies keep their accounts in yearly compartments, and others do not. Perhaps between now and the Report stage some consideration will be given to this point. Our aims, I feel sure, are quite the same. There is no confliction of desire.

I think my hon. Friend who moved the Amendment should thank the Financial Secretary for the spirit in which he has received it. I desire to confirm the view expressed by the right hon. Gentleman. But there is one point which requires looking into. The words "computed" and "earned" do not apply to a single year, and what is really wanted is to get the actual profit in a given year. I do not think the words "arising in" are the very best that could be substituted. Why not let it read the actual profits "of the" accounting period?

The right hon. Gentleman has met the Amendment of my hon. Friend in a very friendly spirit, and I certainly think the words suggested are an improvement on the Clause as it stands. With regard to the subsequent Amendment, to which attention has been called, I hope we shall have notice of the exact words proposed to be inserted, so that when the matter is dealt with on the Report stage, we may know precisely what the Government intend to do.

I am very much obliged to the right hon. Gentleman for the manner in which he received my Amendment, and I need hardly say it did not require any suggestion from the right hon. Gentleman, the Member for West Islington, that I should signify my thanks. The words "arising in" suggested by the right hon. Gentleman are, I think, very much clearer than others which have been suggested, and therefore I desire to withdraw my Amendment, and will subsequently move to insert the words "arising in." With regard to the second Amendment, as to which the last speaker asked, I may say the words are already on the Paper, and no doubt the Chancellor of the Exchequer will be able to tell us whether he will accept them as they now stand, or in a modified form.

Amendment, by leave, withdrawn.

Amendment made: In paragraph 1, leave out the words "computed for," and insert instead thereof the words "arising in."

I beg to move, in paragraph 1, after the word "period" ["accounting period"], to insert the words "after deduction of such sums which are not divided as profits but employed in the business."

4.0 P.M.

I put this Amendment down in the hope that something might be done by the Government to remedy what, I think, are two great defects in the Clause as drawn. The Government scheme seems to me to militate greatly against expansion of business. The expansion of business depends, of course, upon the amount of profits made, and if the hard and fast line of this Bill is adhered to, the restrictions of profits on ordinary businesses, and especially of growing businesses, will leave very little opportunity for expansion. It may be unavoidable, but this is really a serious defect in the Bill, and I hope that if not this year at any rate another year the Govern- ment will take this matter into consideration. In these days it is most important that nothing should be done to check industrial expansion, but I am afraid that this Bill will have a most serious effect on the expansion of the ordinary industrial enterprises of the country. In a letter to the "Times" a few weeks ago, the writer said the proposal of the Government to appropriate one-half of the funds which would otherwise be put back into industrial enterprise seemed almost "analogous to appropriating one-half of the seed corn necessary for the next harvest for the purpose of temporarily lowering the cost of the quartern loaf." There is something in that argument, and unless we are very careful, the Chancellor of the Exchequer may, in the long run, draw the line so tight that he may kill the goose that lays the golden eggs. I believe it would be a wise thing for the Chancellor of the Exchequer to adopt a provision such as this now proposed. The second defect I want to point out is that the Bill is complicated and the Amendment I propose goes very far in the direction of simplicity. One of the great faults of the Bill is that so many things are left uncertain; everything is left to the decision of the Referees or of the Commissioners, and members of the Committee with business knowledge will support me when I say that the less we have of that the better. I was talking to an eminent solicitor only this week, who has been wrestling with the Defence of the Realm Act. He said that that was very difficult legislation, and that all this legislation was bad from their point of view, but that the Finance (No. 3) Bill was one of the worst examples he has seen, because it left so much in obscurity. Everybody who is to pay the Excess Profits Tax has a chance of escaping by appealing either to the Referees or to the Commissioners. It is not possible to avoid a reference to them of a general case, but here, not only general cases will go to the Commissioners, but individual cases also. If under an arrangement somewhat on the lines I have suggested provision was made for things like renewals and repairs in the Bill itself, the references under the Bill and the trouble in connection with the Bill would be reduced by 75 per cent., at the very least. It is with the idea of pointing out the two real defects in the Bill, namely, the check to expansion and the want of simplicity, that I venture to move the Amendment.

