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Commons Chamber

Volume 76: debated on Tuesday 23 November 1915

House of Commons

Tuesday, November 23, 1915

New Writ

For the County of Devon (North-Eastern or Tiverton Division), in the room of Lieutenant the Honourable William Lionel Charles Walrond, deceased.—[ Lord Edmund Talbot. ]

National Insurance Act

Paper [presented 22nd November] to be printed. [No. 385.]

Copy presented of Provisional Regulations, dated 18th November, 1915, made by the "Welsh Insurance Commissioners, entitled the National Health Insurance (Subscriptions and Donations) Regulations (Wales), 1915 [by Act]; to lie upon the Table, and to be printed. [No. 387.]

European War

Copy presented of Correspondence respecting Military Operations against German Possessions in the Western Pacific [by Command]; to lie upon the Table.

Shops Act, 1912

Copy presented of Order made by the Council of the urban district of Abertillery and confirmed, with amendment, by the Secretary of State for the Home Department [by Act]; to lie upon the Table.

Universities of Oxford and Cambridge Act, 1877 (Cambridge)

Copies presented of Statutes made by the Governing Body of Christ's College, Cambridge, on the 31st July, 1915, repealing the existing Statutes of the College and substituting there for new Statutes [by Act]; to lie upon the Table, and to be printed. [No. 386.]

Oral Answers to Questions

War

Troops on Leave (Accommodation in London)

asked the Under-Secretary of State for War if he is aware of the appeals for funds from the Young Men's Christian Association to enable them to carry on their work of assisting soldiers arriving from the front, and if he will make inquiry as to whether the Horticultural Hall, Vincent Square, could be obtained and permission given to fit it with beds for soldiers; if the suggestion has been made that temporary beds might be fitted up for soldiers arriving in the middle of the night; and if he will make inquiry as to the temptations held out to soldiers in the Waterloo Road?

I am not aware of any appeals for funds to the general public by the Young Men's Christian Association for the purpose named. The association has already erected a hut for the use of soldiers in Waterloo Road, also a second in Euston Square, and they are now erecting a third and fourth for the use of soldiers and officers in Grosvenor Gardens. My hon. Friend's suggestion with regard to the Horticultural Hall, Vincent Square, would certainly be considered if any provision for financing it could be made. Now that leave trains from the Expeditionary Force arrive in the middle of the day, and not by night, accommodation by night is not often required. If found necessary action to provide further accommodation than is available will be taken. The attention of the Provost Marshal and his staff is constantly directed to the matter referred to in the last part of the question.

asked the Under-Secretary of State for War whether he is aware that discontent exists among our soldiers in France, owing to the manner in which leave is being granted; whether he is aware that many soldiers have not had leave at all, although they have served over twelve months at the front, while others are allowed leave within two or three months of their arrival, and that soldiers after being wounded are returned direct to the front without any leave; and, having regard to this, whether he will consider the question of making some improvement in the arrangement for leave?

The House is aware, and I have constantly stated, that this matter is one for the discretion of the Commander-in-Chief. But as I receive such numerous representations, which show that the matter is one of general interest, I am writing privately to the Commander-in-Chief on the matter.

Recruiting

Vaccination

asked the Under-Secretary of State for War whether he is aware that many man who have joined the Army have since reported that they did not understand that at the time of their attestation they were consenting to undergo vaccination or revaccination; and will he give instructions that the questions put to intending recruits shall be distinctly read over to them and the answers they give accepted by the recruiting officers, in order to avoid the possibility of men who are strongly opposed to vaccination undertaking inadvertently to submit to that operation?

I cannot understand how any man can be ignorant of his liabilities in this respect. The question, "Are you willing to be vaccinated or revaccinated?" is put to every man who enlists in the Regular Army, and the answer he gives is entered on the attestation paper immediately. Further, the magistrate or attesting officer is required to sign a certificate that the questions on the attestation paper were read to the recruit in his presence and that he has taken care that the recruit understands each question and that the answer to each question has been duly entered as replied to, and that the recruit has made and signed a declaration before the magistrate or attesting officer. I do not see what further precautions can be taken.

Lord Derby's Scheme

asked whether Lord Derby's scheme has up to the present time proved satisfactory; whether the number of recruits joining daily, if continued in the same numbers up to 11th December, will be sufficient to prevent Conscription; if not, and Conscription must be introduced, will he take steps to exempt Ireland and any other town or city that has given their fair share of recruits to the Army; and whether he is aware that if Conscription is forced on Ireland it will be resisted by drilled and armed forces?

I cannot undertake at the present moment to answer the hon. Member's question. I very much deprecate the threat contained in the last paragraph.

May I ask whether, in regard to the allusion in the question to drilled and armed forces he proposes to extend the Volunteer Bill to Ireland?

That does not arise, but if the hon. Member will give me notice, I will answer it.

Royal Scots Fusiliers (Private R. Armstrong)

asked the Under-Secretary of State for War whether his. attention has been directed to the case of Private R. Armstrong, who joined the Royal Scots Fusiliers ten months ago and was recently discharged from the Service on medical grounds; whether he is aware that this soldier was sent under escort from Netley for the purpose of being placed in Maybole poorhouse; that he was taken under warrant to the poorhouse and indignantly refused to enter the same, desiring to be taken to his wife and four children in Sheffield; that the escort then disclaimed further responsibility and left the soldier, who had only 2s. 6d. between him and want; that a doctor who examined the man said there was nothing wrong with him mentally and that he was suffering from nervous debility; whether the authorities will make efforts to find this man and afford him free travelling facilities to his wife at Sheffield; and whether steps will be taken to prevent anything similar happening to other soldiers?

I have not yet received the report which I called for. Perhaps my hon. Friend will repeat this question.

Household Troops, Windsor

asked whether the Borough of Windsor has been removed from the Home District and transferred to the Aldershot Command; and, if so, what is the reason of this change?

By "the Home District" I think my hon. Friend refers to the London District. Windsor is within the London District to the same extent as it has always been—that is to say, the General Officer Commanding the London District commands the Household Troops at Windsor.

Military Hospitals (Nurses)

asked what are the hours on duty of V.A.D. nurses in military hospitals; and what off-duty time is allowed each week and month?

If I stated the hours on duty, and also the hours off duty, I should be giving two different statements for the same thing. I will therefore state the times off duty. These consist of three hours every day, either from 9.30 to 12.30 p.m., or from 2 to 5 p.m., or from 5 to 8 p.m., and half a day every week from 2 to 10 p.m., and a whole day every month from 6 p.m. until 10 p.m. of the following day. The nurses are called at 6.30 a.m., and they proceed to their rooms at 10 p.m. The regulation time-table is adhered to so far as circumstances will permit, but in times of stress it may have to be modified.

Is not the right hon. Gentleman aware that certain nurses have to work fourteen hours a day at a stretch, and are not allowed to leave the hospital?

If my hon. Friend tells me that that is so, no doubt it is so; but I think it is a very rare case, and it would be one of the cases I have spoken of as occurring in times of stress.

Persia

Arrest of British Consul

asked the Secretary of State for Foreign Affairs whether he has yet received any official information to the effect that His Majesty's Consul and the manager of the Imperial Bank of Persia at Shiraz have been made prisoners, and, if so, by whom were they made prisoners and by whose orders; and whether the Consul has a Consular guard; and, if so, whether they were powerless to intervene, or what occurred?

The answer to the first part of the question is in the affirmative.

The arrest of the persons in question and seizure of property was carried out by the gendarmerie, but without the knowledge of the Persian Government. It was an act of unprovoked brigandage.

Details have only just been received, and when possible a fuller communication will be made to the Press.

Information has also been received that the gendarmerie, under its foreign officers, is in open revolt against the Persian Government, and has cut telegraph lines, and seized and robbed road toll-houses and offices.

Our information is that all this has happened in defiance of the Persian Government, who resent the conduct of the gendarmerie and their officers.

Serbia

Food Supplies by Allies

asked what has been done by the Government by way of furnishing the Serbian people with sufficient food to protect them from starvation?

Everything possible has been done, and His Majesty's Government are actively engaged in endeavours, in concert with their Allies, to provide early and sufficient supplies of food.

Questions

Field Stores, Aldershot (Writers' Overtime)

asked the Financial Secretary to the War Office whether he is aware that the writers and temporary foreman employed in the field stores, Aldershot, are now working from twelve to eighteen hours per week overtime, for the first three hours of which they receive no extra pay; and, in view of the fact that the wages of some of these men are as low as 24s. per week, if he will consider the matter, with a view to paying the men reasonable overtime rates for all hours worked, in exactly the same way as other workmen are dealt with?

I am fully aware of the circumstances of this case, which I have very carefully considered. These men are paid at a rate fixed to cover all overtime necessary under normal conditions; but as a special concession, in view of the War, they are paid for overtime in excess of three hours a week. For writers, this means payment for all hours in excess of forty-five.

Royal Army Medical Corps, Egypt

Temporary Lieutenants

asked the Financial Secretary to the War Office whether Colonial allowance of 3s. a day is paid in Egypt to all officers of the Royal Army Medical Corps whose stay in Egypt exceeded fourteen days; whether this applies to temporary lieutenants there whose stay in that country often extends to six months or a year; if not, will he say why this exception is made to this particular class of officer; and will he see that in future equality of treatment of all officers is carried out?

Temporary lieutenants serve under a special contract at a rate of pay explicitly fixed to cover all cash allowances.

Questions

Hay Purchases (Westmeath)

asked the Financial Secretary to the War Office on whose information he stated that no hay had been commandeered in Westmeath; whether he is now in a position to explain how it was that at that time the military authorities were dealing with complaints from persons in Westmeath whose hay had been commandeered for military purposes; what the rule is on which the military authorities inform an owner in Ireland that he should never have purchased the particular class of hay that suits him; and how it is that no such powers are exercised in Great Britain?

No hay whatever has been requisitioned in Westmeath. The methods adopted for buying hay in Ireland are similar to those in England and Scotland. Throughout the United Kingdom, producers are asked to give the military authorities first refusal of a certain class of hay required for the horses overseas, and consumers are asked not to consume this special class of hay if wanted for Army purposes. It is only in cases where hay has been disposed of in spite of these directions that resort is had to requisitioning.

The hon. Gentleman has. not answered the first question—from whom did he derive the information with respect to Westmeath at a time when hay was actually being commandeered there?

I am informed that no hay has been commandeered. Of course, I derive my information from those who are responsible for giving it to me.

Will the hon. Gentleman make inquiry into the matter if I put into his hands the correspondence from the military authorities?

Yes; if the hon. Gentleman can give me any accurate information bearing on the question, certainly I will.

Cabinet Committee on Finance

asked the Chancellor of the Exchequer whether the War Economy Committee of the Cabinet has not met for two months; when it is proposed to resume its sittings; and whether he has in contemplation any immediate and drastic measures for checking the extravagent consumption of luxuries imported from abroad?

The Cabinet Committee on Finance is sitting regularly. The Treasury Committee on Retrenchment, having taken evidence from most of the large English Departments, is about to consider the question of economies in Ireland. As regards the last part of the question, I am unable at present to add anything to my answer to the hon. Member for Great Yarmouth, on the 18th instant.

Valuation of Securities

asked from what date the new scale of valuation of securities will be applied; whether it is intended to apply it from the date when minimum prices were first imposed; and, if not, what is the objection to or difficulty in so applying it?

The arrangement referred to in my reply of the 23rd September last to my hon. Friend the Member for North-East Lanarkshire, takes effect in all cases in which the date for the determination of value is subsequent to the issue of the prospectus of the New War Loan, namely, the 21st June last.

Rubber Boots for Troops

asked the Undersecretary of State for War whether there is already a number of men in the British hospitals in France suffering from frozen feet as a result of not being supplied with rubber knee-boots; and whether he is aware that Sir Francis Ley, baronet, was anxious to supply rubber boots to some 300 men who have enlisted from his works at Derby, but that he was discouraged from doing so by the Director of Equipment and Ordnance Stores, who informed Sir Francis on the 15th September last that an ample supply of rubber boots of a special pattern was being sent out to France and to the Dardanelles to meet the requirements of all the troops?

I regret to say that there are a certain number of men in hospital in France suffering in their feet, but there is nothing to show that this is due to the absence of rubber boots. Rubber boots of special pattern reaching to the top of the thigh are supplied to men in the trenches. The knee-boots which Sir Francis Ley generously offered to provide were not considered suitable for the trenches.

Golf Courses (Scotland)

asked the Secretary for Scotland whether, in his campaign for economy, his attention has been called to the number of golf courses in Scotland that are now unutilised or only occasionally utilised; and whether he can get the local authorities to take action for amalgamation or otherwise so that the men em- ployed on these courses may be relieved for the more urgent requirements of the-country?

The answer to the first part of the question is in the negative. As regards the second part, I do not doubt that local authorities or others concerned in the management of golf courses in Scotland will have regard to the national needs, in the matter of employment, and to the recommendations as respects golf courses contained in the recent Report of the; Scottish Committee on Food Production.

British Empire (Approximate Wealth)

asked the Chancellor of the Exchequer the approximate national wealth and the national yearly income of the British Empire, namely, United Kingdom, Canada, Australia,. South Africa, New Zealand, India, and Ceylon, Crown Colonies, Possessions, and Protectorates, including Egypt?

The information available will not, I fear, enable me to give anything but very rough estimates in reply to my hon. Friend's question. It has, however, been computed by statisticians that the capital wealth of the British Empire-amounts roughly to £26,000,000,000, and its yearly income to £4,000,000,000.

Finance (No. 3) Bill

Income Tax (Farmers)

asked if farmers who elect to be assessed for Income Tax under Schedule D will pay on their returns for the last complete year, or will they be assessed on their average returns for the last three years?

The basis of assessment under Schedule D would be the average profits of the three preceding years.

What will the basis be ire the case of a farmer taking up a new tenancy less than three years before the time he wishes to be assessed under Schedule D?

Questions

Waste Land Reclamation

asked the Parliamentary Secretary to the Board of Agriculture whether any, and, if so, how many, schemes for the reclamation and cultivation of waste land have been submitted and approved by the Board since the beginning of the War, and the extent of the land comprised in such schemes?

A number of suggestions for reclaiming waste land have been received by the Board, but no schemes for the reclamation and cultivation of such land have been submitted to and approved by the Board. My hon. Friend will realise that under the Development and Road Improvement Funds Act the Board of Agriculture are only in a position to make recommendations on these matters.

asked the Secretary to the Treasury (1) whether any schemes for reclamation and cultivation have been prepared by the Development Commissioners; what is the extent of the land comprised in such schemes; and (2) whether the Development Commissioners have had submitted to them since the beginning of the War any and, if so, how many schemes for the reclamation and cultivation of waste land; what extent of land is comprised in such schemes; and whether such schemes have been approved?

A scheme of reclamation of 200 acres prepared by the Development Commissioners is being carried out in Norfolk. Since the outbreak of war a scheme has been submitted to and approved by the Commissioners for the reclamation of 16,000 acres of flooded lands in the Feltwell Fen. No other definite schemes have been prepared by, or since the beginning of the War submitted to, the Development Commissioners, though in numerous cases preliminary proposals have been sent in and surveys have been made of tracts of land with a view to the preparation of such schemes, if the areas are found to be suitable and if proper financial and administrative arrangements can be made. Grants for such surveys have been made in various cases from the Development Fund. I shall be happy to give the hon. Member information as to any particular reclamation proposals in which he is interested.

Barley and Malt (Exports)

asked the Parliamentary Secretary to the Board of Agriculture whether, in view of the fact that 499,233 quarters of barley and malt have been exported to neutral countries between the months of November, 1914, and October, 1915, against 63,911 quarters in the corresponding period of 1913–14, and of the shortage and high prices consequent upon this excessive export and the reduction in the acreage of barley grown in Great Britain, he will entirely stop the issue of licences for further export?

No applications to export barley have been approved since July last, and the export of malt is being severely restricted.

Gifts from Oversea Dominions

asked the Secretary of State for the Colonies whether, in view of the generosity shown by the Oversea Dominions and the Crown Colonies in their gifts for war relief purposes to the Mother Country and her Allies, he will publish a complete statement so that the public may know the full extent to date of this practical sympathy?

My answer given to the hon. Member for North Somerset on 20th October explained what had been done up to that date to make public these welcome proofs of generosity and sympathy, and it is proposed at the end of the War to issue a comprehensive list of all the gifts which have been received from His Majesty's Oversea Dominions. In the meantime particulars of gifts received continue to be published through the medium of the Press Bureau.

House of Commons (Serjeant-At-Arms Staff)

asked the Secretary to the Treasury whether all persons employed on the staff of the House of Commons in the Department of the Serjeant-at-Arms have now been granted bonuses to meet the increased cost of living due to the War; and, if not, will he state in which Departments and at what dates, respectively, such bonuses have been granted?

I am informed that no War bonuses have been granted in any Department of the House.

Is it not the case that war bonuses have been granted to the police staff of the House, to those employed in the ventilation and cleaning departments, and to other departments; if so, is there any particular reason why the bonuses should be withheld from a poorly paid class of employés?

The remuneration of the staff of the House of Commons is not under the control of the Treasury, but I made inquiries from the officials of the House of Commons, and that is the information I have obtained for the hon. Member.

British Shipping

asked the President of the Board of Trade if he has considered whether it would be possible for the Government to take over by mutual arrangement for the duration of the war all British shipping needed for and in connection with the war, under a system which would insure liberal and acceptable terms to the shipowners, placing the management of all such ships in the hands of an executive drawn from their number on lines analogous to those now existing in respect to the control and management of the British railways; and whether he will consider the advisability of such an arrangement so as to avoid inefficiency and waste, to avert the increase and fluctuation in freights, and ensure the best and most economical use being made of all ships during the war in the interests of the nation and the owners?

The whole question of the control of merchant shipping, including the possibility of making some such arrangement as that suggested by my hon. Friend, has been considered by the Government, and two Orders in Council were made on 10th November. The first prohibits British ships from carrying cargo from one foreign port to another foreign port except under licence; and the second gives power to requisition merchant ships for the carriage of foodstuffs and other necessary supplies to this country. Strong expert Committees have been appointed to carry these Orders in Council into effect, and they are now at work.

Coal Prices

asked the President of the Board of Trade whether he has yet come to an arrangement for fixing maximum retail prices for coal in the Metropolitan area for the winter; whether he is aware that the prices of trolley coal cannot be kept at reasonable levels except by wide publicity being given to agreed maximum prices; and whether in view of the helplessness of the poorest classes of coal consumers in London, the Board of Trade is to allow the winter to pass without protecting at any rate these consumers by stating definitely what the price of trolley coal ought to be?

The principal London merchants have agreed not to raise the present advertised prices of coal without previous communication with the Board of Trade. I am in negotiation with the merchants who are parties to the arrangement for limiting merchants' charges with a view to enforcing a fixed relation between the advertised prices per ton and the prices of coal sold in small quantities from trolleys and in shops. Due publicity will be given to an arrangement as to the sale of coal in small quantities which will, I hope, be soon completed.

asked the President of the Board of Trade whether the list of prices of coal recently published by the Workers' War Emergency Committee as being its calculation of what reasonable retail prices should be, on a basis of the agreements relating to prices of coal published by the Board of Trade, is accepted as correct by the Board of Trade; and, if not, whether the Board will indicate where errors are to be found in the list so that consumers may know when they are being asked to pay unfair prices?

I am unable to accept as accurate in all its details the list of prices to which the hon. Member refers, more particularly in view of the fact that that list prescribed identical prices for all districts in London. I have no reason to suppose that the prices now advertised by the leading coal merchants are not in accordance with the arrangement entered into between them and my Department. The Board of Trade will investigate the grounds for any complaint brought to their notice by consumers.

Is the right hon. Gentleman aware that in the Isle of Wight the cost of coal is over 70s. a ton?

No, Sir; I was not aware of that fact. Some time ago I suggested to local authorities in the Isle of Wight that they might complete arrangements similar to those we have made in London. I hope that they might find them useful.

Will the right hon. Gentleman offer those suggestions to the coal merchants in other districts besides the Isle of Wight?

Food and Fuel Prices (Dublin)

asked the President of the Board of Trade if his attention has been drawn to the prices charged for food and fuel in Dublin and district; and whether he will appoint a Commission to investigate as to the justification for such charges and also invest the said Commission with powers to fix a fair standard of prices from month to month?

I am informed that the prices charged for the principal articles of household consumption in Dublin are about the same as those charged in the leading centres in Great Britain. The desirability of appointing a Committee of Inquiry is a matter on which my hon. Friend should address himself to my right hon. Friend the Chief Secretary for Ireland.

Alien Enemies

asked the President of the Board of Trade whether he will state in what sense the business of A. Wulfing and Company, trading as the Sanatogen Company, of 12, Chenies Street, London, is a branch of some business carried on elsewhere by Johann A. Wulfing, a German alien enemy; whether he is aware that the London manager of this business, Max Muller, a German alien enemy of military age, has recently dismissed four English employés of the firm, which dismissal is now the subject of a law suit; and whether he will take steps to appoint a controller of this business, and thus relieve English employés from liability to dismissal by a German alien enemy?

The business of A. Wulfing and Company, of London, is a branch of a German business in the sense that there is a separate establishment and management in this country, which was subject before the War to the control of J. A. von Wulfing, the proprietor of the business carried on both in this country and in Germany. I am aware that the London manager recently dismissed four English employés, who have instituted proceedings; but I do not think it necessary to apply to the Court for the appointment of a controller on that account. As I told the hon. and learned Gentleman on Tuesday last, I appointed a supervisor of the business in the month of October, 1914.

Will the right hon. Gentleman take steps to prevent English employés of this firm holding important posts being dismissed from those posts by this German alien enemy?

I am afraid I cannot answer that question without notice. There may be many grounds for the dismissal of a servant that would have nothing whatever to do with the German ownership of the firm.

Is it not the fact that this Max Muller is a German of military age, and ought he not to be interned?

Is the right hon. Gentleman aware when he speaks of this business having a branch in England that this man von Wulfing is the business: there is no company whatever?

In answer to questions put to me on previous occasions I have described quite fully the status of the firm, and I would refer hon. Members to those answers.

Navy Boots

asked the First Lord of the Admiralty whether he is aware that practically the whole of the leather used for Army boot purposes is of British manufacture; that American leather has been tried and proved a failure; and can he explain how it happens that, if the British leather trade can supply leather in sufficient quantities and of the requisite quality to meet the requirements of Army conditions, the Admiralty are unable to adopt an all-British specification for Navy boots?

I understand that the greater part of the Army boots are now British throughout, though I am not aware that the facts are as stated in the second part of my hon. Friend's question. With regard to the third part of the question, the seaman's boot is required to be suitable for conditions entirely different from those existing in the case of the Army boot. A different class of upper leather is therefore used in the Navy boot, and, although preference is given to British-made leather, it has not hitherto been found possible to obtain sufficient quantities of boots to meet the whole of the requirements without admitting a certain proportion of foreign upper leather of the class referred to.

Is it not a fact that the English boot can be obtained at the same price as the American boot?

