House of Commons
Tuesday, December 7, 1915
Intermediate Education (Ireland)
Copy presented of Time Table of Examinations for Intermediate Education in Ireland for 1916 [by Act]; to lie upon the Table.
East India (Civil Service)
Copy presented of Amendment of Rule 2 and Appendix of Regulations for Examinations for the Civil Service of India [by Act]; to lie upon the Table.
Assurance Companies
Copy presented of Statements deposited with the Board of Trade under Section 7 (1) of the Assurance Companies Act, 1909, during the year 1915. Parts A and B [by Act]; to lie upon the Table, and to be printed. [No. 397.]
Mines and Quarries (General Report and Statistics for 1914)
Copy presented of Annual Report of His Majesty's Chief Inspector of Mines, with Statistics for the year 1914. Part II. Labour [by Command]; to lie upon the Table.
Naval and Marine Pay and Pensions Act, 1865
Copy presented of Orders in Council, dated 30th November, 1915, under the Act [by Act]; to lie upon the Table.
Foreign Jurisdiction Act, 1890
Copy presented of Order in Council, dated 30th November, 1915, entitled the China (Companies) Order in Council, 1915 [by Act]; to lie upon the Table.
Merchant Shipping Act, 1894, and Merchant Shipping (Convention) Act, 1914
Copy presented of Order in Council, dated 30th November, 1915, further postponing the operation of the Merchant Shipping (Convention) Act, 1914, to the 1st July, 1916 [by Act]; to lie upon the Table,
Peterhead Harbour
Copy presented of Reports respecting Peterhead Harbour Works [by Command]; to lie upon the Table.
Destructive Insects and Pests Acts, 1877 and 1907
Copies presented of Orders numbered D.I.P. 317 to 321, inclusive, declaring the respective areas described in the Schedules thereto to be infected with Wart Disease and infected areas for the purposes of the Wart Disease of Potatoes (Infected Areas) Order of 1914 [by Act]; to lie upon the Table.
Oral Answers to Questions
War
Shipping Routes (Mines)
asked the Secretary of State for Foreign Affairs, in view of the fact that none of the neutral Governments have made public any protests to Germany concerning her reckless policy of strewing mines on the routes of non-combatant shipping, whether he can say if any appreciation has been addressed to His Majesty's Government by any of the neutral Powers concerning the services rendered to them by the British seafaring professions in clearing the seas of these mines so that commerce between America and Europe can be continued without loss of life?
No, Sir; so far as I am aware no such appreciation has been received, though the facts are as stated in the last part of the hon. Member's question.
British Controlled Companies in Germany
asked the Secretary of State for Foreign Affairs what is the practice in Germany with regard to the treatment of companies or firms in Germany which are wholly or mainly owned or controlled by British subjects; whether such companies and firms are considered and treated as being alien enemies; whether they are allowed to carry on business except under the control of a supervisor or manager appointed by the German Government, and what fees are paid to such supervisor or manager; and whether such supervisor or manager has power wholly to discontinue or to wind up the business of such companies and firms?
From the information in the possession of His Majesty's Government the practice of the German Government is to place under compulsory administration those undertakings whose capital belongs wholly or mainly to British subjects. The administrator appointed by the central authorities in such cases appears to have discretionary powers either to carry on the business of the undertaking concerned in whole or in part, or to limit his action to the liquidation of the current business of the undertaking. He may also dissolve the undertaking, although in this case the authorisation of the Imperial Chancellor is, I believe, required. I have no information as to the scale of fees payable to the administrator.
Does the Government propose to give facilities to the Bill dealing with this subject which is introduced in another place?
I cannot answer that question without notice.
Will the right hon. Gentleman consider the advisability of legislation in this country on the lines of German legislation?
I cannot answer without notice.
Exchange of Invalid Prisoners
asked the Secretary of State for Foreign Affairs if he can make a statement on the exchange of invalid prisoners of war, indicating whether this is still being carried on between Great Britain and Germany; whether there remain interned in either country prisoners of a non-military age; and what are the reasons actuating their continued detention?
Exchanges of invalid prisoners of War take place at regular intervals. Certain classes of persons of non-military age are interned because it has not so far been possible to arrive at an agreement for their mutual release, but it is hoped that the necessary agreements in the majority of cases will be reached shortly.
Germans at Shameen
asked the Secretary of State for Foreign Affairs whether he has official information to the effect that English women have been rudely treated by Germans on the British concession of Shameen, and that the German community celebrated the sinking of the "Lusitania" by an entertainment, jubilating over this incident; and whether he can see his way either to intern the Germans or turn them off the concession, with a view to preserving the peaceful amenities of the concession to British subjects residing there, in view of the attitude taken up by the Germans?