In putting this Amendment before the Committee I should like to say that we ought not to go back on the very considerable discussion we had on the Clause on the question of obsolescence. We had Amendments and a very long discussion on that point. I understand that the hon. Member is proposing to confine himself strictly to the terms of his Amendment.

The object which my hon. Friend has in view is one which must meet with sympathy in every quarter of the Committee. We all recognise how very undesirable it is to withdraw from a business money which in ordinary circumstances would be invested in the capital of that business. Nothing could excuse or justify the proposal of a tax of this kind except the necessities of the State. We have to raise money—I do not wish to go through the old arguments again—and the method adopted by this Bill is the one which, on the whole, I think recommends itself best to this House and to the nation at large. The objection to my hon. Friend's specific proposal is that under it the receipt of revenue would be entirely within the power of the taxpayer. My hon. Friend complained that the Bill contains much that is uncertain. I can assure-him that if his Amendment is accepted there would be certainty about every feature of the Bill except one, that is, the receipt of revenue. There would be no revenue. I cannot conceive how any person responsible for a business could find it in his conscience to pay 50 per cent. Excess Profits Duty when it would be open to him to invest the whole of his excess profits in developing his business. If he exercised his natural discretion and did justice by the business for which he was responsible, he would clearly devote 100 per cent. of his excess profits to developing his business and would thereby avoid paying any tax. I am afraid my hon. Friend shows a childlike simplicity when he imagines that the taxpayer would voluntarily surrender 50 per cent of excess profits instead of reserving the whole 100 per cent. for the benefit of the business during the War, and then, after the War, dividing that excess profit in the form of bonus shares. I am afraid the proposal of my hon. Friend is an ideal proposal, but in this wicked world we must consent to be taxed by compulsion and must not rely upon the voluntary system.

I quite agree with the Chancellor of the Exchequer that the proposal of the hon. Member would result in there being no revenue at all from the Excess Profits Duty, because everybody would say, "I have made £20,000 excess profits. That is all going to reserve this year, or will be carried over," and by that means there will be nothing for the revenue. On the other hand, I would ask the Chancellor of the Exchequer whether there might not possibly be some way of, to a certain extent, meeting what is undoubtedly an evil under the proposed Excess Profits Tax, namely, that where there has been a habit of putting by a certain percentage of profit as reserve he should allow that to be done. Of course, it would have to be proved that it had been the custom to put by a certain percentage of the profits. In view of the financial situation it is necessary, as far as possible, to safeguard the preservation of capital in this country, and if it has been the habit of a certain firm to put by a certain percentage of its profits, it might be allowed to continue to do so. I do not know whether the Chancellor of the Exchequer has considered that point. Perhaps he will say whether he would do so between now and the Report stage, and then, if he sees any possibility of doing it, he might do something to meet the case on the Report stage. There is some foundation for the proposal, and the suggestion I make would not be open to the objection which might be taken to the hon. Member's proposal, namely, that there would be no revenue at all.

I trust the Chancellor of the Exchequer will see his way to accept the proposal made by the hon. Baronet opposite (Sir F. Banbury). It is a very safeguarded proposal.

Are we not discussing another Amendment at the moment? Had we not better get rid of the one before us before we discuss that?

I agree it is not on the Paper, but it arises out of the Amendment, which I think goes too far.

Had we not better dispose of this Amendment first? It is impossible to discuss two Amendments together.

Cannot we discuss the hon. Baronet's (Sir F. Banbury) proposal as an Amendment to the Amendment?

Then let us have it in writing.

On a point of Order. May I remind you, Sir, that I had a specific Amendment down to preserve the reserve fund, but you, Sir, ruled it out of order on the ground that an Amendment to the Schedule would give the proper opportunity for dealing with moneys that were reserved in the business? I agree with what the hon. Baronet (Sir F. Banbury) has suggested. That is one way of raising the matter.