The latter part of the answer shows that is not so, but recently we were very glad and able to accept a tender for all-British shoes in a particular case.

asked the First Lord of the Admiralty whether he is aware that all leather used previous to the War for the uppers of Navy boots was of German manufacture; that the only source now available for leather other than this country is America, and that, as very little American leather is now available, practically the whole of the Admiralty contracts are being carried out with leather of British manufacture; that if quotations for an all-British specification were united the net result of an all-British specification would not cost the Admiralty any more than they are paying at the present time; and that boots made of American leather purchased for the Navy in the early days of the War were found to be wanting in many respects; and whether he proposes to take any action in the matter?

The statements made by my hon. Friend do not appear to be in accordance with the facts. The policy of the Admiralty is to give preference to British leather, and to accept no foreign leather except in so far as sufficient boots with uppers of British leather cannot be obtained at reasonable prices. The major part of our supplies of boots are already all-British, and I hope that it will be possible to increase the proportion in future without departing from the principle which I have indicated.

Then will the right hon. Gentleman say why the Admiralty are not prepared to give an all-British specification?

I think if the hon. Member studies the earlier answer he will see that we are not satisfied that we can get a sufficient supply, but, as I have just told him, we have been able to accept a tender, and we hope to increase the proportion in future.

Do I understand the right hon. Gentleman to say it is only a question of supply? If he can get a supply, is he prepared to accept an order?

What I have said is that, "it has not hitherto been found possible to obtain sufficient quantities of boots to meet the whole of the requirements."

Ships' Corporals (Promotion to Master-At-Arms)

asked the First Lord of the Admiralty whether he is aware that a circular has been issued to the Fleet to the effect that ships' corporals on being examined for master-at-arms need not pass the educational test; that the result of the order is that men are being promoted, as vacancies occur, to master-at-arms over and above the heads of men who have passed the educational test and had their abilities assessed as exceptional; that in some cases the men thus promoted have less time as petty officers to their credit than the men who have not received promotion; and can he see his way, in view of the dissatisfaction prevailing, to make some adjustment with regard to the new order?

Owing to the suspension of the educational test for petty officers generally during the War, it has been found necessary to advance men to petty officers who had only passed the professional examination for the superior rating. This has automatically affected the cases of ships' corporals (old system) who had not passed the educational test for petty officers prior to their advancement to ship's corporal, and who were debarred from further advancement to master-at-arms until they had passed that test. Such men are now eligible for promotion to masters-at-arms after passing only the professional examination for that rating, and have been placed on the advancement rosters at the ports accordingly. There appears, however, to have been some diversity of practice at the naval depots as to the seniority on the rosters which should be assigned to these men, and the whole question is now being investigated.

Munitions

Remuneration of Factory Contractors

asked the Minister of Munitions whether, in the case of the contracts for construction of any of the new munition factories, the remuneration of the contractors has been fixed at a percentage on the cost; and, if so, whether he will state in how many contracts this is the case?

The answer to the first part of the question is in the affirmative. This form of contract has been necessary in about fourteen contracts for the urgent provision of munition factories and stores.

May I ask the hon. Member whether this does not mean that the more the contractor pays in wages and the more he pays for material the greater his profit?

I do not think that is so. In all these contracts the material has been bought by the Department, and the prices of labour have been fixed.

Henry R. Merton and Company, Limited

asked the Minister of Munitions if he will now state what decision has been arrived at as regards permitting further transactions between his or other Departments of the Government and Henry E. Merton and Company, Limited; and if in future the Government will refrain from consulting or asking the co-operation of firms whose composition is largely German and in which German interests are a predominating feature?

The necessity of conferring with the legal advisers of the Crown on the recent Prize Court cases has delayed communication between the public Departments concerned. I hope that in the course of a few days this communication will have taken place.

Shell Contracts

asked the Minister of Munitions if a contract for shells has been placed with Messrs. Mann and Company, engineers, of Leeds; and, if so, if he is satisfied that this firm is fully qualified to carry out the contract?

May I ask if the hon. Gentleman would make representations to the Minister of Munitions asking him if he would withdraw the imputations he made against this firm in this House on 23rd June to the effect that they were not capable of making shells, and were only colour picture printers?

I did not know my right hon. Friend made any imputation against this firm at all. It was in respect of the statement of the hon. Gentleman, if I remember aright, that the firm were able to supply 2,000,000 shells.

Wage Bonuses

asked the Minister of Munitions whether he is aware that there are still between seventy and eighty labourers, packers, and storekeepers employed at the Army Inspection Department at Small Heath, Birmingham, who are not yet in receipt of the 4s. weekly increase in wages granted to every other section of workers at this and other similar establishments on 15th September; and will he make inquiry into the matter, as irritation and disappointment exist owing to the delays?

The war bonus in question was granted to workmen belonging to the London area only, and does not apply to the men referred to by my hon. Friend. Their cases will be dealt with in accordance with instructions about to be issued relating to Government employés at out-stations.

Is the hon. Member aware that these men are connected with the Enfield factories?

Peat Gas

asked the Minister of Munitions whether, in view of the fact that sodium nitrate is required in the manufacture of nitric acid as a starting point in the production of explosives and synthetic dyes, he will take steps to utilise the turf from Irish bogs for peat-gas producers, seeing that ammonium sulphate is an important by-product of this method of utilising turf and that, by an increased production of ammonium sulphate for fertilising purposes, sodium nitrate can be used exclusively for the purposes of explosives and synthetic dyes; and whether he will consult with the experts of the College of Science in Dublin, whose researches in this matter have been published in the latest issue of the Journal of the Irish Department?

The various methods of utilising peat have received and are receiving the close attention of the Department in connection with the manufacture, not only of ammonia nitrate, but also of other substances useful for war purposes. The researches referred to in the question are well known to the officers of the Department, and they are already in communication with the persons who own and work peat in Ireland for industrial purposes, as described in the Journal of the Irish Department. The question whether any and, if so, which of the proposed methods of utilising peat can be adopted at the present moment is a difficult one. Most of these methods are still in an experimental stage, and their adoption depends on questions of yield, cost of plant, time required for erection, and the cost of the product obtained from this source as compared with that obtainable otherwise, etc. No decision has yet been arrived at on the subject, but no time is being lost in examining into the matter.

:Is the hon. Gentleman aware that this system has been in practical operation for the last four years in a factory in Portadown, in Ulster, and the running costs have been reduced by 50 per cent. over the cost of coal?

If the hon. Member refers to my answer he will see we have to consider the price of material so obtained as compared with what we have to pay for the material obtained otherwise.

Yes, but is the hon. Member aware that it is no longer a question of experiment but of proved fact that this can be done?

It is a proved fact that various ingredients have been made out of peat useful for the manufacture of explosives, but what we have to consider is whether it is a commercial proposition as compared with other sources.

asked the Vice-President of the Department of Agriculture (Ireland) whether he has brought to the notice of the Minister of Munitions the results of researches into the valuable byproducts of peat-gas producers, published in the latest Journal of his Department; and whether he will take steps to secure, in concert with the Ministry of Munitions, an extension of the manufacturing plants in Ireland in which peat-gas producers are used, and thereby obtain for Irish agricultural purposes an increased supply of a valuable nitrogenous fertiliser?

The answer to the first part of the question is in the negative. The Department will be glad to bring under the notice of the Ministry of Munitions the articles referred to, which in my opinion are well worthy of attention.

Questions

Central Control Board (Liquor Traffic.)

asked the Secretary of State for the Home Department whether the Central Control Board at Aldershot exercises jurisdiction over towns 20 miles away, such as Windsor; whether the Board proposes to curtail the hours of licensed houses at Windsor; and, if so, what are the reasons for so doing?

At the request of the War Office the Central Control Board (Liquor Traffic) recently held a local inquiry at Aldershot to consider whether restrictions are desirable for Aldershot and adjoining districts. Representatives of these districts, including Windsor, were invited to and attended the inquiry. I understand that no decision has yet been reached by the Board.

Cabinet (Composition)

asked the Prime Minister if the statement of Lord Lansdowne that none of them would dispute that a body of twenty-two public men was not a body well constituted for the purpose of directing the course of a great War accurately expressed the views of the Government; if he will say for what reason it has been attempted for six months to direct the course of a great War by means of machinery not well constituted for the purpose; and whether this defect is the cause of the Government's failure to make provision for dealing effectively with the situation in the Near East?

The questions raised in the first two paragraphs are matters of opinion rather than fact, and I cannot in any way accept the suggestion in the last paragraph.

National Economy (Public Banquets)

asked the Prime Minister if he realises the difficulty of persuading people of small means to practice economy and the avoidance of domestic waste when public banquets and other like obvious luxuries are indulged in by the well-to-do, and particulars thereof recorded in the newspapers; and whether the Government will, for the furtherance of thrift and economy among all classes, in view of the financial situation, secure by public appeal, if not by restrictive legislation, the discontinuance for the period of the war of all such functions as the Lord Mayor's banquet in London and the Dolphin and Colston banquets in Bristol?

I have much sympathy with the spirit of the hon. Gentleman's suggestion, but it is a matter in regard to which individuals and public bodies must exercise their own discretion.

Is the right hon. Gentleman aware that the banquets at Bristol are very modest affairs in comparison with the Lord Mayor's banquet at the Guildhall?

My recollections of the banquets at Bristol go a long way back, and they were not at all a, modest affair.

Is the right hon. Gentleman open to accept an invitation to the Bristol banquets on a future occasion?

4th SCOTTISH PROVISIONAL BATTALION

asked the Prime Minister whether he is aware that the 4th Scottish Provisional Battalion was recently paraded and addressed by the colonel of another battalion, who informed them that those of them who were unmarried and did not join their Imperial Service Battalion by 30th November would be forced to do so in December; whether this statement was authorised by the War Office; and, if not, will he take measures to intimate to the battalion that the statement was unauthorised?

My right hon. Friend has asked me to answer this question. A report has been called for, but it has not yet been received.

General Botha's Dispatches

asked whether General Botha's dispatches relative to the War in German South-West Africa have yet been received in this country; and whether their publication will take place shortly?

Increased House Rents

asked whether the Bill dealing with the question of the increases in the rent of working-class dwellings will be introduced before the Adjournment?

Chancellor of the Duchy of Lancaster

asked the Prime Minister if he will state if the position of Chancellor of the Duchy of Lancaster carries with it a salary of £2,000 a year, but only few duties and activities; and, if so, will the Government set an example in economy by reducing the salary attaching to that office if it should be necessary to appoint a new Chancellor of the Duchy?

The question of the best means of dealing with this office and its emoluments has been under my consideration since it became vacant. The answer to the first part of the question is in the affirmative, but the Chancellor of the Duchy of Lancaster has almost invariably undertaken other work in addition to the duties of his office. The salary attaching to that office is charged on the Civil List, and is not voted by Parliament.

asked whether, with a view to economy, he proposes to leave the office of Chancellor of the Duchy of Lancaster in abeyance, or whether he will appoint to the office some Minister already in the Cabinet, who may not be overburdened with Departmental work, and thus save the salary of the office for the State?

Panel Practitioners

asked the Comptroller of the Household, as representing the National Health Insurance Commissioners, if he will state the total amount payable to panel practitioners for the year 1914 in respect of the domiciliary treatment of tuberculosis; how many applications for sanatorium benefit have been made to insurance committees where domiciliary treatment has been granted for 1914; what was the average period of treatment granted and the total number of visits and attendances paid by the practitioners on the patients who were granted domiciliary treatment; and how many panel practitioners actually gave domiciliary treatment under arrangements made by the committees?

The precise figure asked for in the first part of the question cannot be stated in advance of the final settlement of medical practitioners' accounts for the period named. The particulars asked for in the second part will be included in a return as to the operation of the benefit, which is in course of preparation. I am not in possession of the remainder of the information for which the hon. Member asks.

asked whether a Scottish doctor received as much as £76, due under the law, on account of a solitary patient on his panel list, who during the year had required no medical treatment?

I would refer the hon. Member to the replies which I gave to the hon. Member for the Leith Burghs on the 19th and 21st ultimo, in which I explained that the method of calculation adopted in the question does not indicate the extent of the responsibility incumbent upon the medical practitioner concerned.

Can the hon. Member dispute the fact in my question that this was publicly stated to be so by a member of the Scottish Advisory Committee?

I do not know that, but I cannot accept the implication involved in the hon. Member's question.

Is it not really the case that £76 odd was paid to this doctor on the Edinburgh panel who had only one patient and who was required to do no other medical work during the year either in connection with that patient or anybody else?

He received that sum of money in virtue of his liability to give his services to a considerable number of persons not on the panel.

Is it not quite well known that it is the case that no such further liability materialised against the doctor?

House of Commons (Police Special Duty)

asked the Home Secretary if he is aware that the policemen appointed for special duty at the House of Commons are picked men of over eight years' service and have never had a single mark against them; if he is aware that such men are expected not to seek promotion and are encouraged to look for betterment only through the extra pay given to them for this special duty; whether he will see that they receive the extra 1s. per day during each Session of Parliament; if he is aware that the police are under rigid discipline and are not allowed to form a trade union; and whether he can state in what way the men can collectively present their grievances to their chief?

The hon. Member is mistaken in supposing that the House of Commons police are not expected to seek promotion. They hold posts which are much coveted and for which hundreds of their contemporaries possess the necessary qualifications. The sessional police can draw the extra allowance only for the days when the House is sitting. Any member of the force desirous of making a representation to the Commissioner can do so, and this is known to every one of them.

Does that mean that if the whole of the police have any grievance at all they have to put their case individually and not collectively? That is not trade unionism by a long way.

Irish Volunteers

asked the number of Irish Volunteers arrested under the Defence of the Realm Acts; the number tried by jury in Ireland; the number of convictions when tried by jury; the number of cases in which the Crown failed to convict when tried by jury; the number tried by Police Court and resident magistrates; the number convicted by Police Court and resident magistrates; the number not convicted by Police Court or resident magistrates; and if, in future, so as to ensure a fair trial, trial by jury will be restored?

Twenty-two persons, understood to be members of the Irish Volunteers, have been arrested in Ireland under the Defence of the Realm Act. One was tried by jury and was acquitted. Of the remainder eighteen were tried by Courts of Summary Jurisdiction, thirteen being convicted, one discharged, and four bound to the peace and ordered to find bail. The charges in two cases are still pending. As regards the last part of the question, I would refer to the answer to a similar question given on my behalf by my hon. Friend the Vice-Chamberlain of the Household on the 11th instant.

Is the right hon. Gentleman aware that these men are not getting a fair trial?

Irish Fishing Industry

asked whether, in view of the necessity of maintaining the supply of fish, facilities for loans to those engaged in the Irish fishing industry will be continued?

Indian Army (Bandolier Equipment)

asked the Secretary of State for India whether the bandolier equipment of the 1902 pattern is still being manufactured at Cawnpore for issue to the Indian Army; and, if so, whether he can state when this will be changed for the 1908 or 1914 pattern?

I have not yet received the information on this subject for which I have asked in connection with a similar question put by the hon. Member for Eastbourne on 4th November.

Canadian Contingents (Lancecorporal J. D. Keddie)

asked the Under-Secretary of State for War, with reference to Lance-Corporal James D. Keddie, No. 27988, now in the Central Military Hospital at Shorncliffe, an inhabitant of Jedburgh, in the county of Roxburgh, and enlisted in the Canadian contingent, wounded in May last fighting near Ypres, and in consequence having suffered amputation of a foot, whether he is prevented by any regulation from getting an artificial foot fitted on in this country and from going home to his native town before proceeding to Canada to get his discharge, or whether he is required by any regulation to proceed to Canada on crutches and get an artificial foot fitted on there, thus adding to the delay and his discomfort?

I have communicated with the Director of Medical Services of the Canadian Contingents, and he informs me that Lance-Corporal James D. Keddie is not prevented by any regulation from getting an artificial foot fitted on in this country, nor is he prevented from going into his native town before proceeding to Canada for discharge.

To whom should the lance-corporal apply in order to get it put on soon?

I imagine that he should apply at the general offices at Mill-bank, no doubt familiar to my hon. Friend.

Headquarters Staff (Hull)

asked the Financial Secretary to the War Office whether the Headquarters Staff at Hull have, since the outbreak of war, had offices at the Station Hotel, Hull, at a rent of £140 per annum; and whether more suitable accommodation is available at £180 per annum?

The answer to the first part of the question is in the affirmative, but I would mention that the rent includes firing, lighting, and caretaking. Endeavours have been made to find more economical accommodation, and other premises are now under consideration. The rent, however, is more than the sum mentioned in the second part of the question. If my hon. Friend will furnish me with particulars of any suitable accommodation which he has in mind, I shall be very pleased to consider it.

Defence of the Realm Act Prosecution

asked the Secretary for Scotland whether his attention has been called to the case of Finlay Chisholm, ploughman, and Alexander Kelman, cattleman, who were sentenced to fine or imprisonment under the Defence of the Realm Act for opinions uttered in a controversy provoked by recruiting officers who were trying to enlist them; whether he will take the case into consideration with a view to seeing whether the men could have been expected to meet the queries of the recruiting officers by silence; and, if not, whether the sentence should be remitted?

I have inquired into the case, the trial of which took place on 10th September. The facts do not support the suggestions implied in the terms of the question, and I see no reason for remitting the sentence.

Ceylon Riots

asked the Secretary of State for the Colonies whether any amnesty will be applied in the case of the Buddhist prisoners now in gaol in Ceylon who were involved in the late riots; whether any inquiry has been or will be held into the causes of such riots, and the general and relative culpability of Mahomedans and Buddhists; and whether the results of any such inquiry will be published?

While all sentences on such prisoners are carefully revised by the Governor, no proposals for a general amnesty have been put forward. Reports on the origin and causes of the riots have been furnished by the Commissioners appointed to hold local inquiries, and will be included in the Papers which I hope shortly to lay before Parliament.

Is it not the case that a very large number of these Buddhist prisoners are in gaol? Considering the fact that this was a racial riot, might it not be worth considering whether something like an amnesty could not be now proclaimed?

I will put the hon. Gentleman's proposal forward if he wishes. So far, however, as can be ascertained at present, it would be neither desirable nor is it necessary to propose any general amnesty.

Irish Imports and Exports (Report)

asked the Vice-President of the Department of Agriculture (Ireland) when the annual Report of Irish imports and exports will be published?

The imports and exports Report for the year 1914 will, it is expected, be ready for publication early next year. Its issue has been considerably delayed by the fact that most of the clerical staff engaged in its compilation have joined His Majesty's Forces.

Vaccination Defaulters (Ireland)

asked the Chief Secretary for Ireland the number of vaccination defaulters in Ireland; whether he is aware that some thousands of Irish parents who have a conscientious objection to their children being vaccinated are now threatened with prosecution for refusing to do what English parents need not do; and if he will take steps to have the Irish Vaccination Acts amended by inserting the conscientious objector's Clause?

It is, I regret, not practicable to obtain a complete return of vaccination defaulters in Ireland. I am aware of a recent decision of the King's Bench Division that it is obligatory on boards of guardians in Ireland to enforce vaccination in their union districts, but, as I informed the hon. Member for North Meath on the 13th May last, I do not know of any general demand for a change in the existing law as regards Ireland, and I do not consider the present a suitable opportunity for legislation on this subject.

Evicted Tenants (Ireland)

asked whether it is with the concurrence of the Government that the Estates Commissioners have, during the twelve years of their existence, failed to exercise the powers conferred upon them by Parliament for the reinstatement or other settlement of evicted tenants and representatives of evicted tenants, and now have wholly ceased to reinstate or settle any, while 2,588 families, more than 12,500 persons, are still in that condition; whether many of these are noted as entitled to be provided for on the fulfilment of a condition which they have no power to control; whether many are neglected for failure to comply with a technicality not affecting the merits of their claim; whether some are denied, on account of sex, the relief to which they are legally entitled; whether he will state the statutory authority for this particular discrimination; whether the Government will take any steps now to redeem their pledges to all those people; and, seeing that Mrs. Riggs, of Collinstown, Westmeath, noted as entitled, her evicted farm being still vacant, has been left to die of exposure, will he say what is to be done for her daughter, and when?

It is not the fact that the Estates Commissioners have failed to exercise their powers in the matter of the restoration of evicted tenants. They have, in the exercise of the discretion conferred upon them by Parliament, restored a large number of evicted tenants, particulars of which I gave in my reply to the hon. Member for the Harbour Division of Dublin on the 17th instant. As regards the particular case mentioned in the concluding portion of the question, I would refer the hon. Member, as I did on the 12th March, 1914, to the replies given to his numerous questions on this matter.

Does the right hon. Gentleman deny that there are 2,500 families of evicted tenants still outstanding not restored or otherwise provided for, although the Commissioners have power to do it?

No, not at all. The Commissioners have dealt with the whole number of evicted tenants. There are only 230 cases in their opinion worthy of land now under consideration when the land becomes vacant.

How does the right hon. Gentleman explain the fact that the figures in this question are taken from the recently issued Report of the Estates Commissioners?

A great number of persons apply for restoration as evicted tenants who, in the opinion of the Commissioners, are not worthy at all

Would it not be well, in the interests of Ireland, to deal with this question of evicted tenants in Ireland in a large and generous spirit, in view of the records of the past?

Does the right hon. Gentleman deny the fact stated in the Blue Book recently issued, the report of the Estates Commissioners, that there are 2,588 evicted tenants still unprovided for all marked deserving of consideration?

Investment of Savings (New State Scheme)

I beg to ask the Chancellor of the Exchequer a question, of which I have given him private notice, namely: Whether in the scheme for workmen's savings outlined by him yesterday it is contemplated that the £l Bonds should be transferable by delivery, and, if so, how he proposes to prevent their passing into general use as currency?

In outlining the scheme yesterday I certainly did not contemplate the issue of an instrument which would be available for currency purposes. It would clearly be necessary that the bonds or deposit receipts should be non-negotiable, otherwise one of the main purposes of the scheme—namely, to prevent the security from being converted into cash before maturity except at the cost of some loss of interest—would be defeated.

Message From the Lords

That they have agreed to—

Consolidated Fund (Appropriation) (No. 2) Bill,

Patents and Designs Act (Partial Suspension) Bill, without Amendment.

Bills Presented

Midwives (Scotland) Bill,—"to secure the better training of Midwives in Scotland, and to regulate their practice." Presented by Mr. McKINNON WOOD; supported by the Lord Advocate; to be read a second time To-morrow, and to be printed. [Bill 159.]

Evidence (Amendment) Bill,—"to amend the Law of Evidence." Presented by Secretary Sir JOHN SIMON; supported by Mr. Brace, Mr. Tennant, and Mr. Forster; to be read a second' time Tomorrow, and to be printed. [Bill 160.]

Orders of the Day

Business of the House

Might I ask the Prime Minister whether, in view of the fact that such good progress was made yesterday with the Finance Bill that only a small number of Amendments remain, the Government propose to take any of the smaller measures to-day?

No, we do not propose to take any of the smaller measures to-day. I might say, for the general convenience of the House, that the Bill which is down on the Paper to-day in the name of my right hon. Friend the Home Secretary [Parliament and Registration Bill] will be introduced, not to-day, but to-morrow.

Can the right hon. Gentleman say when the Second Reading will be taken, and whether he will allow an interval between the First and Second Reading?

Finance (No. 3) Bill

Considered in Committee. [Progress 22nd November, 1915.]

[Mr. WHITLEY in the Chair.]

Fourth Schedule

Past III.—Capital

1. The amount of the capital of a trade or business shall, so far as it does not consist of money, be taken to be—

( a ) so far as it consists of assets acquired by purchase, the price at which those assets were acquired, subject to any proper deductions for wear and tear or replacement, or for unpaid purchase money; and

( b ) so far as it consists of assets being debts due to the trade or business, the nominal amount of those debts subject to any reduction which has been allowed in respect of those debts for Income Tax purposes; and

( c ) so far as it consists- of any other assets which have not been acquired by purchase, the value of the assets at the time when they became assets of the trade or business, subject to any proper deductions for wear and tear or replacement.

2 Any capital the income on which is not taken into account for the purposes of Part I. of this Schedule, and any borrowed money or debts, shall be deducted in computing the amount of capital for the purposes of Part III. of this Act.

3 Where any asset has been paid for otherwise than in cash, the cost price of that asset shall be taken to be the value of the consideration at the time the asset was acquired, but where a trade or business has been sold to a company and the consideration for the sale consisted wholly or mainly of shares in the company, no value shall be attached to those shares so far as they are represented by goodwill or otherwise than by material assets of the company.

I beg to move, to leave out all the words of the Schedule after the word "shall" [" The amount of the capital of a trade or business shall"], and to insert instead thereof the words,

"be the paid up capital of individuals, partners, or shareholders in companies (as the case may be), including reserves as shown by the capital account in the balance sheet of the concerns."

This is an Amendment moved at the request of the London Chamber of Commerce, who feel that the definition of the capital of a trade or business given in this Schedule is not in harmony with the Bill, and would be quite impracticable in working. There might be very little complaint to be made of Clause 36, which deals with capital, were it not for the Schedule. Clause 36 says:—

"Provided that if it is shown to the satisfaction of the Commissioners of Inland Revenue that that amount was less than six per cent. on the capital of the trade or business as existing at the end of the last pre-war trade year, the pre-war standard of profits shall be taken to be an amount equal to six per cent. on that capital."

That provision would be satisfactory, but then later the Clause provides that

"the provisions contained in the Third Part of the Fourth Schedule shall have effect with respect to the ascertainment of capital for the purposes of this Part of this Act,"

Therefore, we turn to the Schedule to see what is meant by the "capital of a trade or business." It always seemed to me that the Chancellor of the Exchequer did not rightly appreciate the situation in regard to this definition of capital. I had the pleasure of introducing a small deputation to him, and certainly when I read Clause 36 I thought that our case had been fully met until I came to that later part which refers to the Schedule. Anyone who has any knowledge of business will see that the effect of the Schedule is to make the provision very unsatisfactory indeed. It alters the Bill and sets up a very artificial definition of capital. Paragraph ( a ) says:

"so far as it consists of assets acquired by purchase, the price at which those assets were acquired, subject to any proper deductions for wear and tear or replacement, or for unpaid purchase money."

No one knows what the proper deductions might be or how far they might be carried. Then we come to paragraph ( b ):

"so far as it consists of assets being debts due to the trade or business, the nominal amount of those debts subject to any reduction which has been allowed in respect of those debts for Income Tax purposes."

Then follows paragraph( c ):

"so far as it consists of any other assets which have not been acquired by purchase, the value of the assets at the time when they became assets of the trade or business, subject to any proper deductions for wear and tear or replacement."

I cannot understand paragraph ( c ) at all. The whole thing seems to me very confused, and that about which there need be no difficulty at all is made very difficult by these definitions. Finally, in paragraph 3, it is provided

"Where any asset has been paid for otherwise than in cash, the cost price of that asset shall be taken to be the value of the consideration at the time the asset was acquired, but where a trade or business has been sold to a company and the consideration for the sale consisted wholly or mainly of shares in the company, no value shall be attached to those shares so far as they are represented by goodwill or otherwise than by material assets of the company."

To me that would appear, in the case of a great many companies, to destroy the whole capital account. It will enable the Treasury, or the Commissioners whose duty it will be to enforce this Act, to take any view they like of the amount of capital on which interest must be paid—

It may apply to other things, as I shall show presently; and with regard to goodwill, since the hon. Member for Mansfield (Sir A. Markham)—who has been away some days and whose return we welcome—has come once again to the assistance of the Government, I may point out that goodwill is, in many cases, the most valuable asset of a business. In regard to a great many businesses which will furnish the best field in which the Chancellor of the Exchequer can look for excess profits, the main consideration for the purchase money has been the goodwill, which has proved of the greatest value to the shareholders. Therefore, it is almost impossible, even with the assistance of the hon Member for Mansfield, to set up any standard and say, "We will examine into the goodwill and see whether it is real or sham." The position appears to be this. The Chancellor of the Exchequer sees it right to go into these businesses and take half the profits. That is a very tall and oppressive order. If the right hon. Gentleman is to come in in this way, let him come in on fair terms and not try to "pinch" from the other partners, who may be poor people, and who are left with only half the profits. Let them have their half fairly.

I think I have said enough to show that the definition in the Bill is very confused and unsatisfactory, and that in some cases, if adopted, it would do grievous injury. There is no need to do anything but look at the capital of the business. Anybody can ascertain it. Ninety-eight per cent. of the business companies of the country publish their accounts, and this has been regularly looked after by the Board of Trade. The capital is an item most clearly stated in the accounts. This Amendment is, therefore, proposed on behalf of the chambers of commerce. It simply declares that, "The amount of the capital of a trade or business shall be the paid- up capital of individuals, partners, or shareholders in companies (as the case may be), including reserves as shown by the capital account in the balance sheet of the concerns." These words are perfectly simple and clear. I have never heard any argument from the Treasury Bench addressed to the question of sweeping them aside and setting up in connection with businesses a new capital account. I can hardly think my right hon. Friend is quite serious in persisting in some of the definitions contained in this Schedule, and I hope he will take my advice in this very complicated matter. Yesterday we were dealing with the question of the reserve; and we now have this gigantic question of capital, which lies at the very foundation of our businesses, and if you do anything unfair to the people who own capital you will do a very grievous wrong.

My right hon. Friend has addressed to the Committee words of warning with regard to a matter of great importance. The definition of capital in this connection is almost of the essence of the Bill. If we adopt a definition which is unfair to the taxpayers we shall be doing them a gross injustice, and if we adopt a definition which is not watertight we shall allow a great number of people who ought to come within the purview of this tax to escape. Therefore, we ought to approach any Amendment with very great caution. The right hon. Gentleman is dissatisfied with the definition of capital which is included in the Schedule. Under the various Amendments which appear on the Paper we shall have to consider the merits of the definition, but, at the present moment, we are concerned with a substituted definition which, I venture to suggest, is not a perfect definition. The right hon. Gentleman said that we had all through this Bill gone more or less on the lines of the Income Tax Acts, but here we depart from them. That is true, but it is not true altogether. When we came to the first part of this Fourth Schedule, and when the Committee approved paragraph 2, we came deliberately to the conclusion that, in estimating profits in one particular instance, we should not follow on the lines of the Income Tax Acts. I do beg of the Committee to bear that in mind. We shall shorten and simplify our discussion very much if we keep the principle perfect that we ought to adopt in questions of capital the same principles as we have adopted in questions of profit. You must deduct like from like and make the same calculation in each case.

The same point will arise when we come to consider debentures. The debenture is not a deduction from profit for Income Tax, but it is a deduction from profit under this Bill owing to the Schedule we have already passed, and therefore clearly it ought not to be included in the capital of a business. When we come to the definition of capital—I do not want to prejudice later discussions—I want to suggest to the Committee to bear in mind that, having defined what we are going to include in profits, we should be very careful in our definition of capital to have something comparable with the definition of profits. I admit that the definition proposed by the right hon. Gentleman is not a very complicated definition of capital. But there are some cases, so I am informed, in which small concerns have no balance sheet which shows the paid-up capital, and that applies not only to small concerns, but to very old-established concerns, which have no records of the kind suggested by the right hon. Gentleman. Sometimes his definition would do; sometimes it would not do at all. There is no protection, if we adopt this definition, against inflated or watered capital. There is no protection against large blocks of capital created for the remuneration of some member. There is no attempt to deal with cases in which the assets have been squandered and no longer exist in the business. We cannot possibly value the capital of a company on some ancient and out-of-date valuation. And when it comes to the question of reserve, so far as the reserve consists of investments in other companies, the income from those investments is already excluded from the definition of profits, and therefore the investments themselves ought to be excluded from the definition of capital. Therefore I venture to suggest to the right hon. Gentleman that although in the course of this afternoon's proceedings we may come to a definition better than the definition in the Bill as to what capital ought to be, he and those who have advised him have not found the definition which we seek; therefore we shall not be well-advised to substitute his definition for the one in the Bill.

:I quite agree with the right hon. Gentleman that the definition in the Amendment before the Committee is not an entirely comprehensive one. It clearly cannot meet cases where a man keeps no books by double entry at all, but simply by single entry. That is a very small proportion of all the cases. This Amendment has been put before the Government principally with the idea that they might take it into consideration as the basis upon which they could found a paragraph properly defining capital. We do not for a moment forget that there are some companies and firms which cannot come under this definition at all, but this is a definition which was considered by a large number of business men in the City of London, who thought that on the whole it would meet the vast majority of cases. The root principle is that the people who really understand what the capital of the company is are incorporated and chartered accountants. If the Government had called in an incorporated and chartered accountant to draw up a definition of capital for them, I am quite sure they never would have had the definition in the form in which it appears in the Bill. It is a most difficult thing indeed to define capital. It must depend upon the circumstances of each case; therefore the more general you leave the definition the safer you will be, both as regards the revenue and as regards avoiding injustice to the individual. Every proper balance sheet contains a real statement of the capital of the company, but there is besides the capital account in the books by which it can be checked, so that primâ facie it is the best definition of capital.

I quite understand that owing to the exigencies of this Bill, and the way in which profits have been dealt with, such as interest on investments in other countries and so on, it may be necessary to modify this Amendment in order to deal with such cases, but I think it will be clear to any business man that the balance sheet of his business, if properly and honestly prepared, contains a proper statement of his capital. I should not suggest for one moment that this definition or any definition of capital should prevent the Inland Revenue officials from questioning every item in the balance sheet. I do not pretend that it ought to be enough, it ought not to be enough that a man has only to put down his balance sheet on the table and say, "The law says that the capital stated in that balance sheet is to be taken as the capital without any investigation." There ought to be provisions whereby it shall be properly investigated in every respect. There is a class of capital which frequently appears in balance sheets which is not capital at all. There is a phrase in use in the United States in regard to such capital—it is called "unimpaired capital." If the right hon. Gentleman could manage in some way to see that some definition of what is called "unimpaired capital" was added to a general definition like this in the Amendment, he would then really get the true capital of every undertaking that comes under the Bill. What is capital and what is not capital can only be determined by men of the status of incorporated and chartered accountants. If between now and the Report stage the right hon. Gentleman finds that the definitions of capital in the Bill are unworkable, as I think he will find they are, and will do great injustice to numerous businesses, and if he will take an incorporated and chartered accountant into his counsel, and will try to frame something better than this, I should be content, with the assent of my right hon. Friend (Mr. Lough), to have this Amendment withdrawn. We want something quite different from the definition in the Bill. There is an attempt in several paragraphs to define capital, but in some respects it is too narrow and in others it is too sweeping. The mere wording of the paragraph is quite enough for any business man to see that it must do great injustice to a large number of businesses. That is especially so in the case quoted by my right hon. Friend in regard to goodwill. The hon. Baronet the Member for Mansfield (Sir A. Markham) just now said that that only referred to goodwill. It really does not. The words are,

"No value shall be attached to those shares so far as they are represented by goodwill or otherwise than by material assets of the company."

That would include, probably, a trade name, like Pears' Soap. I suppose that the most valuable part of Pears' soap is the name. [HON. MEMBERS: "No!"] I am trying to get the Committee and the right hon. Gentleman to see that we want the largest and most general definition of capital that is possible. The right hon. Gentleman admitted that the definition in the Bill is not a large or general definition; it is a restricted definition. What I want him to do is to reconsider the whole position before the Report stage, after hearing the ideas put before him by various business men in the Committee.

I regret that on this occasion, again, I cannot support the Amendment. I prefer the words that are in the Bill. I want to submit to my hon. Friends that they have entirely overlooked the important part which capital plays in insurance companies.

Hon. Members have brought forward things put forward by special trades at their conferences. At none of those conferences have they taken the trouble to have insurance companies represented, otherwise they would never bring forward Amendments like these. For the information of the Committee I would state one fact. The London County Council only recently refused the policy of a certain fire company because they said they had not enough uncalled capital. They said, "Your paid-up capital may disappear; we want to see a larger amount of uncalled capital." That company, in order to become qualified to do business in London on buildings accepted by the London County Council, had to increase its uncalled capital, without which it would not have got that fire business. Therefore this is something more than a safeguard in the background. Actually while the War has been on steps have been taken by one fire company, to my knowledge, in order to meet the requirements of the London County Council. Very often people have different ways of looking at it. One authority will say, "We do not care about uncalled capital; we do not know whether the shareholders are good, we only look at your invested funds and assets." The next day some other public official, equally good, says what I have just related to the Committee. If you accept the Government's definition, more or less, we are all right. If it is in general terms, I think we may say we are satisfied with the Bill as it stands, but if you begin to particularise, I must put in a claim for this very important class of businesses. I hope the Committee will remember that underwriters, when they are doing business, take into account uncalled capital. When they consider they have taken enough policies on a particular risk they have ever present to their minds the uncalled as well as the called capital. The shareholders know it is at stake, and the public knows it is at stake. I do not know what view bankers would take of insurance companies' capital, but in this regard they are in some measure in the same position as the banks.

I am afraid I cannot quite see how uncalled capital comes into the matter. I am a director of a bank which has uncalled capital. I do not want my uncalled capital brought in. It is quite true that probably I should not get so many deposits if it was not for the uncalled capital; just in the same way as the London County Council would not take the insurance that the hon. Member spoke of if there was not sufficient uncalled capital. But that has nothing to do with the question. The question is what capital shall be considered and brought into account when you are calculating what the capital of the company is for the purposes of this Bill. The uncalled capital does not come in.

I am sorry, but I am afraid I disagree. I do not think the right hon. Gentleman's amendment is perhaps the best that could be conceived, but I understood from the remarks of the Financial Secretary that the Government were prepared to consider some Amendment with regard to the definition of capital, which I think is very necessary. The right hon. Gentleman went on to say that there was a question of debentures, and I rather gathered that he was not prepared to include debentures on the ground that they had been included in another part of the Bill. But there is no excess profits on debentures. You could not have got debentures in in any case, because they carry a fixed interest and there could be no excess profits, and if you excluded them you did not do so in order to benefit them, but because you could not do anything with them. Debentures are not legally considered part of the capital of a company. They are part of the money on which the profits of the company are earned. Without debentures they could not earn the profits. It is merely a convenience that those people who hold debentures and desire a rather better security shall receive a fixed interest which is not likely to be subjected to fluctuations, and the remainder will be held by people of a more speculative temperament who are prepared to accept a larger rate of interest and run the risk of sometimes getting nothing at all. If that is so, and I am quite certain it is so, debentures ought to be brought in. It makes a very great difference to the various companies if debentures are not brought in. My hon. Friend (Mr. W. Rutherford) has two Amendments which I think are right and ought to be supported. I hope, if the right hon. Gentleman withdraws his Amendment, we shall have an opportunity of discussing whether the reserves which are invested in the business shall be brought in. I do not say reserves which are not invested in the business, because they are not really part of the capital of the company. They are not used in the business. If the Government will consider that, I would ask my right hon. Friend to withdraw his Amendment so that we might get on with it.

I intended to indicate that the Government were prepared to accept some Amendments. I think we can argue the debenture question on the first Amendment in the name of the hon. Member (Mr. Rutherford)—"Accumulated profits sunk or used in the business shall also be deemed capital." I do not like the word "sunk," but I propose to accept the Amendment with a very small verbal alteration.

I would suggest that we should not discuss this matter at any length on this particular Amendment, which does not raise exactly the same point.

There is a point on this Amendment which I think has not been quite made and which ought to have been made. It seems to me that it really proposes to substitute the left-hand side of the capital account of the company for the right-hand side. In my opinion that is entirely wrong. The reckoning of capital for the purposes of this Bill must be based on the right-hand side of the capital account. I should like to warn the Secretary to the Treasury that when he gets talking about debentures and similar things, he is taking the left-hand side of the capital account, and not the right-hand side What you have to consider is which of these items on the right-hand side of the capital account may be treated as capital. We ought to try to ascertain what is the genuine capital in actual assets used for trading purposes, and as long as all that is included in the capital we are right. I press that upon the Committee, because I think if we are going to get this thing right we have to be very careful in making quite certain that we are not led by digressions into taking some items from the right-hand side and some from the left. If you do that you reduce the Bill to a state of inextricable confusion. Let me illustrate my point from my own business. Two persons may have steamers of identically the same intrinsic value. One, being more prudent than the other, may value his steamer in his books at half the price the other does; consequently, the left-hand side of the capital account of one gentleman is just double the left-hand side of the account of the other. That is manifestly unfair. You have to look at the assets, and there may have to be a special valuation to make the thing at all fair. You must look at the assets and value them alone. I should like to say one word to my hon. Friend (Mr. Booth) on this question of uncalled capital. I entirely agree with the hon. Baronet (Sir F. Banbury) that it has nothing whatever to do with this Schedule, but I think it is relevant to another proposition. It is relevant to a claim for an increased rate of interest.

I think this Amendment raises the question really of what is the capital of any undertaking, and if any director of a business is asked to face that question he will very soon find out that the capital of a company is not the debentures, it is not the preference shares, it is not the ordinary shares, it is none of the things on the left-hand side of an ordinary balance sheet at all. A great deal of confusion is apt to arise by people talking about the capital of a company beginning to think of the shape in which people have contributed that capital. The capital of an ordinary firm consists of the amounts that stand to the credit of the partners, which is equivalent to the left-hand side of the company's balance sheet, debentures, preference and ordinary shares, and so on. But the real capital of the undertaking is the assets which the company has in the undertaking and uses for the purpose of its business. I must congratulate the Government, in facing this very difficult question of capital, on having, at the very outset, in the form of their Schedule, rightly indicated that that is the capital of the business which they intend to have regard to for the purposes of this Bill. The capital of the business really is the assets which the company or concern is using in the business for the purpose of that business. It consists in ordinary cases of the lands which they own for the purpose of the business, materials and stores, plant and machinery—everything, in fact, which is put down on the right-hand side of the balance sheet. But there is this difficulty about it, and I do not find that it is really properly faced in the Schedule. In almost every private business, as well as every public company, the actual figures in the balance sheet, for a variety of reasons, do not absolutely and accurately represent the value of the particular assets. All kinds of assets from time to time, both of companies and private businesses, have been for conservative and prudential reasons written down. Various assets have been acquired, and perhaps more money has been paid for them than the things are really worth, because they happened to be worth more to that particular concern at the time it bought them than they were to anyone else.

It is perfectly obvious that uncalled capital has no more to do with it than the called capital. It is neither the share that is called or uncalled that has anything to do with the capital of the company. Nor have the debentures, whether they are issued or not, anything to do with it. It is simply the assets which the company has got and is using for the purpose of its business. If the directors of a company had a proposal before them to buy their assets at a fair price, they would find that for the first time they would be ascertaining the real capital of their concern. Curiously enough, that very experience happened to me not very many weeks ago, and I found, much to my surprise, and it is a curious fact, that the real capital of every undertaking carrying on business is almost invariably 25 to 30 per cent. more than the mere nominal amount that is on the left-hand side of the balance sheet. Supposing you have a loan of £40,000 from a bank. That loan is a debt. That is not capital, of course. The £40,000 that you have from the bank and are using in the business you find is capital. It is capital that has been lent to you and you are using it. It is not the loan but the money that is represented in the assets that is capital. [Laughter.] It is a distinction which I think it is very necessary to take into account throughout the whole of any discussions that we are having on Amendments to this Schedule, and particularly to this one. I do not think there is any provision at present in this Schedule for ascertaining, where there is a doubt, the real value of the actual assets of an undertaking. I think it is obvious that the goodwill often is a part of the capital for which some allowance should certainly be required to be made. I have made these observations upon this first item in the Schedule in a general nature, having regard to what really the capital of a concern does consist of.

The object of the definition of capital is, I take it to be, to find the sum on which the 6 per cent. which is the limit, is to be allowed. First of all you must dismiss debentures. They must be dismissed. Supposing you have £100,000 worth of debentures on which you are paying 4 per cent.; if you are going to ask for an allowance of 6 per cent. on that amount it is ridiculous.

An HON. MEMBER: It has nothing to do with it.

Nothing whatever to do with it. The hon. Member for Pontefract (Mr. Booth) complains that the marine insurance companies are not represented. I think we have heard of them in every discussion, and I am sure the hon. Member represents them very well indeed. When you speak of uncalled capital being part of the capital on which you are going to allow the 6 per cent., the thing is absurd. The hon. Member for Islington (Mr. Touche) has an Amendment down which covers the whole ground if a few words are added to it. If you want to buy a business, what happens? What you do is this: You say, "Here are so many assets, here is so much stock, so many book debts, so much freehold property, so much plant, so much cash, and that comes to so much." No one who ever values a business takes the slightest notice of uncalled capital. The items I have mentioned are the things you are going to make over to the purchaser, and you can offer them at his price, or valuation, with the liability to pay off the liabilities, or you may arrive at the real value and deduct what is owing. Supposing he has £1,000 in book debts, £1,000 of stock, and £1,000 in cash. That makes a total of £3,000. He owes £1,000, and there is a balance left of £2,000. That is capital on which he expects to get a return, and that is the capital which he sells.

There may be a question of goodwill, but the question of goodwill ought to be left as it has been left in the Bill, to the last Clause. I apprehend that my right hon. Friend is trying to define, piece by piece, what the capital is. You will cut the whole of this discussion very much if you will accept the definition of the hon. Member for Islington (Mr. Touche), who knows as well as any man in this House what capital really means. I suppose he has had more transactions of this kind than most of us. He proposes that the amount of the capital of a trade or business shall "be the excess of assets over liabilities other than liabilities to the proprietor or proprietors." I would add to this definition the words, "or investments outside the business." That is, leaving out investments outside the business, not used in the business, which have already been provided for. I think my right hon. Friend (Mr. Lough) may well leave his Amendment, and let us get to the Amendment of the hon. Member (Mr. Touche). I would like to emphasise another point. Imagine that I am buying something—certain assets. I will give the man the value of the assets. Then he takes that money, and he pays what he owes, and the balance is the capital of the business. It is clear that that is so.

The capital may consist of lent money which he is using in the business. The hon. Member is quite wrong.