I can move an Amendment to the Amendment, so that it would read, "after deduction of the percentage which has been so placed to reserve from the profits."

Perhaps I had better deal with the point of Order. Of course, it is not out of order, when an Amendment is before the Committee, for an hon. Member to suggest that some other form of it might be acceptable, but it is desirable, if possible, to have these matters before the Committee in a specific form when they are debated. This would be the kind of Amendment which it would be open to hon. Members to propose on the Report Stage of the Bill, when it could be put down in this specific form. The Amendment to the Amendment indicated by the hon. Baronet does not seem to me to be a very precise or definite one in its form. I would suggest to hon. Members that it would be better for them to put it down in a really practicable form at a later stage of the Bill.

I am prepared to suggest words making the proposed Amendment read, "after deduction of such sums which are not divided as profits, but which are employed in the business, but which shall not exceed the sum which has been put to reserve in past years."

May I point out to my hon. Friend (Sir C. Cory) that his proposal is precisely the Bill as it stands now? It shows the inconvenience of dealing with this subject hastily. I would suggest to you, Sir, that we had better get rid of this Amendment now and wait until the Report stage, when my hon. Friends could provide words which are not the same as the existing Bill.

Do I understand my right hon. Friend to suggest that at present under the Bill you can put an amount to reserve which will be deducted from the profits?

No, but it comes to the same thing. The figure remains both in the datum line and in the profits of the accounting period. There is no deduction made for reserve from the figures which make up the datum line; therefore there is no deduction for reserve in the accounting period. If you make a deduction in the accounting period you must make a corresponding deduction in the datum line, and the result is exactly the same.

I agree, but it is quite possible that in the pre-war years the business has not made sufficient profit to enable money to be put to reserve. I suggest that the words I read would be an acknowledgment of the principle that they should be entitled to put such sums to reserve as they have done in the past. It is very desirable that some such principle as this should be agreed to, because although it might take a very small sum from the Exchequer in the accounting years it would be for the benefit of the Exchequer in the long run. It would not only be to the benefit of the shareholders in the business, but very much to the benefit of the working classes if a certain sum be set aside in order to extend the business. You may find that profits will be very much reduced in the future. We shall want to develop business after the War is over. If we do not set aside the reserve to enable us to carry on business after the War is over, it will be very difficult to extend it. Perhaps the right hon. Gentleman will see his way to agree to words which no doubt the hon. Baronet (Sir F. Banbury) will submit in a specific form.

This Bill applies only to the current financial year, and the Excess Profits Tax applies only to accounts made up between 1st December, 1914, and 1st July, 1915. These accounts are all settled, and therefore it is quite impossible for anyone to alter the accounts in the sense which the Chancellor of the Exchequer has described. It appears to me that the Amendment of the hon. Baronet (Sir F. Banbury) is not necessary, because the accounts having been already settled and the reserve funds or other sums which are going to be used in the business being fixed, the considerations which, as my right hon. Friend has pointed out, might very well apply to future years do not apply to this particular Schedule or to this Clause 34 at all. The original Amendment, if carried, would only apply to accounts which have already been settled. I want to corroborate very strongly what has been said by the hon. Baronet (Sir C. Cory), that this is calculated to strangle the expansion of industry. The only possibility of this country meeting its engagements is by the development and expansion of its industries. In a great many cases the money for this Excess Profits Tax will be borrowed, and not only will the money which is reserved, or which is going to be used in the business, not be applicable, but the actual operations of many companies will be strangled by the operation of this Excess Profits Tax. The considerations which the Chancellor of the Exchequer has alleged of people making up their accounts and putting the whole of the profit to the reserve fund, and so escaping the tax altogether, are not under this Bill possible.

I beg to move, in the proposed Amendment, to leave out the words "sums which are not divided as profits but employed in the business," and to insert instead thereof the words "a percentage of the profits as has been previously placed to reserve."