Oh, no! Borrowed money is what he owes. Suppose he had borrowed £l,000. He owes that £1,000, and he has to pay it.

The whole capital of a man in the business may be money which is lent to him, but it is nevertheless capital in the business. The hon. Member does not seem to understand that.

I do not think the hon. Member can teach me anything on that point. My hon. Friend may borrow £1,000, and invest it in certain assets, and machinery, and then he thinks that he has £1,000 capital. Nothing of the kind.

This is very interesting, but hardly to the point. May I point out that if the next Amendment standing in the name of the hon. Member for Islington (Mr. Touche) is to be considered the present one has to be withdrawn. Does the right hon. Member for Islington (Mr. Lough) withdraw his Amendment?

Sir A. MARKHAM rose—

I would point out to the hon. Baronet that unless this Amendment is allowed to be withdrawn the next Amendment of the hon. Member for Islington, which raises a specific point, and not a general one, will not be able to be moved. I take it that this Amendment is, by leave, withdrawn.

No. I am against the Amendment standing in the name of the hon. Member for Islington. Therefore I take this opportunity of speaking.

It seems to me that the hon. Baronet is mistaken. It is not this hon. Member for Islington (pointing to Mr. Lough), but that hon. Member for Islington (pointing to Mr. Touche).

I beg to move, in paragraph 1, after the word "shall" ["the amount of the capital of a trade or business shall"], to insert the words "be the excess of assets over liabilities other than liabilities to the proprietor or proprietors and."

I am very grateful to the hon. Baronet (Sir A. Markham) for his discrimination. The hon. Member for West Aberdeen (Mr. Henderson) has already made the speech that I ought to have made in support of this Amendment, and he has made it a great deal better than I can make it. We cannot settle this question by reference to the left-hand side of an account or the right-hand side of an account. What we have been in the habit of putting on the left-hand side of an account in England is very often put on the right-hand side of a balance sheet in Scotland. What we want is a very simple definition; something general in terms. I understand the Chancellor of the Exchequer intends to include as capital the moneys employed in the business. The Amendment which I have put down is not intended to make any radical alteration in that definition, which, on the whole, I think, is a very reasonable one, but I want to make it a little clearer, and to make sure that it carries out his intention. Obviously the capital in a business is the excess of assets over liabilities.

The hon. Member for Liverpool (Mr. Rutherford) thinks that if he borrows a large sum of money from his bankers and puts it into business, that is capital, but he himself has stated to-day that that particular loan is not capital, but that the assets which it represents are capital. He is entirely wrong. He has not grasped the elements of accountancy and book-keeping, or he would not make such an extraordinary proposition.

In my own business we have large sums in perpetual debenture stock. What is that?

That is a liability. It is not the hon. Member's capital. It is not the capital of the proprietors of the business. It is borrowed money, and before a proprietor can ascertain what his capital is he must deduct the debts from his assets. If my Amendment is carried it will cover undivided profits, and the surplus used in the business. That seems to me what we wish to get at, and I would be very glad to know whether the Government will consider this Amendment in deciding what alteration we are going to make in this Schedule between now and the Report stage. I do not wish to press it unduly if the right hon. Gentlemen will give us an understanding that they will consider it from that point of view. I do submit, however, that the words of the Amendment which I propose would carry out what I believe to be the intention of the Chancellor of the Exchequer.

My right hon. Friend (Mr. McKenna) and myself have been listening to the discussion. All around us are technical advisers, men expert in business who are endeavouring to instruct, and who are instructing, the amateurs on the Treasury Bench as to what the principles of valuing property ought to be. But they all differ from one another, and they all accuse one another of colossal ignorance. We have proceeded, being ignorant of the niceties of technical accounts, upon what we thought were the simple lines of valuing assets. The hon. Member (Mr. Touche), with a view to making our meaning clear, has introduced an Amendment which I would say to the Committee if we were out merely to get revenue, and without any consideration of fairness or possible hardship, we should be only too delighted to accept. Although it does carry out in many instances what our meaning is, there are some instances in which it would tend materially to lower the datum line, and therefore tend to the advantage of the Inland Revenue. As I understand the matter, the liabilities of a business can be classed under three heads, and only three heads. First of all, the liabilities to the proprietors, then the liabilities to the persons other than the proprietors, and then there are the bookkeeping liabilities, the redemption accounts, and things of that kind. If the hon. Member's Amendment is accepted, it may occur, from a strict reading of his words, that the capital will be taken to be the excess of assets over the second and third groups of liabilities, whereas as the Bill stands at present it will only be taken as the excess of the assets over the second group. Therefore, our case seems to be fairer to the taxpayer than the Amendment suggested. On principle the Government have not the slightest objection to adopting the hon. Member's Amendment in order to get money, but I do not think it would be fair to accept it.

I apologise to the hon. Member for Islington (Mr. Touche), and to the hon. Member for Aberdeen (Mr. Henderson), if I have said anything at all calculated to be derogatory to special knowledge of their particular business. I assure them that I have no intention of doing anything of the sort. There is no doubt that if you are calculating the capital of given individuals in a business you require to take off the liabilities, but I think I can give both the hon. Members a very simple illustration to show that if this Amendment were adopted it would be subversive of justice and would end in making a very great, difficult mess of this particular Act. There are numerous cases in which people are carrying on business with borrowed money. I know of a cencern that has got a capital, assets, of quite £100,000. The whole of that £100,000 is represented by borrowed money, either in the shape of debentures, loans, or money advanced by the bank. If you take that case, what result would you get if you adopt this Amendment? It would be held that, inasmuch as all the assets of the company on one side were swept away by the liabilities on the other, you would get the astonishing result that that company was carrying on business, for the purposes of this Bill, with no capital at all; which, of course, is absurd. I would call the special attention of the professional members of the Committee to that point. This company, applying the Amendment before the Committee, which is carrying on business with borrowed money, is therefore carrying on business with no capital at all, and therefore it would get no 6 per cent. or other allowance on its capital, because its capital for the purposes of this Bill would not exist. Of course that is absurd.

I would respectfully point out that the words of this Amendment are wrong. They are only right in this very limited sense—from the point of view of the balance sheet which a professional accountant prepares. They are only right in fixing the amount of capital that a given individual has got in the business. He has not got the capital, because he owes it to someone else, but the capital is in the business just the same. Take the case of a man carrying on a business with a capital of £10,000. That capital is represented by actual assets to-day—plant, stock, buildings—actual tangible assets. The mere fact that he has got that £10,000 by borrowing £5,000 from his father and £5,000 from the bank has nothing to do with the fact that there is £10,000 in the business. It has to do with the fact that he has not got £10,000 in the business; but that is an entirely different proposition from the fact that there is £10,000 in that business, although the proprietor of it happens to owe the money. It seems to me that this Amendment has been prepared under an entirely erroneous conception of the question of capital in the business. The explanation given by the right hon. Gentleman from the Government Bench just now is perfectly correct. We have got to ascertain in the best way we can, for the purpose of the Amendment, what is the real capital in the business, and it does not matter whether that capital is lent to the concern or whether it is represented by bills of exchange, or debentures, or by people who have taken shares, or by money borrowed even from the bank, or by the current amount of liabilities, which the concern is always carrying. That has nothing to do with it. The proper way to ascertain the capital of the business for the purpose of this Bill is to find out what the value of the assets is. Again I congratulate the Government on having taken the simple, straightforward manner of endeavouring to explain in this Schedule what the assets are, and how they are to be arrived at. I do not quite agree with some of the methods for ascertaining the actual value of some of those items, but, broadly, the method adopted is the right one, and that the Amendment on the Paper is wrong I have not the slightest doubt.

I do not know whether the hon. Baronet the Member for the City of London still holds the opinion that debentures ought to be taken as part of the capital of the company. He seems to nod his head as if to signify that he does. May I put a case, showing how futile would be that course if it were adopted by the Government? I am chairman of a company with a capital of £1,000,000, and £1,000,000 in debentures, or £2,000,000 in all. We have a paid-up capital of ordinary shares amounting to only £100,000, with a liability of £900,000 on the ordinary shares. On the debentures we borrow money, perpetual debenture stock, about £300,000 to £400,000, on which we pay 3½ per cent., which represents part of the capital of the company in one sense. The bulk of that money is borrowed at rates varying from 4 per cent. to 4½ per cent. What would happen in this case? The company earns about 17 per cent. to 18 per cent. on its ordinary capital. If the hon. Baronet's suggestion were taken, and we were allowed 6 per cent. on the £1,000,000 debentures which we have, the Treasury would get no money at all, because all the extra profits made on the small capital would have to go on the debenture capital. Therefore the hon. Baronet must see that it is impracticable to have large sums in debentures, and to say that that money must form part of the capital of a company and be allowed 6 per cent. In other words, the company should be allowed another £20,000, the difference between 4 per cent. and 6 per cent., before it could be chargeable for capital, on the basis that it is assumed they have taken under this provision, 6 per cent. on the capital. Why all this complication? Why not take the capital actually represented on the left-hand side of the balance sheet for the purposes of this tax. Endless trouble will arise by trying to arrive at what are the assets, taken in the way suggested. The right hon. Gentleman shakes his head. He will find it extremely difficult, when he has got to deal with a lot of clever business people, who are assisted by accountants of experience in reference to these matters, to ascertain these assets. Therefore, the simple plan is to take the capital as represented on the left-hand side of the balance sheet, excluding debentures. If you have a profit standing on the left-hand side—say we have made £200,000 profit—we could increase our capital by that amount. There is no other way. Therefore, it is very much better for the Chancellor to take this basis instead of the basis suggested to the Committee, which, I think, involves an immense amount of trouble and will be very difficult to carry into practice.

I certainly cannot support this Amendment. It appears to me to be very simple to ascertain what is the capital of a business. It is simply to put on one side the whole of your assets, and on the other your trading debts, not your liabilities, and the difference is the capital which you employ in your business. Say that you have £400,000 assets on one side, and in the balance sheet you have £100,000 trading debts on the other, then the capital in that business is £300,000.

The hon. Member for Mansfield has brought forward a case of which I do not doubt there are a few examples, though they are very rare. May I point out to him what seems to be the fallacy of his argument. As I understand the hon. Baronet, he said that there was a certain company which had £900,000 debentures, which at 3½ per cent. would be somewhere about £32,000 a year, and then that they had this capital of £100,000.

Yes. He said that if these debentures are brought in there will be a very small margin for the Government, because the £100,000 being such a small amount the excess profits would be swallowed up in paying the difference between 3½ per cent. and 6 per cent. on the debentures. Take another company in the same sort of business, which has gone on in a much more prudent way, and has got the whole of its capital, £1,000,000, in ordinary stock. Both of these companies make £60,000 a year. The company with the whole of its capital in ordinary stock, avoids any increase under excess profits at all, but the company which has only £100,000 in ordinary stock has to pay the difference between 3½ per cent. and 6 per cent., that is £28,000, on its capital of £100,000. Therefore the company of the hon. Baronet will lose a very large amount of its profits. The other company which is doing the same business and making the same amount of profit, because it has not got debentures, has not to pay anything whatever to the Government. In those circumstances, it is perfectly clear that you must include debentures. Debentures—I do not care what lawyers or anybody else will say—are part of the capital of the business. Without the capital which is provided by debentures, you could not carry on your business. It is part of the capital of the business, and so ought to be treated.

I do not mind the actual way you treat it, provided you do treat it. In those circumstances I am afraid that the Amendment of my hon. Friend does not include debentures. I have got out a little balance sheet, which I have submitted to my hon. Friend, and he tells me that for once I am correct in understanding his position. This does not include debentures, as I think they ought to be included, and I am afraid that I cannot support the Amendment of my hon. Friend.

May I remind hon. Members that the point which has been raised is going to be raised by a subsequent Amendment, and that it can be discussed much more effectively when we reach that Amendment. We shall not arrive at a decision on the point by a discussion on this Amendment.

This Amendment deals distinctly with liabilities, and it is impossible to discuss this Amendment without discussing liabilities.

But I would point out that there will be a far better opportunity of discussing this particular point on the later Amendment.

I am much obliged to the hon. Baronet the Member for Mansfield (Sir A. Markham) for the case which he has brought to our notice, for it presents to the House completely the point I made before, but which did not meet with the approval of my hon. Friend the Member for Aberdeen (Mr. J. M. Henderson). Of course they have got debentures in the company referred to by the hon. Baronet because of the uncalled capital, and unless you have that in mind you may get into difficulty. It is very well known in business circles that the wagons for the great northern iron companies are bought on this system of debentures, and I do not know of any wagon company in the country that is not upon this basis. The Member for Mansfield agrees with me in that. The large amount of debentures is due to uncalled capital. My hon. Friend (Mr. J. M. Henderson) claims to have had some experience, but I suggest that in attempting to find the assets and liabilites of a Concern he will look at the description of stock, trade debts, and so on; but he ought also to look at the uncalled capital. These words which are now proposed should not be introduced, because, in my opinion, they would prejudice the case which I have in mind. I am not asking for the introduction of words to please insurance companies; I am only against words being put in which, in my opinion, would prejudice those companies. If you go into the City with a quarter of a million of uncalled capital you need not come here for the rest of your lives, and you would receive handsome offers. I submit that the Committee ought not to introduce these words, which would cause prejudice in the case to which I have referred.

I wish to call attention to the fact that you may take any balance sheets and you will find that the capital is the excess of assets over liabilities, and the liabilities include the debentures. I am not at all sure that the words of Clauses 1 and 2 are not exactly the same as to excess of assets over liabilities. I believe that No. 1 is assets and No. 2 is liabilities. This Amendment would make a little bit clearer what is really the capital of a business. The capital is not only the amount which the shareholders or the proprietor has found, but it is also all the reserves, the surplus of profit, losses carried forward, or the depreciation not dealt with, and all the other sums which are absolutely the property of the proprietors, because they do not owe money to anyone. If you owe money to anybody you owe it to your bankers, debenture holders, tradesmen or depositors. On the other hand, besides the proprietors' capital there is the amount put to reserve, the amount put to depreciation, and the amount you carry forward from year to year for profit and loss account, and sundry other credits that are perhaps never converted into capital. The words "assets over liabilities" is the most clear way of showing the capital which is in the business of a man or a company. Of course, if the Government are willing to include debentures as well, or anything in addition, that is all to the good of the company and we shall be very glad to receive it. I am rather inclined to think that in not putting the Amendment as it is, we are rather limiting what we are entitled to, and we may get more by leaving it as it stands, and include debentures as set out in the subsequent Amendment. But, as an accountant's proposition, the clear and intelligible form is that capital is the excess of assets over liabilities.

I really think the Amendment a most unprofitable one. It is an addition, an explanation, or comment, or a summary; it is either a correct summary or an incorrect summary. There seems to be some doubt as to whether it summarises what follows correctly or incorrectly. If correctly, it need not be inserted in the Bill; if incorrectly, it is exceedingly dangerous, and would only lead to trouble and litigation. Whatever view is taken of the Amendment, it is pernicious.

It does seems to me that it is absolutely essential that we should understand the meaning of the word "capital." On Clause 36, when it was before the Committee, I had an Amendment down which was ruled out of order on the ground that it would more properly come up for discussion on the Schedule. It is now absolutely essential, at the very beginning of this discussion, that we should know what is the meaning of the term "capital." Members of this House who are familiar with accounts, and who have spoken, are quite correct in saying that technically debentures are a debt, but as a matter of fact in all commercial undertakings they are looked upon as capital. I can give two instances to make that perfectly clear. If you take the Board of Trade Railway Returns, they are made under these headings: "Capital of the company," and this has four sub-divisions—"Ordinary Preference," "Guaranteed debentures," and "Loans," and the total of the loans is by the Board of Trade considered as capital of the undertaking. Therefore the Board of Trade definition of capital is perfectly clear. Take the Treasury definition of the term "capital." We have had quite recently the Treasury embargo on capital, and they distinctly state that it includes bonds, debentures, and other securities. That is a clear indication that the Treasury agree with the Board of Trade that debentures, debenture stock, and other loans of that character are, for the purposes of the embargo, to be considered as capital. Therefore we have this perfectly clear that the two great Departments—the Board of Trade and the Treasury—both recognise that debentures and debenture stock are capital for the purpose of the particular cases that they have to deal with.

I would point out that we have already passed something in regard to debentures, and, as to the balance sheets the hon. Member referred to, the Income Tax authorities do not allow interest to be deducted. But here we are allowing interest to be deducted.

I am not dealing with any balance sheet at all. I am dealing with the term "capital," and I have made these two clear and simple statements of what is considered capital by two great authorities on the matter, namely, the Board of Trade and the Treasury. Therefore, when you are taking assets of the company, and deduct from those assets debentures, to my mind it is quite preposterous. The debenture debt is for all practical purposes capital, and must be looked upon as such, and the proposition to deduct it would make the whole Bill absurd.

If the Committee persists in discussing the Amendment with reference to a point raised in a later Amendment, I must warn hon. Members that I will not allow that subsequent Amendment to be submitted, though it is the Amendment which Members really want to discuss.

If this Debate goes on, and if the Committee decides to accept this Amendment, it seems to me that we have decided not to include debentures as part of the capital, and, therefore, we cannot bring on the other question.

The right hon. Gentleman is quite correct, but the Government have already said that they do not intend to accept the Amendment of the right hon. Gentleman the Member for Islington. The right hon. Gentleman said so at the very beginning, and, that being so, it was admitted that the question of the acceptance of debentures was reopened.

There is one subsequent Amendment which I have on the Paper relating to statutory companies, such as waterworks undertakings, electric lighting undertakings, and so forth. I do not want to be precluded by any decision that may be taken now from raising the point as to those statutory companies. I should not like to find myself, when the Amendment is reached, absolutely out of order.

The very way for the hon. Gentleman to find himself out of order is by continuing the Debate on this Amendment.

Will my Amendments be covered if this Amendment is decided in regard to debentures?

I notice that whenever the breaking off of a debate like this is proposed with the complete concurrence of those who have already spoken, "the captains and kings" of finance, depart. I submit that it would be far better to have the discussion out on the lines on which it is at present going, and that it should not be divided piecemeal on subsequent Amendments.

We have discussed practically nothing but the debenture interest for an hour. This Amendment is purely a drafting Amendment, and we should now consider the discussion on debenture interest as closed, and dispose of it by bringing it to an end. If this Amendment is negatived, then the debenture question is finished, and I hope the Committee will now come to a decision.

I think it is my duty to guide the Committee in a businesslike way, with a view to an effective decision. The last hour's discussion has not been effective, because this Amendment does not raise the real point. On the other hand, I cannot allow the subsequent Amendment to be brought on if hon. Members continue to insist upon discussing this preliminary one

5.0 P.M.

It appears to me, Sir, that you have failed to realise that this Amendment is the one Amendment which cuts out debentures from the Bill.

I submit that the 6 per cent. limit will be allowed on debentures under the Bill, and that this Amendment is the only one which cuts that out, and that, therefore, we ought to discuss this Amendment. This difficulty that we have been trying to find our way through has arisen from the fact that the Government have been bound to define capital not as capital at all, but as the value of the concern. The Schedule lays down that the capital of the company for the purposes of the Bill is not to be the capital at all, but is the value of the concern which purchasers would give for the undertaking. The value is ascertained by this Schedule, by the price which has been paid, or if the company has borrowed, say, £100,000 in debentures and has invested it in the purchase of rolling stock or anything else which belongs to the company, that rolling stock will be taken under the Bill, as I understand it, and will be added to the value of the company which will be entitled to claim 6 per cent. on it before any Excess Profits Tax is levied. I submit to the Chancellor that in his attempt to define capital as the value of the assets he is really going to allow 6 per cent. minimum, or maximum, as he calls it, upon the value of that which has been bought by the debentures.

No. Are we to debate the question of debentures now or not, because if we are I can answer my right hon. Friend on every point he has raised; his remarks are purely germane to the question of debentures.

I have pointed out three times already to the Committee that their real opportunity for discussing what they obviously wish to discuss is on the next Amendment but one, and not on this Amendment. I have not said that this Amendment is out of order, but I cannot allow the discussion twice over. I do not want to withdraw from the Committee a really effective opportunity of raising the question, and a much more effective opportunity than is presented on this Amendment.

If there is any danger that this Amendment may prejudice a proper discussion on the question of debentures, I ask leave to withdraw.

Amendment, by leave, withdrawn.

I beg to move, in paragraph 1 ( b ), after the word "purposes," to insert the words "guarantees given by third parties to enable a person or firm to obtain the use of capital or its equivalent shall be regarded as capital."

I move this Amendment in order to draw attention to the case of a number of small, struggling firms who are very anxious to know what their position is under the definition of capital. The firms to which I refer have practically no capital as it would be called by our accounting friends. Their capital really consists of guarantees given by friends. The practice is a well recognised one, and banks have printed forms for the purpose of dealing with these guarantees. Any of the banks in London will give you a printed form by which you can sign and make yourself responsible for £l, £100, or £5,000 on behalf of another party. This is done by friends and relatives. Most business men have done it, and I have done it myself. It is usually done to enable young men to start business, and sometimes in the case of serious difficulty or set-back to enable an old firm to carry on. Technically speaking, those firms would have no capital at all, because they would have simply an asset on one side of their books and a liability on the other. It is quite definitely working capital, although perhaps not technically so. The position is one which to my own knowledge affects a large number of struggling people. Banks on these guarantees sign cheques and give credit, and to all intents and purposes that is the only capital such firms possess. I would ask the Chancellor to consider this question sympathetically and to do as fairly as the Government can see their way to do.

I am bound to say I admire the courage of my hon. Friend extremely. He, like myself, has been a silent listener to the whole of the Debate during the last hour and a half, and he must have fully observed the controversy which has raged round whether borrowed money is or is not to be regarded as capital. He proposes to settle the question not merely as regards borrowed money, but as regards money which may be borrowed but is not.

The proposal is that guarantees given by third parties to enable a person or firm to obtain the use of capital or its equivalent shall be regarded as capital. The hon. Gentleman proposes not to determine the assets of the owner of the guarantee, to whom it may be a considerable advantage, but to take the guarantee as a substituted datum line to represent what are the profits and to allow 6 per cent. on a guarantee which is not exercised. I think that is going a, bit too far.

May I assure the right hon. Gentleman that I had no desire to go so far? It is quite possible that that meaning might be read into my words, but I expressly stated that these were forms of guarantee signed by individuals, given to banks and making the individual responsible and placing at the definite disposal of the trading firm a definite sum of money for a definite period of time. Those forms are in common use, and although perhaps the right hon. Gentleman has not seen them I am very familiar with them. The bank transfers a certain amount of money to the credit of the firm, and there is nothing whatever indefinite or uncommon about the transaction. I know the subject is a difficult one, and all I ask is that he will look into the matter and do what he can. If he wishes, I will supply him with one of the printed bank forms.

Amendment, by leave, withdrawn.

I beg to move, at the end of paragraph 1, to insert the words "( d ) accumulated profits sunk or used in the business shall also be deemed capital."

I am rather under the impression, after the discussion, that these words are unnecessary. At the same time I think it will be desirable to put them in, if it is only to make clear to the minds of a number of hon. Members what the meaning and effect of the word "capital" in business is. We have had Amendments from hon. Members with special skill as accountants. The hon. Member for Everton (Sir J. Harmood-Banner) was perfectly right when he explained that the excess of assets over liabilities was the amount of capital he had in the business. There is a great distinction between the amount of capital which a, given person has in a business and the capital which is in the business itself. That is exactly the point where the whole Government scheme of defining capital differs from the ordinary trade balance sheet, such as professional gentlemen have been explaining, and which really only shows the capital that the given individual has in the business, and not the capital which is in the business and which is represented from a number of directions. The capital in any business consists of all the money and assets that that company has got, wherever it has got them from, whether lent or invested, or used in the business, in any shape or form whatever. The Government have done their best to summarise in this Schedule the different sources from which capital might be acquired. With regard to paragraph ( a ), I am not sure that the Government are right in their reference to unpaid purchase money. We have, however, passed that point. If a firm has these assets in the business they are assets in the business, whether the firm has paid for them or not. In looking through the definition of assets and the method by which you are to arrive at the amount at which they ought to be taken for the purposes of this Bill, I do not find anything included for accumulated profits sunk or used in the business and not acquired by purchase or by any other of the ways defined in the Bill. As every business man knows, there is hardly an undertaking where there is not a considerable amount of undistributed profits used in writing down the value of assets or carried to a reserve fund or to various other funds for the purpose of equalising dividends and so on. All these moneys are used in the business, and for the purpose of carrying on that business they are capital. The Amendments brought forward to-day would have had the effect of operating against the taxpayer and cutting down the amount of the capital. The effort here on the part of the Government is to ascertain not what any given proprietor has in the business, but what is the total value of the capital value in the business. It does not matter to a business whether the proprietors had the money from their father, their sister, their cousin, or their aunt, or from a banker or from debenture holders. If the money is in the business it is capital. That is the primary error which has been made in looking at this subject. If the Chancellor of the Exchequer thinks that these words would make it clearer that there is another manner in which a very important part of the assets of a concern can be got, namely, from the accumulated or undivided profits and reserves, he will probably accept the Amendment. But I am inclined to think that if he does not do that, the words in the Bill are probably wide enough. I have no desire in any way to interfere with the carefully studied words of the Government as long as it is clear that when the assets of a business are being looked at the undistributed profits, reserves, and so on, are not going to be excluded.

I am not sure that the words are necessary, although I can conceive a case in which it might be useful to have these words in. I would prefer them in the form "accumulated profits employed in the business." There might be a moment at which an amount of profit is passing from the condition of potential dividend into actual reserve, and for the sake of precaution, it might be necessary to ear-mark as capital that amount of profit by words of this kind. As regards undivided profits generally, it is quite clear that the Schedule already covers them, but I am willing to accept the Amendment in the form I have stated.

Before that is done, is my right hon. Friend sure that he ought to adopt any such words? I cannot see under what circumstances they can be necessary. You are going to take into account the assets and the money of a firm. They are items on the right-hand side of the account. But this is one of the items on the left-hand side. Whether the assets are paid for by capital, by accumulated profits, or by any of the other methods is surely immaterial.

My hon. Friend will know cases where money is retained for distribution as dividend. Clearly that ought not to be included as capital. But if it is earned in the course of the year and is going to be, not distributed, but sunk in the business, it ought to be included as capital.

Surely in the assets of a business you count the cash lying at the bank, and the accumulated profits, upon which some businesses have been almost entirely built up, are represented by one or other of the items set forth in paragraphs ( a ), ( b ), and ( c ). If my right hon. Friend accepts this Amendment, I think he will put into the Bill something which is almost certainly surplusage, and which, if it is not surplusage, will lead to confusion and trouble. I would urge my right hon. Friend to stick to the words in the Bill. The more I look at the Schedule the better I like it, and the more I think it meets the case.

If there are any accumulated profits, undivided profits, or anything else of that nature, they must be in money at the bank. If they are not in the assets they must be there.

Amendment, by leave, withdrawal.

Amendment made: After paragraph ( c ) insert the words "( d ) accumulated profits employed in the business shall also be deemed capital."—[ Mr. Rutherford. ]

I beg to move, in paragraph 2, after the word "any" ["any borrowed money or debts"], to insert the word "temporarily."

As the paragraph now stands it says "any borrowed money or debts." That would include debentures and debenture stock. If the principle is to be adopted that debentures are capital, these words should not be there without the insertion of the word "temporarily." Money borrowed from time to time from the bank on temporary loan should be included as a debt, but borrowed money in the sense of debentures or debenture stock should not be so included. I also propose to add at the end of the paragraph the words,

"and in the case of a company there shall be included as capital any debentures and debenture stock of such company."

I do not think it is necessary again to go through the reasons which I gave just now for considering debentures as capital. It is a well understood position, and I have already given the authority for my interpretation. In connection with the Board of Trade figures, which are very voluminous, the whole scheme of capital is worked out upon the inclusion of debenture stock. Under the head of "Capital" they include debentures and debenture stock, and on the strength of that they work out the capital cost of this or of that.

I would ask the hon. Baronet to examine the Schedule as it stands. When he does so I am convinced he will realise that the value of the debentures is already included. A firm has £100,000 in debentures—that is to say, it borrowed on the security of its assets £100,000. What did the company do with that £100,000? It invested it in assets. Now I turn to the Schedule. Of what does the capital consist? It consists first of all of money, and secondly of assets. Therefore, so far as the £100,000 was used for the purpose of assets, we allow for it, subject to any proper deductions for wear and tear or replacement.

The paragraph in which I propose to interpolate the word "temporarily" says, "Any borrowed money or debts"—and debenture debt is borrowed money—"shall be deducted in computing the amount of capital."

Because we say we take without valuation the assets of a company. If the public have bonâ fide subscribed the money we take what the public have subscribed. In that case we do not value. In order to determine what should be taken as the bonâ-fide subscription of the public we must not include debentures. The debenture interest is an expense. We have deducted it before the charge on interest, and before we begin to reckon profits. If the hon. Baronet had his way, what would be the result? If these were 5 per cent. debentures, in this £100,000 which I have supposed he has already deducted £5,000 from the profits for interest. He reckons another 6 per cent. on the debentures in order to get the datum line, so that in respect of these debentures the profits really are estimated at £11,000.

But I should like to make myself quite clear. The right hon. Gentleman says that the £100,000 which he gave us has been raised in some form or other—in debentures, if you like—and, therefore, there are assets to represent them. In arriving at the datum line you take 6 per cent. upon those assets. Then the right hon. Gentleman went on to argue: "We must deduct these debentures." You do deduct them on your form. I say they ought not to be deducted. To imagine that I want to have them charged as interest first of all and then as dividends as well is the greatest mistake possible. On £100,000 of share capital and £100,000 of debentures, or a total of £200,000, on the datum line suggested £12,000 profit is required. The debentures may possibly bear 7 or 8 per cent. Small companies have to arrange for their borrowing at a very high rate of interest. Large companies can raise money at 4 per cent. I myself have raised money for small concerns at 6, 7 and 8 per cent. Therefore the right hon. Gentleman, to arrive at an equitable conclusion, must leave out the datum line altogether, and then there would not be any very great hardship.

I can only deal with this case as it stands in words upon the Paper. Let us see what it is that the hon. Baronet proposes? If he will look at Part I. of the Fourth Schedule he will see in paragraph 2—

"The principle of the Income Tax Acts under which deductions are not allowed for interest on money borrowed …shall not be followed."

That means the Committee has already decided that the interest on debentures shall be deducted from the profits before the profits are calculated for the purpose of the Excess Profits Duty. Therefore I was not guilty of any misrepresentation. That is the Clause as it stands. Upon the top of that, the deduction for interest upon debentures as expenses of the business, the hon. Baronet proposes that we shall also deduct from the debentures as capital.

I mean exactly what I said. The right hon. Gentleman seems to think that debenture interest is duty which must be paid whether profits are earned or not. In a commercial undertaking, first of all, you get your gross profit, then your net profit, and it is in the net profit accounting the debenture interest is charged. Debenture interest is no more payable than is share dividend, unless that dividend is earned. The one accumulates, the other does not.

I quite agree with that. But for the purpose of Excess Profits Duty, and in estimating excess profits, the interest payable on debentures is deducted from the net profit. Having deducted the interest on the debentures, the hon. Baronet next proposes that the debentures shall be treated as capital for the purpose of the percentage standard.

The hon. Baronet shakes his head, but that is what is proposed. It may not be what he means. He proposes that the debentures themselves shall be treated as capital. I am quite sure that he would not have made his proposal if he had appreciated the Schedule as it stands. If he will follow the Schedule with me with an open mind, I feel quite sure that he will appreciate that his Amendment, whatever he may say, will not do as it stands. I am sure he does not mean to ask to deduct—

I certainly do not want it twice over, but you do it in the wrong place altogether. I want it taken out and put in its proper place.

The hon. Baronet and I are at one upon that point, but this Amendment will not do as it stands, having regard to what we have already done. He does not desire to have the money twice over. I hope the hon. Baronet will appreciate that I did not intend to misrepresent his intentions. I fully appreciate his intentions. I began by saying that if he followed this Schedule with me I did not think he would go on with his Amendment. Upon the merits of the case, assuming we have got it out of the First Schedule, and do not allow the debenture interest as expenses, we get back to paragraph 1 ( a ) of Part III., in which we allow as capital the assets acquired for that purpose. That gets back to the point which my hon. Friend behind me was going to raise. Take all classes of business together, not only limited companies, but private firms, and raise money upon debentures; we have on the whole got to compare these investments, and we shall do more harm than good by altering Part I. of the Schedule in the respect suggested. For these reasons I am unable to accept the Amendment.

I agree with the Chancellor of the Exchequer. I cannot include debentures in capital. I rather took the opposite view a little further back, but on consideration I consider that the Schedule is better as it is. As he says, money can be raised by debentures, and be invested in assets, and these, for the purpose of this Bill, are included in capital. If, then, you pay debentures also, you will be including that sum twice over in the capital. Perhaps we have gone wrong in that we have decided to deduct debenture interest from the excess profits. If my right hon. Friend can see his way to hark back so far as that is concerned till we get to the Report stage, it will be very much more satisfactory, and the whole thing will be very much more simple in a Bill which is really very fair. I trust we shall accept the Schedule as it stands. It seems to be satisfactory, but, as I suggest, my right hon. Friend might see his way not to deduct the debenture interest from excess profits when he gets to the Report stage.

I am afraid the Chancellor of the Exchequer will find that he has got into great trouble on this Clause. I assure him that my desire is not to stand on technical points, and is not to give the Treasury less than is proposed in the Bill, but more. I am perfectly aware what the earlier paragraph 1 ( a ), ( b ) and ( c ) do; but what is the right hon. Gentleman proposing now? He says that ( a ) provides that interest should be deducted on debentures. Grant that that is so. He says that the other Clause enables the assets to be treated as capital. What, then, is going to happen? Again I would like to give a case. Take the case of a concern with £100,000 share capital and £100,000 debentures. The charge against the revenue for interest upon debentures is deducted. It is assumed that both debenture and share capital are intact. He is then going to allow 6 per cent. upon that £200,000 as a datum line. Therefore his proposal is to double the contribution. If the right hon. Gentleman will look carefully into the matter he will see that that must be the way in which it works out. I do not wish to prolong this discussion, having as I have tried to do to make the position clear. But I think when my right hon. Friend comes to examine the matter more closely he will find that I am correct in the statement I have made.

May I say to the hon. Baronet opposite that he is perfectly right when he pointed out what he did concerning the accounting of capital in railways and other large statutory companies. But then he must remember that they are not assessed for Income Tax like an ordinary business. They are assessed under the Railways and Canals Act. The assessment for Income Tax upon a railway is estimated by the amount that anyone would pay to be able to run the railway. The position is that we have already—rightly or wrongly—allowed a deduction which under Income Tax in the ordinary way is not allowed. The profits of business are taken—that is the ordinary business outside—utterly irrespective of debenture or any other form of share. No deduction is allowed. The remedy for a company is to deduct Income Tax when they are meeting debenture interest, or interest on other borrowed money. Here we have departed from that. We have gone quite the other way. As I understand my right hon. Friend, he is actually doing rather a benevolent thing. There will, I think, be very few cases such as the one instance of £100,000—that is to say where the £100,000 is really bonâ fide invested. There are very few cases in which they would make up the 6 per cent. We have passed Part II., paragraph 2, and I think the method the Government propose to adopt is really fair.

In view of the fact that I have a similar Amendment as the hon. Baronet (Sir A. Henderson), I feel bound to ask the right hon. Gentleman whether what he has said covers the case of water companies and other statutory companies, who have borrowed a very large part of the capital employed in their undertakings, and which borrowed capital has been used for the purposes of conversion into fixed assets in the form of water-pipes and other works of that kind? I am quite certain that paragraph 2, of Part I., of the Fourth Schedule, allowing interest on borrowed capital to be deducted as an expense, does not meet the case. The company I have particularly in view—it is only a typical one—is the Newcastle and Gateshead Water Company, who have the right to borrow to the extent of one-third of their ordinary capital, and have done so. And, because of the conditions under which we are labouring at the present time, caused by the War, they are unable to liquidate that debt of borrowed capital and transform it into more permanent capital. If the borrowed capital were included with debentures, which the hon. Baronet wishes to include, and if the suggestion of the hon. Member opposite, that this deduction of the actual interest paid on borrowed capital be done away with on the Report stage, they would, as a matter of fact, be not unfairly treated under the Excess Profits Tax. That particular company is a company earning a steadily increasing revenue. It is nothing whatever to do with war, or any circumstances connected with it, and for a very long while its shareholders have had to be satisfied with a very low return in interest, only a little over 3 per cent., on the price they have to pay at auction in competition for the shares.

Therefore, I would ask the right hon. Gentleman seriously to consider whether it would not be very much fairer to include all sources from which liquid capital is obtained, whether by debentures or by preference, or by borrowing, when that liquid capital is translated into fixed assets, and to make your datum line applicable to the profits earned by the capital acquired in every one of those ways, instead of saying that, not following the Income Tax rule, the company shall be entitled to deduct the actual interest as a trade expense. I can assure the right hon. Gentleman that, in the particular case I have quoted, where shareholders for a very long time have anticipated and at last get some reasonable return on the money they have invested, and who will under the Excess Profits Tax have a part of that return taken away, if it is not arranged on the lines I have indicated, will be really incurring a very serious hardship. It is not that we have only to consider this question from the point of view of very rich people who are engaged in very profitable undertakings; at the same time I want the right hon. Gentleman to recollect there are other undertakings, including statutory undertakings which are a favourite investment with people who want a safe investment for any small sum of money, and I ask whether it is not a very much more common-sense way to recognise that the fixed assets of a business have got to be paid for somehow. Some companies pay for them with the proceeds of their ordinary stock; others have preference; others have a large part—an undue proportion, I think—raised in the form of debenture, and some of the most worthy undertakings of the whole country—the statutory water companies—have the specific power to raise a very large part of the money required for their undertakings by borrowing as it is needed.

Therefore, I think the only way to make the Schedule really meet every case is to consider the amount of capital actually used in the business, and on that fix a statutory percentage—6 per cent., or whatever it may be—and treat everybody alike, instead of saying the company which has a very large proportion of debentures or borrowed capital is to be treated in one way and the company which, for one reason or another, is not in a position to borrow in that way, but has all the capital in the form of ordinary stock, is to be treated in a totally different way. I do not think it matters in principle where the capital comes from, on the credit of which the trade is carried on, but that we should consider the fixed assets of the business. If we go on that basis, I agree with the hon. Baronet opposite we made a mistake in passing paragraph 2 of Part I. of this Schedule, and it would be very much better to cut that out on Report stage and go back to the simple, comprehensive method contemplated by the hon. Baronet the Member for St. George's, enlarged by my Amendment, to include borrowed capital used in the business.

The right hon. Gentleman said that paragraph 1 ( a ) did give certain protections to borrowed money, but, though that is so, it seems to me that paragraph 2 takes away what was given under paragraph 1 ( a ). I have looked at it very carefully, and I cannot see that is not so. Then I venture to say that, quite unintentionally, of course, the right hon. Gentleman rather misled the Committee, because he certainly did say that if there were any question of debentures not met by Part II., then this paragraph 1 ( a ) did give certain privileges. Now it does do that, but I say those privileges are all knocked out by the subsequent paragraph, and therefore I do think that we ought to leave out the subsequent paragraph, or else do something to rectify the effect of the subsequent paragraph, which apparently is not the intention of the Government. Unless we do something of this sort, we shall have tremendous confusion when the Bill comes to be interpreted. I do not want to go back to the Amendment of the hon. Baronet the Member for St. George's, but I do think it would have been far simpler not to have deducted the interest on debentures, but to have treated all debenture-holders alike, and to have allowed them to deduct 6 per cent. on capital. We cannot do that now, but we could on Report stage, for I do think it is worth considering whether it would not be better to substitute a general rate of 6 per cent. on all debentures instead of this particular proposal, which allows all sorts of varying rates to take place. But I do think we want some explanation as to whether or not paragraph 2 takes away the advantages given under paragraph? ( a ).

I think the right hon. Gentleman was perfectly right in the whole description of assets and capital in ( a ), ( b ), ( c ), and ( d ), but the speech which the Chancellor of the Exchequer made just now in reply to the hon. Baronet the Member for St. George's is exactly the contrary of the paragraph we are now considering. The right hon. Gentleman cannot have read this, I think, when he made his speech, because it says that certain capital is to be deducted, and is not to be allowed for purposes of computing this datum line. Now what capital does it say is to be deducted? "Any capital the income of which is not taken into account, for the purposes of Part I. of this Schedule, and any borrowed money. …" Now, debentures are all borrowed money; therefore, all the debentures would have to come off. Does the Chancellor of the Exchequer seriously mean, when we are fixing the datum line for the purposes of assessing this Excess Profits Tax, that because a concern has borrowed all its capital, therefore all the borrowed money is to be deducted and it is not to be allowed any interest at all—is not to be allowed any datum line whatever? Because if it has got no capital of its own, you cannot make a datum line.

6.0 P.M.

I beg very respectfully to point out to the Chancellor of the Exchequer that in this paragraph 2 he has fallen into exactly the same error a large number of hon. Members fell into in the early part of the Debate, when they assumed that the capital of a company consisted of shares and debentures, and so on, instead of realising that for the purpose of this Act the capital of a company consists of its assets. If that is so, and we are going to have a datum line of 6 per cent., or some other percentage, what is the sense of going on to say-that any capital that is borrowed should be deducted? The whole capital may be borrowed. What does it matter whether the capital is borrowed, or to whom it belongs, so long as it is capital in the business? I have given notice of an Amendment, to put in the word "not" after the word "shall," which will have the effect of putting this particular paragraph exactly right, namely, that "Any capital the income on which is not taken into account for the purposes of Part I. of this Schedule, and any borrowed money or debts, shall not be deducted in computing the amount of capital.…" But the real solution of this whole point would be for the right hon. Gentleman between now and Report really to look at paragraph 2, and see if he has not made a mistake. I think paragraph 2 was drawn up at a time when paragraph 1 was probably in some other shape. Then when they changed their minds and altered paragraph 1, they again mixed up the subject. Once more, on this Amendment, may I respectfully point out to the Chancellor of the Exchequer that he was perfectly right in his speech in reply to the hon. Baronet, and in which the hon. Baronet entirely agreed, so far as he was not misinterpreted; but he is wrong in paragraph 2, because he is doing exactly the contrary of what he said himself, namely, having first of all proceeded on the assets to be valued and called capital for the purposes of this Bill, he takes it all away again in paragraph 2 by saying that all the borrowed money shall be deducted, which, of course, would reduce the whole thing to simple nonsense in nine concerns out of ten, whether private concerns or limited companies. Of course, I shall not make another speech on moving my Amendment to insert the word "not," because it is all part of the discussion on this Amendment, but I really think the matter is so complicated and has been so mixed up by the evident alterations in the construction of the Schedule, that I appeal to the Chancellor to see whether he cannot again reconsider this matter in the light of all the discussion that has taken place, and consider whether paragraph 2 ought not to be left out altogether or a distinct negative put into the middle of it.

It seems to me quite clear that as the Schedule stands now, seeing that we have passed paragraph 2 of Part I., it is quite impossible to accept that Amendment. Interest on debenture and other debts is an expense and you must deduct them from your estimate of the capital of the company. I am inclined to agree that the decision the Committee has come to is wrong, and, if so, surely it is a case which we can only deal with on the Report stage. I would respectfully suggest—

[ROYAL ASSENT.—Message to attend the Lords Commissioners. The House went, and, having returned,

( resuming ): As I was endeavouring to say when we were interrupted, paragraph 2 of Part III. is conse- quential on paragraph 2 of Part I., and as long as paragraph 2 of Part I. stands, we are bound to accept paragraph 2 of Part III. Probably hon. Members do not like the combined effect of the two paragraphs, and I think there is a great deal to be said on both sides as to whether we should include debentures and capital, or whether you are going to deduct them and allow a deduction in your expenses. That, however, cannot be said now because the proper time is passed, and I would suggest to hon. Members interested that by far the best plan is to pass paragraph 2 as it stands, and bring the whole question up on the Report stage on paragraph 2 of Part I., where it would properly be in order to discuss the thing on its merits, and then we could see that both sections of the Schedule are made consistent one with the other. It is quite impossible to ask the Government to accept an Amendment which makes the two different parts of the Schedule wholly inconsistent one with the other.

The hon. Baronet the Member for St. George's, Hanover Square (Sir A. Henderson) referred to this as a business proposition, and his contention holds the field. I understand the explanation to be that this is a new tax; its assessment is based upon new methods and is not bound by that which obtains in the case of the Income Tax; and we must therefore accept this new principle. I should like to ask with reference to paragraph ( a ) a question regarding the proper deductions for wear and tear or replacement.

That is not really relevant to this Amendment.

Question, "That the word 'temporarily' be there inserted," put, and negatived.

I beg to move, in paragraph 2, after the word "shall" ["any borrowed money or debts shall be deducted"], to insert the word "not."