I am perfectly prepared, if the right hon. Gentleman after consideration prefers that I should withdraw, to do so and to move it later on, but I think it would be advisable to outline what I think ought to be done at present in order that it may be before him when we come to the Report stage. The word "percentage" must come in because the profits may vary. If the profits were £20,000 one year and £10,000 in the other, it is quite conceivable that in the ordinary course of business a larger proportion would be put to reserve when the profit is larger than has been the case when the profit is smaller. You want to keep the percentage. You do not want to play into the hands of anyone who wishes to avoid the tax. You want to enable a prudently managed business or company to put to reserve the same percentage of profits as it has done in the past. No one would be injured, but the good habit of taking advantage of good times in order to preserve capital would be continued. I really think this will not injure the Chancellor of the Exchequer in any way. It may possibly decrease a little the amount of the taxation, but it is a very important point, and one which it is very necessary to preserve if we are going, as I hope we shall after the War, to see that our industries increase and flourish.

I hope my right hon. Friend will not listen either to the Amendment to the Amendment or to the Amendment. I have sat out many of these discussions with regard to the Excess Profits Tax, and I must say on the whole I have been amazed at the attitude taken up by some hon. Members. I am a business man, and perhaps the House will not mind me saying I shall have to pay Excess Profits Tax. But all the people I meet outside the House welcome the tax, and I cannot understand how so much time is taken up by Amendments such as we have before us now. Whom do hon. Members represent, because I do not find anyone outside the House has any objection, and if you are going to have this Amendment, or the Amendment to the Amendment, it whittles down the tax to nothing at all. I rose to say that in my opinion the House and the country do not want this tax whittled down. They want it to pass, and the people who have the privilege of paying this tax are very glad to welcome the opportunity of making contribution to the War at this time. I understand the point raised by the hon. Gentleman (Sir W. Pearce) as a matter of principle, and for application to a time which is not war time, and I think he did a service in raising the point and bringing to the mind of the Chancellor of the Exchequer that this, although it is an Excess Profits Tax, is not a war tax, but a tax for the War, and is justified because of the War. The people who will pay the tax want to pay it because of the War. But my hon. Friend is right. If this was not war time, this would be an absolutely unsound tax, because to take money out of a business at ordinary times, as a tax, would stop and shut down enterprise. It would be absolutely fatal to the interests of the country, and it is just as well for some people outside the House, who, perhaps, are not engaged in business, who take a wrong view of this, to recognise that the tax as an ordinary tax is wrong, but as a tax at this war time it is absolutely right, and I hope my right hon. Friend will not accept these Amendments, and I hope the Committee will not give up any more time in discussing them, but that we shall all join hands, not in trying to whittle away the tax but in making it as effective and as money producing as we possibly can. As far as I am concerned, I shall vote against it, and use any influence I have against any proposal to diminish the money, influence, or power of this tax.

I think the hon. Gentleman's accusations of bad faith in this discussion are improper, and undesirable.

I did not say anything about bad faith.

I think we are all agreed that we want to make the Bill as fair as possible to all parties. Whilst I cannot say I approve of either of these words, we require some consideration of the words of the Amendment, because there is a certain class of business which has been spending large sums of money out of profits at the request of the Government, and I have not yet seen any provision enabling these businesses to deal with the moneys they have so provided—I mean works which are subsequently declared controlled works.

These works are not covered by this Bill.

It is prior to the Bill when they will be covered that I wish to refer to, and they only become free from the Bill at the date when they are declared controlled works, that is to say, on 9th November. Speaking of some works I know, which have been declared controlled, for six months before that date they were doing a large quantity of work on which they will have to pay their profit. They have been expending large sums of money in putting down plant for the Government, and I do not think there is anything so far in the Bill that enables them to get back the money they have so expended. I think there is some necessity for words to provide for the deduction of sums which have been expended in this way at the request of the Government.

May I suggest again to the Committee that as the words before the Committee are vague and indefinite, it would be desirable not to waste more time now, but to put down specific words at a later stage.

I am quite ready to withdraw my Amendment if the right hon. Gentleman will consider it on Report stage. I do not want him to give any undertaking that he will do anything.

I do not think any case has been made out for the Amendment. These profits which are made are larger than in any pre-war year you are dealing with. Therefore it is open to all these firms, without any greater hardship than before, to put as much to reserve as in a pre-war year, and I do not think the hon. Baronet has made any case at all why in the present year, when money is so much needed, a much larger sum should be put into the reserve of these companies.

I only want to urge, in reference to what the right hon. Gentleman said as to the danger he foresaw that firms or companies would place large sums in reserve so as to lessen the amount available for taxation, that as regards companies that could hardly happen beyond a certain extent, because an all sufficient check would be provided by the feelings of shareholders who saw themselves deprived of their dividends in order to carry out this process. I think that would meet the case very much, and would lessen the danger. That is in regard to companies. How far it would operate in regard to private businesses I cannot quite say. As regards the hon. Baronet's proposed Amendment, unless a percentage is struck for several years it obviously would not work. I think the Amendment should be withdrawn because of its vagueness.

The point which has been raised about munition works is already provided for in the Bill, in Clause 36, Subsection (2)—the alteration of the pre-war standard of profits on account of this expenditure to which the hon. Gentleman alluded. It is a more important point, but it is provided for, and that is the answer to his particular argument. Moreover, the Chancellor of the Exchequer has given a splendid answer to the argument as to the reserve fund in the vast majority of cases. He has said that the reserve fund is provided for in the standard years, and therefore the same calculations would be made in the accounting period, and there is no necessity to make provision. It is a perfectly sound argument. What my two hon. Friends opposite have forgotten, and the Chancellor of the Exchequer has forgotten, is that this case of smaller profits before and larger profits now, which everyone is always thinking of, does not cover the whole scope of the Bill. There is a case of another kind that I have tried to drawl the attention of the Committee to so often, namely, the case in which, owing to some temporary failure, the businesses have done very badly during the standard years and then have improved, for some reason, in the year before the War. In that case there would be a great hardship. I can put it very simply. I am sure my right hon. Friend will consider the case I am going to put. It is confined entirely to the percentage standard profit. My right hon. Friend will see that it is where there has been no profits, and no increase of profits that he creates a percentage standard in the Bill. I only want this artificial percentage standard of profit of 6 per cent. for the purpose of the Bill, to be calculated in the way it would have been calculated if there had been profits to be dealt with. I will give an illustration. We will take the case of a business with a capital of £100,000, which had made £9,000 profit in a pre-war year; that is, in one of the standard years. Of that, £1,000 would be carried to reserve. Everything would go right with that business. The £9,000 compares with £12,000, and they have to take the difference in excess profits. Supposing there had been this profit, then the Chancellor of the Exchequer imagines £6,000 is the rate. Why has he fixed on 6 per cent.? Because he thinks 6 per cent.—

I am afraid the right hon. Gentleman is going back to the Clauses of the Bill. We had all this on Clause 38, and he made the same speech then. I really cannot allow this.

I apologise to the House for giving that illustration, and I will leave that point, but I do say that where you fix the statutory percentage, this question of reserve has not been thought of.

The whole question has been argued before. We have not fixed a statutory percentage, but we have fixed a minimum. The whole question of reserve will come up before the Referees, when they are fixing the proper percentage to be paid by any particular trade. All the trades will come before the Board of Referees in order that they may fix a percentage standard, suitable to the trades.

That was disposed of when we were dealing with Clause 38. I understand that the hon. Baronet (Sir F. Banbury) asks leave to withdraw his Amendment to the first Amendment.

indicated assent.

Amendment to the proposed Amendment, by leave, withdrawn.