Perhaps I might take the opportunity on this Amendment to explain to the hon. Baronet what, at any rate I meant on the preceding Amendment, although apparently I did not say it. I was arguing against admitting debentures as capital, and, arguing that, I assumed that paragraph 2 must be accepted as a fact; otherwise, unless debentures were deducted from the capital they would be allowed. I then showed that in paragraph ( a ) the sum from which the debentures were deducted was a sum in which the debentures were included. Perhaps I did not make the point as clear as I should have done. I showed further that it was right it should be so, and that you should deduct the debenture debt from a sum in which the debenture capital was included, because you had already allowed interest on the debentures as an expense in the business, and if you did not behave in that way you would be allowing debenture interest twice over. My hon. Friend has proposed an Amendment to insert the word "not" here, but I think I am right in saying that he does not expect that we should accept it because it would really be going back upon the old argument. If we did not deduct the debenture borrowing under Rule 2 the position of the company would be that the interest on debentures would have been deducted as an expense from the profits. The total of the money raised on debentures would be allowed under paragraph ( a ) as part of the capital of the business, so that we should then be not deducting the debentures from capital including the debentures, and yet the interest on the debentures would have already been deducted as an expense. That is a position of affairs which I am sure the hon. Member will agree would not be right. When we are determining what the capital should be for the purpose of the datum line, we may do one of two things. We may include debentures as part of the capital, but in that case we must not deduct the debenture interest from the profits. But as we have already deducted the debenture interest we must, at any rate for the time being, and I hope permanently, adopt the other alternative of not including the debentures as part of the capital. We must treat the question for the Committee stage as settled by what we have already done in Part I. I quite recognise, as hon. Members hold such strong views on the point, that the whole subject will have to be rediscussed on the Report stage, but I do not think the Amendment is admissible at the present time in view of what has already happend. It is only fair to say that I am unconvinced at the present moment that it would be a better system to allow the debentures as part of the capital. Still, we shall rediscuss it on the Report stage, and under these circumstances I would beg my hon. Friend not to press the Amendment now.

My hon. Friend was good enough to move this Amendment for me in my absence, and of course there is no doubt that what the Chancellor of the Exchequer says is perfectly correct. If it is absolutely decided to take off the profits as an expense the interest upon borrowed money in debentures, then it is quite clear, in finding out a datum line and fixing the rate of interest upon the capital, that you should take off the capital the amount of the debenture debt. If we had already passed the Report stage and it was really finally settled that the debenture interest was to be deducted as an expense in this calculation, then I agree that it would be unreasonable to do otherwise than to deduct the whole of the debenture and other borrowed money from the assets before ascertaining the amount of the capital; but we have had a very illuminating discussion this afternoon upon the whole subject of the capital and assets and their valuations, and I am rather under the impression, if he gives this particular aspect of the subject further consideration, that before the Report stage the Chancellor of the Exchequer will agree that it was a mistake to make any special exemption in favour of any portion of the capital or any portion of the income. The words of the Chancellor of the Exchequer to the chamber of commerce when they came to see him were:—

"The whole assets and moneys used in a business are the capital."

I have the exact words used—

"All moneys employed in businesses will be included as capital."

It is obvious that does include any moneys which people have lent to the business. We did make the other exception in the earlier part of the Schedule in favour of the taxpayer, but the consequences, when we come to look at this part of the Schedule, are fatal. They upset the calculations for the purposes of the capital. I think the hon. Member for St. George's, Hanover Square (Sir A. Henderson), entirely agrees that if you leave out the deduction of interest as expenses then you should not deduct the amount that is owing for debentures when you deal with capital. If nobody had proved any exception, or if nobody had put down any Amendments, these Schedules could have been put in the most simple language. "The whole of the moneys and assets used in any concern are capital." That is what the Chancellor of the Exchequer said to the chamber of commerce. We ought to be careful that we do not put anything in any part of the Bill which makes that wrong or prevents it from having its full significance. Personally, I should be content, after all this discussion, to leave this important question in the hands of the Chancellor of the Exchequer and his advisers—I am sure we should be leaving it in good and competent hands—to look most carefully into it. If they found that they were bound to preserve the deduction of interest on debentures and borrowed money as an expense, then we should be bound to give way and allow them to deduct debentures in estimating the capital; but if, in the interests of simplicity, of justice, and of getting more accurately at the real capital and profits of the business, they determined to leave this out in both places I confess that I should be very much better pleased. If the Chancellor of the Exchequer will tell us that he will look into the matter on those lines, I personally do not desire to press or to force upon him an Amendment that will turn the whole of this Clause upside down. It is an absolute self-evident fact that it does not matter from where a concern has got its capital. It does not matter whether it has borrowed it or whether it has been subscribed, whether it has borrowed in its own household, a man from his father, or a company from its bank, the money it uses and its assets are its capital, and anything which raises a doubt upon that point is a mistake. That is why I so strongly object to the whole of this paragraph; but I think it could only be put right if the first part of the Schedule were also altered, in order to be consistent, and, of course, that can only be done on the Report stage.

On a point of Order. Is it not material on each one of these Amendments, on the definition of capital, to discover whether or not the Government accepts the valuation of the assets where deductions of wear and tear have or have not been made?

That seems to me a question on the merits which I am unable to answer, and not a point of Order.

I quite agree that the best thing to do is to defer this matter to the Report stage, but I do not quite agree with the procedure which my hon. Friend is going to follow on the Report stage. He proposes, if the Government determine that certain things are to be done, to follow them, and if they say that they are not to be done he will not go against them. I do not propose to take that course. I propose to persuade by argument, or, if necessary, by my vote in the Lobby, the Government to do what I believe to be the right thing; and on that understanding, and on the understanding that the right hon. Gentleman will consider whether or not we are not right, I will support my hon. Friend in withdrawing this particular Amendment. I do not quite understand the explanation of the right hon. Gentleman in regard to the point I raised. I take it he claims that as he has allowed, in sub-paragraph 1 ( a ), a certain deduction he is justified in taking it away in the next paragraph. That is rather a clumsy proceeding.

My point is that I am justified in taking it away in respect of that part of the asset on which interest is allowed in the expenses of the business.

I can only say it is a very complicated way of doing it, and I think our proposal provides a simpler way. But on the understanding that the whole measure shall be reconsidered on the Report stage, and that the Government will approach it with an open mind, I agree with my hon. Friend that the Amendment might be withdrawn.

I should like to point out to the right hon. Gentleman the enormous number of cotton mills in Lancashire which have been built with practically no share capital. There has been before this House for many years a Bill, one of the objects of which is to prevent the building of any more such mills without a sufficient amount of subscribed capital. Many of these cotton mills have been built with money borrowed on debentures or obtained by way of loans from the workpeople and, therefore, the value of the assets, under paragraph ( a ), of a company which has spent £100,000 in building a mill, might be only £l,000 as share capital, the remaining £99,000 being represented by debentures or money lent by workpeople. When you come to calculate the capital of that company, and to ascertain the real value of the assets it is really £100,000, because £100,000 cash has gone into it, and assuming, of course, that they are still of the same value to-day. But when you come to paragraph 2 you will say, "We have to deduct £99,000 from the £100,000 in order to arrive at the capital, and so the capital will only be £l,000." That is a reductio ad absurdum. It shows that this Clause is wrong, and if it is wrong it vitiates the whole Bill. I cordially agree with the speeches made by the hon. Baronet the Member for the City of London (Sir F. Banbury) and by the hon. Member for Liverpool (Mr. Rutherford), and I beg the right hon. Gentleman, before the Report stage is reached, to alter the Clause in such a way as will not vary the Income Tax Acts and will not allow the interest on debentures to be thus deducted. If we get an intimation that the right hon. Gentleman will consider that between now and the Report stage, this Amendment might be withdrawn. There are hundreds of these mills in Lancashire, and the effect of their existence is to bring down prices, there is consequently a strong feeling against them. I want the right hon. Gentleman to ask his advisers to calculate the difference that would be made in the excess profits if the capital of these mills, on which, as I say, £100,000 has been spent, were valued at only £1,000. He would probably find that the revenue would be injured by this Clause. It might be the other way and that the taxpayer would suffer, but whichever way it be what we want to do is to get at the real capital, and we cannot get it by first deducting the debenture interest from excess profits and then deducting the total debentures from the value of the assets. If you do that you will land yourself into a quagmire, and the inconsistency will vitiate the whole principle of the Bill, and especially so in regard to companies which have to calculate their profit at 6 per cent. on the capital.

Cannot we arrive at a common-sense way out of this difficulty? You cannot deduct the interest on debentures; you cannot deduct the interest on borrowed money and at the same time deduct the principal. In deducting, for the purpose of the tax, 5 per cent. on the profits and 5 per cent. on the borrowed money, you are in fact deducting the borrowed money from the assets.

If you are prepared to admit that so much borrowed capital is represented by assets where the business shows a profit of £10,000 and the whole of the capital is borrowed capital, you say, "I will allow you the profit that you make on this asset which you have bought with borrowed money, but from that you will deduct the interest which you pay on the borrowed money." By deducting the interest on borrowed money from the profit, you are in fact already deducting the capital from the capital—I hope I have made it clear. The point is this: If you have got £100,000 borrowed money and expended that on the mill, the Chancellor of the Exchequer says he will admit that as capital, but now in this paragraph it is going to be deducted, and as a reason for that the right hon. Gentleman says that he is going to deduct the interest from the profit. Suppose a man makes 10 per cent. on the £100,000. You deduct from that 5 per cent. for the borrowed money; you cannot deduct the interest from the profit for one purpose and at the same time deduct the capital which that interest represents from the assets on the other side. In deducting the interest from the profits you are, in fact, capitalising the profits and deducting it from the proceeds of the capital. Shortly, in deducting the interest, you are in fact deducting the capital which that interest represents from the capital on the other side, which is earning capital. If that earning capital earns £10,000 you deduct £5,000 as interest on borrowed money and that leaves £5,000. If you are right in allowing the whole assets purchased by borrowed money as capital, you will be entitled to say, "I want another £l,000 to make it up to £6,000," and in dealing with the excess profits you will be entitled to take the balance profit at £6,000. The confusion arises here in there being two values, one for capital purchase and the other dealing with profits, and the difficulty is to reconcile the two. The simpler plan is to ascertain what a man makes on the borrowed capital. If he raises £100,000 and makes £10,000 he pays £5,000 of his profit, and that leaves £5,000.

Question, "That the word 'not' be there inserted," put, and negatived.

I beg to move, at the end of paragraph 2, to add the words "and in the case of a firm which has no capital there shall be reckoned as capital any capital supplied by an allied firm."

We have already settled that any borrowed money shall be deducted. We have struck out the word "not," and it is declared, therefore, that borrowed money shall be deducted. Now the hon. Member proposes that, in particular cases, it shall not be deducted.

Will the hon. Member state to the Chair what difference there is between this proposal and the one just discussed?

The case I have in view is the case of foreign firms who do not borrow specific sums of money, but who have credit with home firms, but not money lent on debentures or for fixed periods. Many of these foreign firms, owing to the fluctuations of paper currency in South America, supply their capital by drawing bills forward on firms in this country. Consequently they have no capital, and I would like to ask what is to be the datum line for a firm in that position, which in the pre-war years may have made no profit at all, but which in 1915 or 1916 may make a good profit? It would seem to be quite unfair to say that any firm which does business in that way, whose profits may be £50,000 or £60,000 in an average year, but who, owing to the bad business in foreign countries in the years immediately preceding the War, made nothing at all, and then this year or next year make £40,000—it would seem to be very unfair to call upon them to pay the half of that £40,000 to the revenue. I want to know how the Chancellor of the Exchequer proposes to provide an adequately reasonable datum line in such a case. Interest on a certain sum might provide a datum line, but I do not think that an average based on two years out of three would do so.

The Committee has already, in various stages of the discussion, taken the case of this firm into account and done for this firm everything that is desired. If it has made no money during the last three years but has lost money, we have provided that they may deduct from their excess profits the amount of those losses. If a firm has had three bad years and has consequently been subject to special depression, we have allowed deductions in the case of a firm with special depression. All the proper remedies had been applied to those cases. Now my hon. Friend proposes to give them a new remedy by giving a false definition of capital. We have already decided that money borrowed on debentures shall not be reckoned as capital. He proposes that the capital supplied by an allied firm, for which ample provision is made, should be treated as capital, contrary to the declared intention of the Committee. I hope my hon. Friend will not press the Amendment.

It is true that two years out of three is better than the three years' average.

It is quite true that the Chancellor of the Exchequer has gone some way to meet the case, and that being so, I had better withdraw the Amendment.

Amendment, by leave, withdrawn.

The next Amendment, standing in the name of the hon. Member for West Islington (Mr. Lough), has been covered, I think, in both points, both as regards debentures and reserves.

The same thing applies to the next Amendment in the name of the hon. Member for Devizes (Mr. Peto).

I beg to move to leave out paragraph 3.

There is one respect in which the Bill has got a sting in its tail, for this paragraph 3 is one of the worst points of the whole Bill. I do not want to make a long speech about it, because I cannot help thinking that the Government must have considered the matter throughout our long Debates and have made up their mind to modify this provision in some way. If they will give me an indication that they are going to do so, I will not say any more. I must, however, try to make good the case for the omission of this paragraph. It is another example of where a matter, which we all thought was settled, is suddenly unsettled. The first paragraph of Part III. of this Schedule says that the capital

"so far as it consists of assets acquired by purchase"

shall be taken at the price at which those assets were acquired. Paragraph 3 runs:

"Where any asset has been paid for otherwise than in cash, the cost price of that asset shall be taken to be the value of the consideration at the time the asset was acquired."

That modification of the first paragraph is a very undesirable one.

To leave out all of it. It is not required. The value of the assets is provided for in paragraph 1 ( a ). There is no fresh valuation wanted at all. I cannot help thinking that the right hon. Gentleman has not considered the whole thing. Take the words,

"the cost price of that asset shall be taken to be the value of the consideration at the time the asset was acquired."

Suppose it was acquired twenty or thirty years ago. It has been valued steadily at a certain price. Suppose it was paid for in shares thirty years ago, and has been valued in the capital account of the firm for thirty years. Suddenly you say, because that was the price paid for goodwill, that you will no longer consider that as the value. Then you will have to get a valuation of something that was acquired after thirty years have passed. That is a perfectly impossible thing to do. The second and third lines of the paragraph are wholly unworkable. Take another aspect of the case. Take a company which acquired property twenty or thirty years ago. Suppose it has paid very well, and that it is the case of a secret process for a patent. In most of such cases they are generally paid for altogether in shares. If the shares were the chief consideration, then those shares, as I understand the Schedule, in certain circumstances are to be taken as of no value. Has the right hon. Gentleman considered the point that although the company might have given the shares as the consideration for the patent, yet the shareholders have paid the money for them. Are those shareholders, who have paid the money and received the dividends for twenty years until the last two or three years, when they might have fallen under some misfortune, are they, simply because twenty years ago the shares were given for nothing, although they have paid 20s. in the £ for them, not to get any consideration in the percentage standard of profits?

I do not know upon what basis the paragraph is founded. The mistake appears to be that the Government have assumed, because it was payment for goodwill, that it was necessarily watered capital, and that the company has been cheated in some way. The right hon. Gentleman smiles, but I would ask him, why deal specially with goodwill if there is not some mark against it? He may have some case in his mind, which I should be very glad to understand. In almost every company there is a large payment for goodwill, and very often the best asset of the company has been acquired in that way. Some companies may have no working capital at all. If this part of the Schedule is maintained there might be a case in which shares were taken for goodwill, and the person who received them afterwards sold them, yet the present holders of those shares, although they received good dividends for many years, might happen to have fallen on two or three bad years during the standard period, and they would get absolutely no consideration at all. The matter should have received some consideration from the Government since the Bill was brought in. At any rate, some consideration might be given to the paragraph before we plunge into all its intricacies. There are several Amendments down to the same effect. I propose to omit the paragraph altogether, while three hon. Members propose to leave out all the words after the word "acquired." The paragraph requires some examination, and in order that it may obtain it I propose to leave it out.

My right hon. Friend is perfectly willing to consider any Amendment which will improve this paragraph without destroying the purpose for which it was framed, namely, the protection of the Revenue with regard to this tax against a claim in respect of inflated capital which would represent no assets. The right hon. Gentleman's colleague the Member for North Islington (Mr. Touche) has an Amendment down to deal with patents and secret processes. We are quite prepared to accept that Amendment. The right hon. Gentleman says that in the first paragraph of this part of the Schedule we have dealt with the valuation of assets. They are to be valued, subject to certain deductions, at the price at which those assets were acquired. Where you have acquired those assets not by payment in cash, but by payment in shares, how are you to determine the price which was paid for those assets unless you have some standard of valuation of the consideration which was paid for them? I venture to suggest that it would not be fair in the case of companies whose shares have depreciated since the time they acquired the assets to value those assets by the present price of the shares. They ought to be valued at the price of the shares when they were paid for those assets. By that means you get the real value of the assets, and not merely the value represented by the value to-day of the shares, which might have had some very different value when they were paid. That is the first part of the paragraph which the right hon. Gentleman is alone in wanting to remove.

Is it not on the value that they have now acquired that all recent dividends have been paid?

That may be so. We are not dealing now with the capital which you show on your balance sheet, but we are dealing with the capital which you employ in your business. The capital which you employ in your business, the Committee has already decided, must be your assets, and the assets must be valued, and they must not have the value at which they appear on your balance sheet, but, so far as can be ascertained, their real actual value. The second part of paragraph 3 is that which excludes goodwill, however obtained. I will tell the Committee what our design is. It is that goodwill should, of course, be paid for where a price in money or in shares has been subscribed for by the public or the shareholders in the company. Then I think it would be legitimate to charge for goodwill. What we wish to exclude is where a man in forming a company has paid himself for his goodwill by means of an issue of shares to himself. That is clearly a creation of capital. He ought not to be allowed any more for that kind of goodwill than he would have been allowed for the goodwill if it had remained a private concern instead of becoming a public company. That is what we wish to exclude by the wording of this paragraph.

I have an Amendment later to take out the last part of this paragraph. I quite sympathise with my right hon. Friend in wishing to exclude bogus goodwill, but this paragraph goes a great deal further than that. According to his own view, where the goodwill has been paid for in shares which have been taken up by the public and paid for, he will allow it, but if the vendor has chosen for his own purpose to keep those shares himself, he is not to be allowed for them. In some of the best concerns the goodwill has been retained by the vendor, because he believed it to be good and it has turned out to be good. I can give instances of businesses which have been sold for very little capital beyond the goodwill. They are very valuable assets. I am leaving out altogether any paper goodwill or any goodwill put in for the purpose of an odd chance turning up. Take the goodwill of an important business. What does it mean? It means the connection, the organisation, and the means by which the customers are brought together and organised. I have seen large figures paid for the connection of a bankrupt concern by a company who wanted to get hold of the connection, and who did very well out of it.

I am speaking of the value of goodwill per se. My right hon. Friend says if the goodwill has been paid for in cash or shares by the outside public it is all right, but if it has been kept by the vendors, themselves believing it to be a good thing, it is all wrong. That is absurd. The paragraph says,

"where any asset has been paid for otherwise than in cash, the cost price of that asset shall be taken to be the value of the consideration at the time the asset was acquired."

7.0 P.M.

There are many goodwills which have increased in value enormously, and the shares have been duplicated. Take the goodwill of Guinness's business. I know a man who bought £30,000 worth of shares in Guinnesses, and paid £40,000 for them. He could sell them to-day for £180,000. That is goodwill. I could give another instance of a business where £20,000 had been divided year after year between two or three partners. They turned themselves, into a company, and the goodwill stands in their balance sheet at £75,000. All the other cash assets they have are represented by the balance of £25,000. Do you mean to tell me that that £75,000 is not a valuable asset? What about all these proprietary articles, the value of which is built up simply by the expenditure of money in advertising, which is written off from time to time and disappears from the balance sheet? I could give a dozen instances of my own knowledge where men have stood by the ship because they had confidence in the goodwill. Yet, according to this, they are to be told, "You did not sell in the market, you did not let people buy the shares, you kept them yourself, and because you kept them they are to be kept out as of no value at all." I never knew of such a preposterous proposal. It may be possible to devise means to stop inflation. There is only one thing about it. These cases are not very likely to trouble the Commissioners very much, but at the same time it is a downright bad principle that you are to say to a man, "You believed in your business, you turned it into a company, you kept the goodwill shares yourself, and because you kept them and did not sell them on the market, or did not issue them to the public, we are going to draw that distinction, and therefore they are to be treated as of no value at all, while, if they were bought in the open market, they are to be given full value." Of course, that is absurd and unjust.

I agree that the Government should make this a little elastic. I am sure many of the businesses in the country do not realise that this is a proposal in an Act of Parliament. A way out should be found, but I am afraid this will bind everyone so tight that if the Government find they are doing injustice they will still have to carry it out. Several illustrations occur to my mind. Take the sewing cottons of this country. They must have a large amount figuring for goodwill. A brand has taken years and years to establish in the mind of natives in the South Sea Islands. They know the picture, and they know the tint of the paper the cotton is wrapped in, and if you were to supply them in paper of a different tint they would reject the goods. These brands have been established with infinite pains and a great deal of expense. Take the case of candles. In the interior of China the people have never seen more than one kind. They swear by a particular brand. They only go by the design upon the paper it is wrapped in. It would cost any competitor an immense sum to establish a different brand. I should be content, seeing how far we have got, if the Government themselves could find a way out. I would ask the Government if they cannot make it elastic.

It is rather a pity that the Government have got this Sub-section in this valuation. It seems to me that they are rather departing from the old principle they have laid down in arriving at capital. They want to arrive at the assets of a business. I will deal with the first part of the Sub-section. As I understand the Financial Secretary, we arrive at this curious result: You have purchased fifteen years ago a works for shares of the nominal value of £300,000. On your assets side now these works may stand at nothing, or they may stand at £600,000. Certainly there is no relation to what you paid for them originally. How you are to disentangle in your accounts the original value of the shares given for those works, and what has either been written off or added to since, I do not quite understand, and I do not understand what the object of it is. I cannot see what the Government gain. The right hon. Gentleman said the works were bought for £300,000, say, in £l shares, and those shares are now worth £2; he did not wish the capital of those works to be estimated at £600,000. I should like to remind him, as he has taken the asset side of the account, that it is obvious that the market value of the shares which were originally paid for the works is of no relevance at all to what they stand at in your books as assets. I buy a works for £200,000 worth of £l shares ten years ago. Those works are put on my asset side, say, at the value I paid for them—£200,000. The fact that those shares, which have been paid to other shareholders, are now worth £3 does not enable me to put the works in my books at £600,000. I cannot increase the valuation of my assets by the increased market value of my shares. Therefore it seems to me that the objection is a fictitious one, and does not exist. The right hon. Gentleman would be just as well off if he had not got this Section at all, and he would save a great deal of confusion and trouble.

They were originally valued, and must be valued every year, to make up the balance sheet. I gave £200,000 for my works, but I may have pulled them down. Therefore the value is nothing, and I have written them off. Or I may have doubled them, and then I have added the actual capital amount on to them. But in my books, on my assets side, the value of those works is of no relevancy to the market value of my shares. Let me take the reverse case. I have bought some works for £300,000 in £l shares, issued at £2 premium. I may have entered those works in my books either at £300,000, which is the actual cash equivalent, or at the nominal value of the shares—£100,000. In that case again this Section will not apply. So that in no practical case that I have any experience of, and I have some experience of operations of this character, can I see how the Sub-section is to be applied. If the right hon. Gentleman is satisfied simply to take the ordinary valuation of the assets, however they have been acquired, whether by shares or by cash, appearing in the balance sheets, he will absolutely arrive at his object, and I do not understand why you should inquisitorially inquire how someone has got the assets. I cannot see what difference it can make from the point of view of the Treasury, or of accounting, whether you have bought your assets by cash, that is by issuing shares to X, Y and Z, and then transferred the money to the vendor, or by issuing to the vendor the shares direct. It is a mere question of convenience for the purchaser which of those two methods he adopts. Therefore, I cannot really see why a differentiation should be adopted at all. Then a good deal has been said about goodwill. As the Section stands at present it is undoubtedly most unfair. The Financial Secretary to the Treasury is trying to draw some distinction between goodwill which the public has paid for, and goodwill which the vendor has got in his own hands. As far as I can follow his argument it seems to amount to this, that where a man has sold out his goodwill at a very high price to the public, and retired with the money, that is to be allowed, and where a man has had confidence in his business and kept the goodwill in his pocket, he is to be penalised. That surely cannot be what is intended, but that would be the practical result.