If the hon. Baronet's Amendment went into the Bill, I think his form of words would be more equable. Whether you accept the hon. Baronet's words or not, it is clear that in the case of the insurance companies of this country you are making a very large concession. I thank the Government for that concession if they choose to make it, but in common candour I must say that it is a very considerable concession.

In asking leave to withdraw my Amendment, I think it right to point out in reply to the Chancellor of the Exchequer that it is quite evident this tax is going to represent more than one year, so there will not be much advantage in keeping back profits. I hoped that the right hon. Gentleman might have considered the case I raised. I know a case in which a very considerable percentage of profits has been put by every year, for years past, in order that it might be written off if thought necessary. That percentage in regard to that particular company is absolutely necessary to be dealt with in that way. Before they can get any rebate they have to go before the Commissioners and prove their case, and I think this will be a type of thousands of cases throughout the country. However, under the circumstances, I see no course but to withdraw my Amendment.

Amendment, by leave, withdrawn.

In regard to the next Amendment standing in the name of the hon. Member for Liverpool (Mr. Penne-father), I think the hon. Member will recollect that on Clause 34 we discussed at great length, on the question of the date, whether the profits to be subject to this tax were the profits made in the pre-war period or only made during the War. Therefore we cannot reopen that question, but we must keep strictly to the question of accounts.

I beg to move, after the word "period" ["The profits shall be taken to be the actual profits computed for the accounting period"], to insert the words "but in order to place yearly and half-yearly accounts as far as may be on the same footing, in determining the profits of a first accounting period, which is a yearly period commencing on or before the first day of July, nineteen hundred and fourteen, any person who proves from his books to the satisfaction of the Commissioners that part of the total profits in such yearly accounting period had been actually earned on transactions completed prior to the first day of July, nineteen hundred and fourteen, may deduct such so proved prior profits from the total profits of the first accounting period."

I fully recognise the justice of what you have said, Mr. Whitley, and the first line in my notes is to the effect that I wish to disclaim any intention whatever of reopening the question as to whether pre-war profits were or were not to be taxed. I take it that that has been, for the time being, settled by the Committee, and I do not propose to go into that matter, either directly or indirectly, or to raise it by any side-wind. I will, if I possibly can, avoid using the word "pre-war," but the difficulty is that in the Bill itself that term is used. I may, therefore, have to use the term to identify a period in the Bill, but it will only be with that object.

The Amendment which I beg to propose is one which has been very carefully considered by practically all the Chambers of Commerce in the Kingdom, and it has been endorsed and specially recommended by the Association of Chambers of Commerce of the United Kingdom. I am sorry that the hon. Member for Bethnal Green (Sir E. Cornwall) has left the House, because I should like to confirm what he said in regard to the feeling throughout the country as to this Excess Profits Tax. Throughout the country I do not find that the chambers of commerce are opposed to the principle of this tax at all. All that the chambers of commerce are trying to do, as far as I am aware, is to improve the Bill by making it more workable, by striking out details which they think are contrary to the national interests, and by endeavouring to make the incidence of the duty fall more fairly, as between man and man. Apart from that, I think the chambers of commerce support the Bill, and I do not think that in the course of debate I have ever taken up any other attitude. The real point of my Amendment is that the incidence of the tax, owing I believe to an accident, is at the present moment very unfair, because it falls very much more heavily upon those firms who keep yearly accounts than upon those firms who, by some fortunate accident, keep their accounts half-yearly. I am sure it cannot be the intention of the Treasury to penalise one firm because it keeps its accounts yearly or to reward another firm because it keeps its accounts half-yearly.