No, I did not say he had. I said he had retired. The company may have made a loss. It would be an unfair differentiation between the two cases of paying for goodwill. The only defence to that argument which the Financial Secretary made was that we want to protect ourselves against unduly inflated goodwill. Surely that could be done by introducing some kind of provision that where the Commissioners of Inland Revenue were of opinion that the goodwill appearing in the balance sheet was unreasonably large and was obviously of an inflated character, they might refuse to accept it, and the matter might be referred to a Referee. That seems to me to protect the Treasury perfectly well without entering into the path the Financial Secretary has mapped out. I think it is a pity when you are dealing, as you are, with a very large tax spread over all the businesses of this country to start complicated matters, when one can only affect a very email number of cases—a trifling number. After all, it is not as if the right hon. Gentleman has got to deal with businesses which have been formed in order to evade the tax. It is not as if he has to protect himself against people unduly inflating goodwill in order to take advantage of a Bill giving them exemption. Then I could understand him being nervous. But all these balance sheets are done with. They are settled. All the inflation must have been done previously, and the idea that there is a large number of big businesses which have such inflated goodwill in the hands of their owners as to seriously affect the yield of the tax I am quite sure is a delusion, and I do not think the right hon. Gentleman will find it worth his while to make those distinctions which the Financial Secretary adumbrated, and to examine whether the goodwill has been paid for by the public. I really do not think, considering the size of the tax and the businesses involved, the difference to the revenue would be in any case sufficient to make it worth while to enter into these difficult and lengthy investigations.

I think my right hon. Friend must admit that goodwill is really a very tangible asset. Let me put this case. There are two merchants at a foreign port, the whole of whose assets is goodwill. They have no plant or any other tangible asset. Surely if one buys the other out, the measure of his advantage is not only that he doubles his trade, but he does away with competition, and the reduction of rates caused by competition, which would probably be much more advantageous than if he had continued the business at a small profit, or perhaps at a loss. I think goodwill is often bought at a great sacrifice of money. You may have five or six people competing, and a new competitor comes in who has to lose a lot of money in order to get a portion of the trade. If you do not recognise cases where the assets have been obtained by a transfer of shares or paid for by shares, it is very hard. I will give a case where two companies are amalgamated, or one company absorbs the other. They are both companies having plant and tangible assets of a most material kind, and the larger company perhaps absorbs the other company and pays for the assets by the transfer of shares and without any money payment. In that case those shares are of great value. They represent the purchase of tangible assets, and if there is to be no value in those shares under this Schedule it is a great hardship. The only proper thing is to drop this part of the Schedule out of the Bill altogether.

A great deal of discussion has taken place upon the question of goodwill, and I think that perhaps that has been sufficiently explained. When we come to the question of material assets, it is rather a serious matter. I understand from the Financial Secretary to the Treasury that an Amendment will presently be accepted in regard to patents and secret processes, but that does not take in everything by any means. Take the case of pills, out of which large fortunes are sometimes made. There may be a new kind of pill which is probably the same sort of pill as you would get at any chemist's shop by a prescription. That particular pill may have a particular name put to it, an attractive name. There is nothing secret in the prescription at all, but the pill is given an attractive name. Let us take an example of an attractive name being given to a pill. Some few years ago a pill was very largely advertised in the northern newspapers under the name of "Wait and See." This particular pill is now being advertised in the southern newspapers. It has had very great success and it has been very much sold. I want to know from the Chancellor of the Exchequer whether that name is a material asset to the company. How can it possibly be that the name of a pill which is the principal source of its getting money for the proprietors can be a material asset? It is upon that attractive name that the company practically entirely depends for its sale and profits, and yet that would not be valued at all under this Clause, because nothing but material assets are to have any value. Take the case of Cockles' pills. It may be very well known what is the composition of Cockles' pills. At any rate, the name "Cockles" is what sells the pill to a great extent. The prescription may be a thing of very little value, but the name may be everything. Yet under this Clause the name is an immaterial asset. The Chancellor of the Exchequer's principle of valuation must be wrong. I said on the first Amendment that I thought these capital Clauses were wrong. There are two out of three—at any rate, the last two—are considered by the Committee to be wrong. This is a very bad one.

The object of the Chancellor of the Exchequer is to get at the vendor who has inflated the share capital of the company by selling some more or less worthless article for a great number of shares which he afterwards parts with perhaps at 1s. or 3s. in the £l. It has been said that these companies are few. I believe that is so. Let me say this to the Chancellor of the Exchequer, that the company which does that sort of thing never makes large excess profits, and he need not be very much afraid of them. The right hon. Gentleman will remember that this Bill refers to the past and not to the future. Therefore, no future company will be formed with inflated assets for the purpose of getting their capital at a higher basis, and getting the 6 per cent. interest upon it in future, because this refers to companies already formed. Besides that, we know very well that under the Treasury Regulations no company is allowed to be formed and to get capital out of the British public during the War unless it is approved and licensed by the Treasury. Therefore, there is no danger that the evil will be multiplied if this Sub-section is not put in. The arguments put forward in regard to goodwill I think are conclusive. I would like the right hon. Gentleman to consider whether the words "material assets" will not exclude a large amount of very valuable capital which is the substratum of a large number of companies. For instance, take the case of Coats' cotton. I do not suppose that Coats' cotton is very much better than any other cotton, but the sale is enormous because of its name. Yet that name is, according to this Bill, an immaterial asset, worth nothing.

( indistinctly heard ): In regard to this question of the relation of capital assets to nominal capital, perhaps. I may say something which may be of assistance in simplifying the proposition now before the House. When a company makes profits and pays dividends those are profits upon the capital, not ascertained by the process that is set down for the purpose here, but ascertained on the capital which is supposed to bear the dividend. It is, in fact, an agreed sum which either the partnership or the company are supposed to have agreed shall be always represented by assets of equal value before they divide any of the profits. It is an agreed sum and a nominal sum very often. With regard to this question of goodwill, I know of some companies which have actually doubled their capital on the strength of the revaluing of their goodwill. We know that the ordinary stock of railway companies has doubled in nominal value because they take the earning power into account as an asset. It is very problematical whether earning power should be considered as an available asset. It is not available in every case. It is real property, but it is not available in every case. It is not like capital, which is supposed to be always realisable on liquidation, and which you ought to take into account before you call your profits. I cannot see why, for this particular purpose, you should not act exactly in the same way as if you were taking the capital on which the profits have been earned and paid. What you are doing here only relates to this case: "If you have made profits your datum line shall only apply to those profits. If you have not, we will take 6 per cent." Six per cent. on what? Why not on that on which the profits should have been paid? In guarding against the danger which is feared, and which always complicates these things, why not guard against it in the way in which any ordinary well-conducted company guards against it? You do not want each time to know what the value of each item is. You do not want to know the value of the goodwill. What you say is this, "Have you got assets, real assets of value, which represent that which you set down as your nominal capital, and on which you are going to pay dividend?" If that be so, I do not see why this 6 per cent. should not be paid on the same capital on which dividends are paid, if profits have been made.

I am afraid that what I am going to say will appear to be rather beside the mark. It seems to me that hon. Members have not really appreciated what it is that we are doing. We are dealing now only with the case of a substituted datum line. A company, in order to give it a good datum line, a fair datum line, is allowed in the first instance to take any two out of the last three years. That might be said to be sufficiently fair to secure a good datum line, the excess over which is only to be regarded as excess profits. To meet the case of those who have not done well in any two of the last three years we have offered another datum line. We have said, "Very well, you may take any four out of the last six years." There we have gone a very long way. We say, primâ facie, that any firm or company that was not satisfied with one or other of these two alternatives was a declining company or firm that was not a company or firm which was entitled, primâ facie, to estimate and claim for itself a large return on its capital as a basis of its profits. Beyond these two cases we have taken a third case. We have said, "There may be a company or firm for which any two out of the last three years is not a fair datum line, or any four out of the last six years is not a fair datum line." Then we say in regard to such company or firm that we will allow them a minimum of 6 per cent. upon the money involved in the company or firm.

How involved? Will he give it on the value which the public gave for the shares?

Yes, on the money that the public paid for the shares, because that is money which has been paid by the public, and money in respect of which the shareholders expect a return. I have agreed upon that. In regard to any asset which represents money we say, for the purposes of this substituted datum line, "You shall not lose upon that. We will give you the 6 per cent. minimum." If a particular firm or company requires more than the 6 per cent., then we say, "Take 12 per cent. We will give you that."

I will take the case where the shares were given originally to a company starting twenty years ago. I know a case where 60 per cent. were given and then immediately sold by the person who received them—privately sold to other people. These shares have been rapidly distributed. Under this Schedule the present holders of those shares would be estimated at no value, although they bought them quite freely.

The case ray right hon. Friend put was where money had been subscribed. He asked whether that money was involved in the business. I say, yes. He is raising another point now, which we will consider later. We are dealing now with the principle on which we have gone. That is the principle: the succession of alternative datum lines, and the last we get to is a standard percentage on all the money involved. I think that is fair. To ask us to go beyond that is going to open the door to fraud—I will not say fraud, it is not the right word to use in this case, so far as the present is concerned, but it might open the way to fraud. It will open the door to false datum lines in the past, and to designedly false datum lines in the future.

I say it will open the door for false datum lines in the past, and to designedly false datum lines in the future.

We are settling the principle on which we are going. I do not want to reargue the whole of the Debate. Take the case of the one man company. I am treating it now as a compensation case in which we are going to estimate the goodwill. What is the goodwill? It is the expectation of future earnings.

Which gives rise to the expectation of future earnings. It gives value to the goodwill. If the earnings have increased, so does the goodwill increase in Value, and the very fact of there being excess profits automatically increases the value which the owner of the business puts upon the goodwill. Here you have a business which cannot take advantage of the ordinary datum line, because its profits have been poor when its goodwill was low. It cannot even take the best four years out of six, but because it has excess profits it is immediately in a position to write up its goodwill, and demand a high rate of interest appropriate to the business on that high goodwill. I do not consider that fair.

An HON. MEMBER: Can he write it up?

I submit to the Committee that when you are estimating a fair datum line you have done enough—this is the last word I have to say—if you give the firm, in order to get at the average of what it might expect to earn, firstly, the best two out of three years; secondly, the best four out of six years; and, thirdly, if neither of those suit it, a percentage standard of interest on all the money involved in the business. I think that is fair, and that all these arguments about goodwill and immaterial assets, are not reasonable. We have gone on the principle of estimating all the assets, and all the money in the business, and we will give the rate of interest on that. I submit that the Committee ought to be satisfied with that.

I think a considerable portion of this criticism has not been directed so much to the general scheme, but to the actual working of the Clause now before the Committee, and I would like to say a few words on the Clause we are now discussing. The difficulty seems to me to be this, namely, that if you are to go back for the value of some assets to the time when they were purchased, and find that value as the value of the consideration given for them—because that is the first part of this Clause—you will have a tremendous lot of difficulty in doing anything of that sort in almost every case that will come before the Commissioners. If you are to go back twenty or twenty-five years, and find that certain considerations were given for some asset, and to form an opinion as to the value of what the consideration was, and then apply that value to a state of affairs existing to-day, when it is perfectly obvious that the value of the assets is nothing of the sort, then I think it is obvious that the first portion of this Clause is going to lead to a great deal of confusion, and that it would have been better to have left the value of assets that could not be found out in some other way, instead of going back many years to find out the value of the consideration. The Clause as drawn will obviously, in a great many cases, create many inequalities, and it is inequalities that we want to avoid. Take the case of a company which has a patent article of which it disposes. If that company has bought the patentee's name, title, and patent, then it is an asset of which we can ascertain the cost price, and for the purpose of that company the cost price of that asset would be allowed. But take a concern which has registered a name of its own, which has built up a business, which has not bought it, but has got it by its own initiation and hard work, of which the name, title, and business are just as valuable. In the one case the whole of the purchase money would be allowed, and in the other there would not be a sixpence allowed. This seems to me to draw a distinction between the value of a patent article registered and paid for and one registered, acquired, and built up by honest hard work. To create a distinction, a vital distinction, in these two cases would, it seems to me, be a great mistake.

Then I might also, in dealing with this very difficult question of finding out the value of a portion of the capital of any concern, say this, and I hope the Chancellor will give me the credit for saying it in all sincerity. I made up my mind to say it before this Clause was finally passed. It is this, and I do solemnly appeal to every member of the Committee to bear it in mind: This is a most dangerous thing. It is the most dangerous thing that I have ever heard of the House of Commons doing. The Income Tax Acts find out a man's or a company's income for the purposes of that tax. The proceedings are fairly secret as regards other purposes. But they do leak out. Let us look at what is going to happen to a large number of companies when their capital comes to be ascertained. Look what is going to happen to the value of shares when some authorities go into their value, make these deductions, and say what is the value of some antique money paid for them years ago. Take the number of cases where somebody is going to ascertain the real value of their capital for the purposes of this Bill. It is merely a temporary Bill, but it is going to involve an official criticism upon the actual value of the assets of a vast number of concerns in the United Kingdom. I say it is going to ruin a vast number of undertakings.

My right hon. Friend says they will be first robbed and then ruined. The amount of public and private difficulty that is going to be involved by a State Department going into the values of people's capital and assets, the amount of inquiry that will be set on foot, and the amount of public uneasiness as to the actual value of shares they possess in all sorts of undertakings—all that is going to be initiated by this procedure, and to my mind is an exceedingly serious thing. I personally very strongly disapprove of this Clause. It will produce inequalities, it will work badly, and it is not the right way of finding out the real value of the assets. I do also entertain a very grave apprehension as to the ultimate effect upon a vast number of shareholders and other people of the finding: out of what the value of their shares in various undertakings is in the view of some Government Department.

The fact that this Amendment comes from the right hon. Gentleman opposite (Mr. Lough) is sufficient reason in itself for me to vote against it, especially after what he said in an interjection—that these people would first be robbed under this Bill and then be ruined. Let us examine for a moment what the real effect of this Clause seems to me to be. Personally, I may say that if I make an investment I always like to have something of which I can get hold, and I would not put a penny into anything which consisted of goodwill, which is a floating asset. A man may die, and any day the asset may have gone. All wise men put their money into something of which they can get hold. Take the case of a company having, as the Chancellor of the Exchequer has given them—I think he has acted very wrongly—the choice of two out of three years. I do not think he should have given the two out of the three or the four out of six. He then gives this alternative 6 per cent. Let the Committee be firm. Take the case of a man who has a patent medicine business. I will not take the particular pills mentioned. One man puts his goodwill at £50,000 and another man in the same class of business puts his at £100,000. How are you going to deal with a case of that kind? One man values his goodwill, purely in his imagination, at £50,000, and another his at £100,000. It is all very well for hon. Members to speak of balance sheets having been sent in. The surveyors of taxes have not had them in the past. At any rate they do not in many cases see the capital account, and a man can put in any sum he likes on the capital side, say £100,000, and by this means escape the profit tax altogether.

I want the Chancellor of the Exchequer to answer me this question. He said, "I want to avoid inflated goodwill." I want to avoid inflated goodwill, too, and I am quite sure the Committee do also. If the right hon. Gentleman had said that no goodwill should be taken anywhere I could have understood it; but, in the matter of goodwill, if it has been bought by the public and paid for, he recognises it. I want some explanation of that. It is a very common thing in prospectuses, as we all know, where the goodwill is sold, that the directors reserve to themselves the right of paying in cash or paying in shares, and sometimes the vendor reserves the right in preference to taking cash, to take shares, because he believes in them. It seems to me downright dishonest to say that if you have got cash for them I will recognise that, but if you have kept them yourself, believing in them, I will allow you nothing for them. That is a definition in which I cannot believe. With regard to the balance sheet and the inflation of goodwill, I would point out that when a man goes to the Commissioners to claim the 6 per cent. the Commissioners are bound to make him produce his balance sheets for the last two, three, or four years, and in that way they at once see whether the goodwill has been inflated or, not. I say you have no right to say to all those people who have paid cash for their shares, no matter whether the goodwill had been inflated or not, "I will recognise that," whereas where a man has a bonâ fide goodwill, and retains it in his own hands and desires to retain it in his own hands, he is shut out. I submit that there is no justification for such a course, and that is my main point.

Amendment negatived.

I beg to move, in paragraph 3, after the word "company" ["material assets of the company"], to add the words "patents and secret processes shall be deemed to be material assets."

I beg to move, as an Amendment to the proposed Amendment, to add the words "and trade names."

We have had quite a remarkable Debate, and it is a case in which, except the hon. Member for Mansfield, no single Member in any part, of the House supported the Government proposal; but what is the good of having a House of Commons if the only concession we can get is this small Amendment? They have agreed to accept the words of my hon. Friend, and I think that they should add the words "and trade names."

I hoped, when we accepted the Amendment, about which there is considerable risk, that it would be agreed to at once. I think there is a considerable risk. Just as goodwill may be transferred from a vendor to himself for a fancy price in shares, so a secret process might be transferred in the same way, but as the risk was not so great in the former case, I suggested that the Committee might accept the Amendment. I cannot possibly agree to the words "and trade names" without full consideration of their legal bearing, but I am perfectly willing to consider the question before the Report stage.

Will the right hon. Gentleman also consider trade marks, as they probably would come together?

I will consider the question, but without a promise of any sort.

Amendment to the proposed Amendment, by leave, withdrawn.

Words "patents and secret processes shall be deemed to be material assets," there inserted.

I beg to move, at the end of paragraph 3, after the words last inserted, to add the words "unless it can be shown to the satisfaction of the Commissioners or of the Board of Referees, as the case may be, that the total price paid for goodwill or other non-material asset was a reasonable one."

I am sorry that the hon. Member (Mr. Touche), in whose name this Amendment stands, has been called away suddenly, or he would have explained more clearly than I can this Amendment. I take it to be that there should be power in the Commissioners or on the part of the Referees to make a common-sense valuation of assets.

On a point of Order. When my right hon. Friend the Member for Islington (Mr. Lough) moved to omit the whole of this paragraph, we had a long discussion on the question of goodwill, and as to whether the Government could make the provision more elastic or not. Can that discussion be continued now?

The discussion we bad turned to a certain degree on goodwill, but the actual Amendment was to leave out paragraph 3, which includes certain things other than goodwill. This Amendment does not say that goodwill shall not be accepted; it only says that there shall be certain exceptions where the amount is a reasonable one to be paid. I submit that the Amendment is in order. I do not think we need discuss it, but merely divide upon it.

This Amendment is different from that to which the right hon. Gentleman refers, because the point is left to the Commissioners and not the Board of Revenue to decide.

I think that point of Order is quite sound, but another point of Order to which attention has been called cannot be got over. The acceptance of the last Amendment, standing in the name of the hon. Member for Islington (Mr. Touche), was put down in the wrong order on the Paper, and therefore the acceptance of the first knocks out the second.

The insertion of the words "patents and secret processes," etc., alters the sense of the thing, and I am afraid the Amendment could not be dealt with in that way. I would inform the right hon. Gentleman that we shall have the pleasure of reviving the question on the Report stage.

Fourth Schedule ordered to stand part of the Bill.

Fifth Schedule ( enactments repealed ).

Motion made, and Question proposed, "That this be the Fifth Schedule to the Bill."

The Amendment to the Schedule, standing in the name of the hon. Member for Glasgow, is outside the scope of the Bill.

Fifth Schedule ordered to stand part of the Bill.

Bill reported, with Amendments, to be considered to-morrow (Wednesday).

The remaining Orders were read, and postponed.

Company Law (German Shareholders)

Continental Tyre Company

Whereupon Mr. SPEAKER, pursuant to the Order of the House of the 3rd February, proposed the Question, "That this House do now adjourn."

I want to call the attention of the House, and particularly of the right hon. and learned Attorney-General, to a question which I put to him on the 18th November, when I asked:—

The learned Solicitor-General (Mr. Cave), who replied to me, said that my question raised important matters which could not be dealt with by question and answer. Therefore I propose to say very shortly what, to some extent, is the effect of the decision which was arrived at in the Court of Appeal I desire to ask the Attorney-General whether he will advise the Government to carry that case, in which there was not a unanimous decision, in view of the important question of public policy underlying the decision, to the Supreme Tribunal of the House of Lords, either as the first step, or, alternatively, to promote legislation to render the company law of this country more in accordance with what I, at any rate, regard as public policy? There were two cases decided on the same day in the Court of Appeal. One was a case in which individual aliens were concerned, that of Porter v. Trendenberg, and the other in which the rights of a company incorporated in this country were concerned. In the first case, which is reported in the "Times" of 20th January, the law with regard to the position of individual alien enemies was laid down very clearly by the Lord Chief Justice, who, in the course of his judgment, said: versus the Daimler Company, and the Continental Tyre Company versus Tilling and Company, in which the matters considered were practically the same, with the material difference that in this case we are dealing with companies incorporated under our companies law, under the Companies Act of 1862. The decision in that case was that a company, though owned and controlled by Germans, with practically and entirely German shareholders, had all the rights of British citizens and alien friends so far as action in our Courts is concerned. I do not think I need say more in order to make the House understand what is the case I wish to put before them. This is not the proper place, and I should not be the proper person, to consider for a moment the question whether the decision of the majority or the minority in that case in the Court of Appeal was right or wrong. All I want to do is to put certain considerations of public policy, and in that respect I want to reinforce myself by what I think will be agreed is the greatest legal authority in this country, namely, Lord Lindley, who, in a letter to the "Times" of 28th January last, a few days after this decision of which I speak was made public, used these words:— Lord Lindley gave in a very few lines, which I have been told by hon. Members here, whose legal opinions I value very highly, such as the hon. Member for Warwick (Mr. Pollock), is one of the most concise and reasoned arguments, the reasons why he thought that decision was wrong, and therefore I would like to put those reasons before the House in Lord Lindley's own words, which were:—

There was a string of Austrian directors, including the baron, and the other baron who owns one share, and who I suppose is a relative. They were replaced by six new shareholders, about three of whom have British names and who presumably are of British origin, at the commencement of hostilities about the 3rd or 4th of September. But those ships are at present running. I believe two of them have been requisitioned by the Admiralty, and the other two are doing their ordinary trade. It has been said that, after all, in respect of those ships that, although they had the privilege of flying the British flag, and although they are practically entirely owned by enemies of this country, the position with regard to them is practically the same as if they had happened to be in our ports at the commencement of hostilities, and that they would in that case have been taken over and perhaps used by the Admiralty much as at present. That may be so, but supposing that those four ships had been on the High Seas and making for some port and encountered one of His Majesty's ships they would have been lawful prizes of war, and there would not have been any question of handing anything back to the baron or baroness on the determination of hostilities, and the prize money would have been divided, I hope it would have been divided, amongst the members of the ship that effected the capture, or perhaps, in a more general way, among the officers and men of the Navy generally. What I ask the House to consider is whether the present state of the law with regard to the particular matter of the ownership of steamships and the more general matter of the right of access to our Courts for alien enemies when they disguise themselves as a British company, is in accordance with public policy or in accordance with what would be understood to be common sense by ordinary non-legal members of the community?

I would only add just two or three general considerations. In the first case I quoted it is clearly laid down that the right of maintaining actions in our Courts belongs to British citizens and to alien friends and nobody else. In the second case, there is a door open, by which it is clear this principle of law can be evaded; that the right to maintain actions in our Courts is part of the British birthright of British citizens, and that it is extended to alien friends and can be extended no further. I put it that the matter is so important that it would not be using exaggerated language if I asked the right hon. Gentleman the Attorney-General to consider those words of Holy Writ, in which it is laid down clearly that "it is not meet to take the children's bread and throw it unto dogs." I say it is an inalienable right which, from the very meaning of the word, you cannot alienate. The law of the Companies Acts was designed for a period of peace, and the citizens of the various Continental countries were, at the time when these Acts were passed, friends of His Majesty, alien friends. The State Declaration of War alters in respect of each of these individual citizens his whole status, and he becomes an alien enemy. Therefore, I say on that ground, although I do not wish to argue the merits of the case, I think it is perfectly clear we want an authoritative decision, and if that decision is in favour of the technical questions of our company law involved, contrary to what we regard as public policy, then we want legislation to make it perfectly sure that there is no backdoor way of evading the effect of the declaration of war, which applies to each individual citizen, whether they are incorporated in a British company or in whatever capacity they may be, and that they are recognised as enemies of the Crown and of this country, and that they have none of the rights of British citizens.

I desire in a very few words to reinforce the arguments which have been laid before the House with such cogency, ability, and clearness by my hon. Friend. The law relating to the position of alien enemies in time of war dates from a period long anterior to the Companies Act. The law in which this principle is to be found is practically a hundred years old. At that time the system of joint-stock companies was entirely unknown; indeed, the method of trading by companies, incorporated or otherwise, was, as compared with the present time, in a very small compass indeed. Therefore we are introducing into our present commercial system a doctrine which may have been good enough a hundred years ago, when our system of commerce was entirely different, but which on the grounds already indicated by my hon. Friend is by no means satisfactory to-day. Let us come to the decisions to which my hon. Friend has referred. After Lord Lindley has criticised the particular decision as he did in the "Times," and again in his letter in May, I am certain that that decision cannot command the general assent of lawyers as a whole, and still less the general assent of the commercial community as a whole, because, as he points out, it is one of those cases where apparently the common law is divorced from common sense, and while common sense would lead you in the direction in which he forms his opinion in law, as it stands that law may lead to grotesque and mischievous results. Very humbly but very emphatically I venture to agree with that great lawyer. It is because we do not know where this principle may lead us that we hope the Attorney-General will see his way to take some course which may lead to its alteration.

If the decision is not assented to by the commercial community or by lawyers as a whole, ought it to stand without being further discussed in the highest Court of the land? The answer given to us is that no particular harm will come in this War because during the course of the War we have the safeguard of the Trading With the Enemy Act. The Attorney-General's predecessor said, in answer to the hon. Member for Brentford, that at the present time there was a sufficient and adequate control by means of the Trading With the Enemy Act, that a company would not be allowed to carry on its business in time of war save under British control and in a way which would be an advantage to this country, and that these practical objects were being secured under emergency legislation already passed. Yes, but it is emergency legislation designed only for the present War, and for the period that the War lasts. I am not at all satisfied that in years after that emergency legislation has passed away questions may not arise in which the principle enshrined in the Continental case may work considerable hardship to the commercial community and to our people at large. Are we satisfied with that safeguard? I emphatically say "No." It is a temporary safeguard for the period of the War only. What can be done? The case lays down a principle of law, and it is just because that principle is laid down it becomes of wide application, and we ask that it should be, if possible, upset by an appeal to the highest tribunal. Both the learned judges are of opinion that it would be practically impossible to repeal it in its entirety by means of a Statute. I agree. If that be so, we must go to the root of the principle and see if it can be altered. I will give one illustration of the difficulties which may arise, and, I believe, have arisen. Italy was not one of our Allies in the early part of the War, when a great number of these questions had to be considered. We were considering then from the point of view whether or not companies were manned by Germans only, and we had no thought of many other companies which would have to be considered, and which are Italian companies. If the information which I have received is correct, reasons have been given to modify the opinion formed originally, owing to recent events and the recent increase in the area of the War.

As far as I know, only in one case in recent years has this question of the position of companies been considered before the decision was given in the Continental case, and that was during the South African War in a case reported in the year 1902. Undoubtedly in that case, which went to the House of Lords, efforts were made to make the law more flexible and adequate to modern needs. If Lord Lindley is right that this present decision may lead to grotesque and mischievous results, it is because this principle, as laid down, offers a system under which various devices and strategies may be resorted to and carried out with unfortunate results for ourselves. Without saying more, I desire to support the claim made by my hon. Friend. I trust that the case that lays down this principle will not be left without further argument with the possibility of its being reversed. What we want is not a Statute to safeguard evil results after they have come into being, but a principle laid down which will prevent evil results from arising.

No one, I imagine, will contend that when the legislature passed the Companies Act of 1862 they contemplated that any such results would follow from it as those which will follow if the Continental Tyre Company case remains law. Can anyone have supposed at that time that under that legislation you could have German alien enemies masquerading by a fiction of law under the appearance of English companies and given all the privileges which a British corporation, composed solely of British subjects, is given by that legislation? If that is the law, we ought to get it laid down by an authoritative tribunal such as the House of Lords; and if, unfortunately, the House of Lords were compelled to come to the conclusion that the law is as laid down by the Court of Appeal, we should have instant legislation to correct it. Let me give one illustration, and one only, of a case which has recently come to my notice. There is a company called Hugo Stinnes, Limited. It is composed entirely of German shareholders with extensive German connections and associations. At the present moment, and ever since the War—and before it—it has carried on a coal trade. I think its offices are at Cardiff. Instead of being wound up, as I think it ought to be, it is still carrying on business and carrying it on with all rights as if it were composed solely of British shareholders. Indeed, at the present time it is bringing an action, or has brought an action, in a court of law against a British subject to acquire a new office in Cardiff for the purpose of better carrying on its trade. With regard to the Board of Trade, they have not seen fit to appoint a manager and receiver in order to wind up this German concern so that they may cease from trading. It is true that the Board of Trade have appointed a controller, but he has no powers beyond that of a superviser; he has not the powers of receiver and manager. So much for an ordinary trading company.

The point which my hon. Friend the Member for Devizes (Mr. Peto) made about British ships is one, I think, of even greater importance. The policy of the Merchant Shipping Acts from the very first time they were pasesd was to insure that British ships should never be owned by aliens. Indeed, it was laid down in express terms that no alien should, either directly or indirectly, become the owner of a British ship and so be able to fly the British flag. The way that that was to be effected—because, of course, this present War was not anticipated—by the Merchant Shipping Act was by providing that no alien should own ships either directly or beneficially through a trustee. This was a very conceivable and very rational policy. But in this Continental Tyre Company case you have the astonishing result that a company composed, it may be, of two or more enemy aliens can, under this legal fiction of being a British corporation—because it is a pure fiction—have all the rights of a British company owning British ships sailing under the British flag, and—Germans masquerading as a British company—earning dividends for Germans during the War. True it is that these dividends are held up during the War, but they are in the hands of a trustee, and may be handed over to the German alien enemies at the end of the War. That is not the only result. If a ship were owned by German alien enemies trading as a firm, that ship could be captured on the high seas, brought into a Prize Court, and condemned. But if the ship is owned, as many of these British ships are, by German alien enemies, whereby they carry on as a British corporation, they can fly the British flag and sail the seas with perfect safety; they can never be captured, brought into Court, and adjudicated upon. This is against public policy, and also against the express policy laid down in the Merchant Shipping Act. Therefore I hope my right hon. and learned Friend will take the step, in the first place, of getting these powers reversed in the House of Lords, or, if too late, to bring in legislation for the purpose of making our law conform to common sense, and so to carry out what I venture to think was the intention of Parliament both when it passed the Companies Act of 1862, and which was indeed indicated in the Merchant Shipping Act, which forbade an alien ever to own British ships.

Here we are allowing alien enemies who live in our midst to carry on their business. The Government in the early part of the War came down to the House and we gave them all the powers they required to enable them to carry the War to. a successful conclusion. Yet, after all, this confusion has been prevailing for months past, they take no steps to come to the House and ask for powers to upset this monstrous decision which has been given, and under which a German alien company can continue to trade as an English company. Can anything be more inconceivably foolish? That we should go to the House of Lords and get a decision, adverse or otherwise, on this question is, after all, common sense. Why cannot the Government come down to the House and propose that the conditions under which alien enemies should be allowed to trade in this country are such as can, at all events, conform to the very elementary principles of common sense? That is all we are asking the Government to do. I have time after time since the War began protested against the Government allowing alien enemies to trade in this country at all. The Prime Minister has always replied that "at the end of the War we will tell the House what we are going to do with the profits that these alien enemies are making in the meantime." What is the effect of this? These aliens are keeping up their connections, while many partners of British firms have gone out to the front. These aliens retain their connection, and buy in America. In face of this the Government can allow this state of affairs to go on for months! What is the Government doing? The Prime Minister does nothing but drift until public opinion moves him, and then his Government at last come down to the House and propose something—always too late! The Government have again in this matter lost the initiative. We have been told that the Germans would allow British subjects in Germany to go on in the same way as we are allowing German subjects to trade in this country. Does the right hon. Gentleman for the moment consider that that is so? I hope that the Government will be a little more active in these matters, and that they will come down to the House forthwith, without any further delay, and tell us in definite and distinct language that they are going to take such steps as will enable us effectively to deal with this matter. I heard the Parliamentary Secre- tary to the Board of Trade say that the position of Englishmen in Germany is the same as that of a German in England. Nothing of the kind!

All I said was that so far as the Board of Trade knows, that with regard to companies which are partly owned by Englishmen and partly by Germans the position is exactly the same as it is here.

I have every reason to believe from friends who have a knowledge of what is going on in Germany that that is not so. That is the answer given by the Board of Trade in so many cases, and it is information which we cannot rely upon. I am not going to accept that without proof. I do not think there are any cases like that of the Continental Tyre Company. Take the other case of Hugo Stinnes, Limited, mentioned by my hon. and learned Friend opposite. Here is a company solely German. All the shares are held by Germans. Surely there is no company now trading in Germany composed entirely of Englishmen who are allowed to trade in the same manner as if the War was not going on? Mr. Hugo came to me and said, "You must go on supplying me with coal during the War," and I replied, "I will see you—." I told the firm I could not see my way to do anything of the kind. The Attorney-General is new to his office. Let him make a good start. If he comes down to the House we will all support him and he will get his Bill through in a very few minutes. That, at all events, will give great satisfaction not only to the House, but to the country at large.

I quite agree with the hon. Baronet who has just sat down. Are we, or are we not, going to end this War? Remarks have been made in this House to the effect that we have let our enemy have the conditions in his favour. We have handicapped the Fleet so that it cannot act. When it does act, the Foreign Office denies its right. The Government has had every support it could have. No Government has ever had such support as this Government in this War. There has been very little criticism in this House, but the Government will do nothing in any way unless the public and the Press take the matter up and tell them what to do. I do hope the right hon. Gentleman will see the case as it is, not from common law, but from common sense, and desert this action which they have taken up to the present. It is really like a general who says to his army, "Lead on, brave men, and I will follow!" We want the Government to govern and not be driven to do their duties, as they have right through this War.

I am not going for a moment to challenge the remarks of the hon. Baronet the Member for Mansfield (Sir A. Markham) or the Noble Lord as to the general policy of preventing alien enemies from enjoying advantages in this country which are not allowed to us in other countries, and which are detrimental to us from the point of view of manufactures. But to come to the real point—the question raised about the Continental Tyre Company—I am not sure that I appreciate the points that have been made about it, not only here, as I have seen a great deal of correspondence about it and looked into it. It may or may not be that a successful appeal could be made against that case, but, however that may be, I do not think this is a matter for appeal, but a matter for legislation. What that legislation should be, or when it should be passed, does not appear to me to be so clear.

What it should be is the point, because I do not know that the evil of foreigners forming a company in this country is so great. Certainly they will not be allowed to do it during the continuance of the War. There is no fear of that. The Registrar of Companies would certainly not register a company consisting wholly of alien enemies, or even doubtful ones. If such companies exist, they are met by the present powers. Therefore I do not think legislation presses immediately. The difficulty arises in such cases as the hon. and learned Member for York (Mr. Butcher) put his finger upon, under the Merchant Shipping Acts, and there, if I am not mistaken, the real difficulty arises lest the person should include a company. That was given to me as an instance of the evil of adopting the principles with regard to the Continental Tyre Company. But we want to look at the whole subject, and to pass a Bill, either prohibiting—I rather doubt the expediency of that—the formation of such companies, or certainly preventing such an event, as the hon. and learned Member pointed out, of a company becoming owner of a ship, and having all the rights of an English owner of a vessel. I do think we want attention directed to that, but I do not think a case is made out that we are at present in any danger of the power which cannot be exercised now, of forming such a company. So far as my experience has gone, there are no companies in this country which the Board of Trade have not been able to control by the appointment of a receiver, and, if necessary, a manager.

My hon. Friends have called attention to a subject, which is obviously not without public importance, in a manner to which no one can certainly take the slightest objection. I do not suppose that I am expected to reply, whether I agree with them or disagree with them, as to those strictures upon my colleagues which covered a more general range, such as the general conduct of the War, and alleged defaults or misconduct on the part of the Admiralty. Those subjects may perhaps be left to the Ministers who are specially responsible for those Departments. In relation to the subject which has been pressed upon the attention of the House by my hon. Friends who have spoken to-night, I may, perhaps, at the outset say that I detect some signs of disagreement even among the few speakers who have spoken as to the course which individually they recommend to the Government. I understood from the hon. Gentleman who, in a very cogent speech, called the attention of the House to this question first, that in his view it was a matter in which the decision ought to be taken to the House of Lords. If I may make an observation upon that decision, with the reserve and the absence of dogmatism which are proper when one talks upon difficult matters on which judges of the highest experience have taken different views, I would say that all my own sympathies are with the view that was taken by Lord Wrenbury, and confirmed afterwards by Lord Lindley, and if I were sitting on that munch as a judge I should have decided that, not only was the balance of national interest on the side of the view which was accepted by Lord Wrenbury, but also the balance of legal consideration. But, I am bound to say, the matter must be regarded as extremely disputable, and an accomplished lawyer, the Solicitor-General, takes, I have reason to know, an entirely different view, so that it must be conceded at once that it is a case which on the facts there is a considerable conflict.

If that is so, but even on other grounds, it will be seen there are considerable objections to pursuing it to the House of Lords. To adopt that course, in the first place, would take considerable time. Even under the most favourable circumstances it would take some weeks—it might even be some months—and there are other difficulties, with which I need not trouble the House in detail, to the course suggested by the hon. Member who first spoke on this subject of the Government or the Board of Trade taking up this appeal. In the first place, the law does not ordinarily contemplate persons who are aliens in a dispute supporting it in a tribunal, but it certainly is not a convenient method of raising it; and I might point out also on this that the expense of carrying this appeal to the House of Lords would not be inconsiderable, and there is a large volume of public feeling, so that I do not think any very useful purpose would be served by getting a decision in the House of Lords. But I do not argue this particular objection today, because I gather the general view of those who have spoken is that the method of prosecuting the appeal in the doubtful state of the law is not a course which could very usefully be adopted. I confess that, on the whole, I share) that view, but what other course is open to us?

It is said that what we ought to do is to legislate, and that the real remedy for the evil put forward to-night is legislation. I must allow myself to make this preliminary observation, that, before the War broke out, I will not say precisely this question, but cognate questions, were from time to time pressed upon the then Government, and it was pointed out frequently that this state of things was a great disadvantage to the public, and that we should not have such a large proportion of our mercantile marine. There were other matters, and some hon. Members pointed out that there were provisions in our Companies Acts open to the greatest objection. Ali these matters could have been dealt with before the War on principle, but we find ourselves to-day in the middle of the War. May I say here that I think we are all equally responsible for this matter not having been dealt with? The then Government and the then House of Commons are responsible for the omission to do anything on any one of those points before the War broke out, and those who did not press these matters on the Government are equally responsible. The mercantile marine and the objections that were taken to the presence of aliens are questions upon which nothing was done. That was the state of affairs before the War broke, and therefore the responsibility, so far, was a collective one. But the War has come, and I entirely agree that during the continuance of the War, provided proper steps are taken to deal with the companies already in existence, there is no pressing mischief, for this reason, that no further facilities are likely to be given to the new individuals who form themselves into associations of this kind. Therefore you are dealing with a limited and existing mischief. Now what steps are being taken to-day to see that no real mischief follows upon the decision of the Court of Appeal? I agree, if there is a demonstrable mischief, the hon. Baronet the Member for Mansfield (Sir A. Markham) is entitled to pass the comment which he did upon the resultant state of things. I will take, first of all, the particular case of the Continental Tyre Company, and then, because it was selected by the hon. Member for York (Mr. Butcher), I will say a word or two about the case of Messieurs Hugo, Stinnes. Inasmuch as those two instances were specifically taken, I think we may measure the extent of the mischief by those two cases to which the attention of the House has been called.

First of all, let me take the case of the Continental Tyre Company. It is perfectly true that this company's assumption that in its corporate capacity it is of British nationality is really a sham. Its capital is entirely German with the exception of a nominal share, its shareholders were entirely German, and it was clearly a German institution. What was its business before the War? Its business was to import and dispose of German tyres in this country. We may just clear our minds again on this point, and let us clearly distinguish between the pre-war state of things and the war state of things. I suppose most people would agree that it is desirable to attract foreign traders to this country for the purpose of making their wares, rather than sending those wares to this country from their own shores without having establishment charges and other things in this country. Possibly before the War there was no objection to forming themselves into a corporate company. Obviously that part of the activities of this particular company, the Continental Tyre Company to which I have referred, has disappeared with the War. In other words, inasmuch as before the War their business was to import into this country and sell here those German tyres, it is evidently impossible for them to import into this country now from Germany German tyres, or to have trading, directly or indirectly, with Germany. They have no such trading to-day, and if they did it would be immediately exposed to the criminal law, and if the facts showed themselves they would undoubtedly be prosecuted, and I should be the first to advise their prosecution. In measuring the mischief, which I confess I do not think was clearly shown by what has been said, the extent of that mischief is that they are not allowed since the War broke out to carry on at all the only business for which they were formed. Let us carry it a stage further. It is said by my hon. Friend the Member for York that the goods which are being made by this firm are being kept until the War is over, and that their ultimate destination will be decided at the end of the War. I agree, and that is perfectly true. Let me note, in passing, that some of the opinions, not those expressed in this House, but outside, have proceeded upon ignorance of this fundamental fact, that not one single farthing of the money made by this company can be paid directly or indirectly to an alien enemy until the War is over. We are all aware of that, and I think it is very desirable that this should be made clear to persons outside.

When my hon. and learned Friend says that at the end of the War we should take over these assets, the answer is that at the present time we are not dealing with one separate subject matter, and the whole topic of the treatment to be given to alien enemies' property which is within our jurisdiction during the War, and is in the hands of this company after the War, is a very complicated and large topic which affects many hundreds of millions of property. It does not apply only to these small trade matters, but to all the ships and all the German assets of every kind in this country; and whether the facts be good or bad under the custom which nations have observed in many wars, it has not been the practice—whether it is wise or not is too large a question for me to enter upon—to confiscate, unless under exceptional circumstances, the property of the enemy, and such moneys as have been made by this company, may naturally fall to be dealt with under the general rule which, having regard to the conduct of the War by the other belligerents, has been observed by him. All these circumstances will be taken into consideration when the War is over, and a decision will be arrived at as to what is the proper course to take. To those who say that no adequate precautionary measures have been taken to see that this mischief does not happen in the case of these companies, I will reply that a statement of what has been done shows that the public interest has not been for one moment neglected.

Let me tell the House what has happened. An inspector has been appointed under Section 2 of the Trading with the Enemy Act, 1914, in the case of every single company in which the majority of shares is held by enemies, or in which the majority of the directorate consists of enemies. Inspectors have also been appointed even where the majority of directors does not consist of alien enemies. In every case coming within the Sub-section in which there has been any ground for suspicion at all, however few the number of alien enemy directors or shareholders, an inspector has been appointed, and it is his concern to see that nothing happens which could be injurious to the national interest. In every case where the inspector has reported that a supervisor should be additionally put in, in order to keep a constant watch, a supervisor has been duly appointed. In most cases it has not been thought necessary by Englishmen with more knowledge than we have, and with just as much concern as we have, to provide that supervisors-should exercise continuous supervision, but where that recommendation has been made it has been carried out. I can only assure the House, so that they may know the scale on which these cases have been dealt with, that in the case of 492 companies inspectors have been appointed, in the case of 232 companies supervisors have been appointed, in the case of eight companies controllers have been appointed, and in the case of enemy firms and persons 185 inspectors and 86 supervisors have been appointed. Altogether 677 inspectors and 318 supervisors have been appointed for the purpose of dealing with enemy corporations and enemy firms.

All I can say is that I am aware of what the duties actually discharged by these gentlemen are, and I know the reports they give on the discharge of those duties. Therefore, I tell the hon. Baronet with great respect, knowing something of the facts which, in the nature of the case, are not in their generality known to him, that he is entirely wrong. When hon Gentlemen talk of legislation, let me ask them to be sure that they have in their minds a clear idea of the legislation they mean. Speaking for myself, I am not at all indisposed to consider with the most careful examination any reasonable and practicable suggestion, but I only know of one suggestion which to any extent meets the facts, and it is that you should take a certain proportion and say if the alien holding passes beyond that proportion, then in such-and-such a case it shall not be treated as a British corporation. But the House must never forget that by the transfer of four or five shares you may always have a company over the dividing line. The matter is not so simple as hon. Gentlemen suppose. I am sorry that the time is not longer, but I may have another opportunity of referring again to these companies when the matter has been more maturely considered. It is not so easy, however, as hon. Members suppose. When one tries to draft a measure one sees the practical difficulties, and I can only tell the House that the matter is receiving most careful attention.

If the hon. Gentleman will address a question—

It being one hour after the conclusion of Government Business, Mr. DEPUTY-SPEAKER (Mr. Maclean) adjourned the House, without Question put, pursuant to the Order of the House of the 3rd February.

Adjourned at One minute before. Nine o'clock.