I will take an extreme case. One firm may keep yearly accounts beginning 1st October, 1913, and ending 30th September, 1914. The retrospective action of this tax upon that firm is to tax it upon any excess profits it may have made during a period of ten months. That happens because that firm keeps its accounts regularly at that yearly period. A competitor of that firm, next door may be, may keep its accounts half-yearly, and under this tax the fortunate competitor, keeping half-yearly accounts, is only retrospectively taxed for a period of one month. I think it must be admitted that it cannot be a fair incidence of taxation that one firm should be retrospectively taxed for profits over a period of ten months and another firm competing with it, perhaps in the next office, and in the same business, should escape the retrospective tax, except for a period of only one month. Those are extreme cases. I have taken a firm starting its yearly accounts on the 1st October, 1913, and have compared it with a firm which has half-yearly accounts from 1st January to 30th June, and from 1st July to 31st December. I think such cases will be comparatively rare, but there are, however, other cases which are very common, and which will occur in thousands of cases, where, for instance, there are competing firms who keep their accounts, one, yearly, from the 1st January to the 31st December, and the other half-yearly, from the 1st January to 30th June, and from the 1st July to the 31st December. The result of that will be that one of these competing firms which keeps its accounts yearly, would, if it happened to make an excess profit at the rate of £100 a month during the year ending 31st December, 1914, have to pay £350 retrospectively in taxation. That is to say, 50 per cent. on the £100 a month for seven months. The other firm, making exactly the same excess profits throughout the year of £100 a month, but keeping its accounts half-yearly, would only pay a retrospective tax of £50, which would be 50 per cent. on £100 during one month. Therefore it amounts to this, that the first firm would be penalised £300 for keeping yearly accounts instead of half-yearly, and that would go on pro rata according to the size of the excess profits made. It might only be £30, or it might be £300, or it might be £3,000. I have had one case brought to my notice, in which, if I understand it rightly, it is claimed that this particular firm suffers to the extent of £9,000, compared with a competitor, merely owing to the accidental way in which accounts are divided into yearly or half-yearly periods.

I think the Committee will agree that this is an unfair incidence as between man and man. I know there is a theory held somewhat generally to the effect that all these things come out in the wash. I believe that that view is held with great strength on the Treasury Bench, but in the cases I have indicated, such an unfair penalty for keeping accounts does not come out in the wash, because if you read the governing Clause, namely, Clause 34, Sub-section (3), it will be seen that repayments take place only upon the condition that the firm can prove a deficiency of profits below the standard period. It does not at all follow that the firm which has been mulcted in this way will show that deficiency, and if it cannot show that deficiency it cannot claim any repayment. Even supposing that that repayment can be claimed, it amounts to this, that a firm keeping yearly accounts has had a certain portion of its capital taken away from it and locked up, by what I may call a forced loan, until the repayment period, whereas the other firm, keeping its accounts half-yearly, would not be called upon to contribute that forced loan out of its capital. I think that the Amendment which I have moved is extremely moderate, because it expressly states that a person keeping accounts yearly will only be entitled to deduct from the first accounting period profits actually earned on transactions completed prior to 1st July, 1914. That makes the point clear, and it ought to give the minimum of trouble to the Commissioners or the Referees. It does not place the man with a yearly account quite on the same footing as the man who keeps his accounts half-yearly, but it does that as far as it can conveniently be done. Therefore I hope that the Treasury will see their way to accept the Amendment.

So long as different firms have different accounting periods obviously it is impossible to place them all on precisely the same footing. No arrangement can do so. That has been recognised from the first. We have to accept it as a fact in the construction of the Bill that differences in the accounting periods must make differences to the firms concerned. The hon. Gentleman proposes to provide a remedy which he founds upon the differential treatment accorded to the firms who make up their books half-yearly as compared with those who make up their books yearly. I hope to show very briefly that his proposed remedy is unnecessary, and, in the second place, that it is quite impracticable. He takes the case of two firms, one of which makes up its accounts from the 1st January to the 30th June—half-yearly—while the other makes up its accounts from 1st January to 31st December. He says, "Look at the hardship in the case of the firm yearly as compared with the firm which makes up its books half-yearly." As he has stated his case, he has clearly shown a hardship. But take the opposite case. Take the case of a firm which makes up its books half-yearly, to the 30th June, and does not make a profit in the first six months, but does make a profit in the second six months. It is unable to bring in the loss in reduction of the profit. Therefore, in such a case, the firm which makes up its books half-yearly is worse off than the firm which makes up their books yearly. Undoubtedly we can bring up an infinite variety of cases in which we can show that, for the time being, one firm would be adversely affected as compared with another firm.

The hon. Gentleman then said that there is a prevailing belief on the Treasury Bench that everything will come out all right in the wash. That is not our belief at all. We have no belief in the wash in order to prevent inequality of that kind, but we do believe, taking the whole average of trades or businesses, that these inequalities will work themselves out fairly throughout the whole. We have got to consider not only the beginning, but the end of the tax. The firm which makes up its books half-yearly will very likely come under the operation of the tax for a longer period than the firm which makes up its books yearly. You have got to consider going out of the tax as well as coming into it. If the hon. Gentleman considers the case in its entirety, he will find that there is really no true necessity for this change. If it be said that the firm which makes up its books half-yearly is never going to suffer because it made profits before the War, and made profits during the War, and made profits in the period after the War, and can never make good the comparative condition of the firm which makes up its books yearly and so suffers, my answer is that the firm which makes the profits is in a condition to pay, and the firm which makes up its books half-yearly and makes a profit right through will have to pay the last half-year if it escapes in the first half-year. On the question of practicability, I would ask any hon. Member in this House, not only the hon. Gentleman who moved the Amendment and who is thoroughly familiar with business, to take the case of a business which on the 1st January, 1916, will have to make up its books for three, four, five, or six months of 1914.

That is not necessary.

Yes, it is absolutely necessary, because profits depend upon valuation.

May I point out to the right hon. Gentleman that the words of the Amendment expressly exclude this? It says, "any person who proves from his books"—there is no question of making up accounts; it is a question of proving from books which are already made up and on record—"to the satisfaction of the Commissioners that part of the total profits in such yearly accounting period had been actually earned on transactions completed prior to the first day of July, 1914." There is no question of valuation there.

Surely there must be. How without it are you going to arrive at the profits other than in a mere brokerage business? How will you ascertain the profits on any business in which a fixed capital is involved except on a valuation of the profit which has been made?

That is not my suggestion. The right hon. Gentleman is suggesting that I have asked for somewhat more than I have. I am quite aware that I am asking on behalf of these men less perhaps than they are strictly entitled to. I am merely asking that, when a man can prove from his books, which are already made up, not from any fresh accounts but from accounts which have been in existence for more than a year, that certain profits were actually earned on completed transactions prior to the first day of July, 1914, he should be allowed to deduct these profits. I have expressly excluded valuations and estimated profits. I think that if the right hon. Gentleman will look into the Amendment he will see that I have asked too little rather than too much.

If, as I understand, in what the hon. Gentleman proposes he understands by profits what a person can prove from his books, then he excludes from his Amendment all trades in which stocks are held, all shops or merchant businesses, all manufacturing concerns of all kinds.

dissented.

And all insurance companies.

dissented.

Then he is simply dealing with brokers.

No, Sir; a shopkeeper may have an immense number of articles in stock. If he had valued those in the increased profit there would be no question of a repayment of this valuation. In the same way in the case of an insurance company, if it was running a risk in which it said, "We are receiving so much premium. The risk is not all run off. We are including so much," they would not be able to come back for a deduction.

I do not think that the hon. Gentleman has really considered his own Amendment. Say a firm usually makes up its books on 31st March. Then you have in the accounting period before the War—April, May, June and July—four months. To estimate what the profits were on the 31st July, for the four months, it would have to take a sort of imaginary stock of the whole of its assets in the middle of the year, which would be absolutely impossible to take.

I have not asked for that.

If the hon. Gentleman excludes all these cases from his Amendment he cuts down his Amendment merely to such businesses as those in which there is no fixed capital, subject to stock taking in the course of the year. Such differential treatment for such a small class of business clearly I do not think is advisable. I think that I have already given reasons to show that the Amendment is not necessary.