The answer to the first two questions are in the negative, whilst, with regard to the third, I cannot at present add to the answer given to the hon. Member for Melton on 14th October.
asked the Secretary of State for Foreign Affairs whether he can state the length of the lease of the concession of Shameen from the Chinese Government to the British Government; whether the German Consul still flies his flag on the concession and exercises jurisdiction over German subjects; whether he can exercise his jurisdiction on our concession as long as he can rent premises on it; and, if so, what is the length of lease which has been accorded to the German Consul and were the terms of the lease submitted to the Foreign Office for approval?
His Majesty's Government hold the concession on a perpetual lease. I am not aware whether or not the German flag is flown over the German Consulate at present, but the Consul exercises jurisdiction over German subjects by virtue of the authority vested in him by his Government, and not by virtue of residence at any particular spot. The lease of the German Consulate was made in 1883 for ninety-nine years, with the authorisation of the Secretary of State for Foreign Affairs.
Do not the Germans in this concession occupy the position of lodgers, and if a person has an undesirable lodger in his house has he to refer to the ground landlord before he turns him out?
I cannot add to the answer I gave the other day.
China (German Concessions)
asked the Secretary of State for Foreign Affairs whether His Majesty's Government, in view of the recent arrest of the British Consul at Shiraz by Germans and their emissaries, can see their way as a reprisal to occupy the German concessions in Chinese treaty ports and put the German Consuls and officials under arrest to prevent them conspiring in China against the interests of the British Empire and their Allies as they have done and are now doing in Persia?
The danger to which my hon. Friend refers has not been lost sight of, but I do not think it would be desirable to say anything further on the subject at the present moment.
Is the Government taking full notice of the intrigues of the Germans in our own concessions of Shanghai and their shipments of arms and seditious literature to India?
The intrigues of Germans, not only in particular concessions, but in China generally, are the subject of anxious consideration on the part of His Majesty's Government.
Having assisted in turning the Germans out of their much greater possession of Tsingtao, could we not proceed to attack them in their smaller places? Is it not as if, having swallowed a camel, we were straining at a gnat?
The question is not quite so simply disposed of as the hon. Member thinks. I can only call his attention again to the first part of my last answer. The danger to which he refers has not been lost sight of, and, as a matter of fact, is the subject of anxious consideration.
Persia
asked the Secretary of State for Foreign Affairs whether he can make any statement on the situation in Persia; what proportion of the Swedish officers and gendarmerie have revolted and joined the German agents; whether the Shah's Government have failed to fulfil the pledges given by it to the representatives of England and Russia, and have allowed the Germans to transport from Teheran to Hamadan a huge quantity of bombs, maxims, rifles, cartridges, and other military supplies; and what was the nature of the undertakings offered to the Persian Government before the Russian troops commenced their advance on Teheran?
I fear that recent events in Persia have demonstrated that little reliance can be placed in the Persian gendarmerie as a whole, although, so far as I am informed, it is only at Shiraz and Hamadan that they have as yet openly defied the Persian Government. The British Consul and some members of the British Colony at Shiraz were made prisoners; the Consul at Hamadan has made his way to Kasvin. I am confident, however, that the Persian Cabinet, as at present constituted, are sincerely anxious to restore order, and they have already endeavoured to take effective measures at Hamadan, where there is reason to believe German agents have stored a large quantity of arms and war material.
The presence of Russian troops between Kasvin and Teheran was necessitated by the danger similar to that at other places which threatened the British and Russian Legations and Colonies. The Russian troops have not entered the capital, and the Persian Government have been assured that if they are obliged to do so it will only be to protect Allied life and property. Meanwhile, what measures are possible against the revolted gendarmerie who have committed the acts described above are being taken.
The right hon. Gentleman took no notice of the last part of my question: whether there is any truth in the statement that the Shah of Persia has broken his pledges to the British Government and allowed large stores of bombs, maxims, rifles, cartridges, and other military supplies to be taken away by Persian agents from Teheran and transferred to Hamadan—that is a very important part of the question?
I do not think I have confirmation of that. All I can say is that the Persian Cabinet as at present constituted is sincerely anxious to restore order. I have really not had time to study this quite carefully. If the hon. Member will put it down as a separate question I will see if we have information. At present I am not aware that we have.
I will put it down as a separate question. I will ask the right hon. Gentleman if he will see that any information given in another place by the Government on the Persian situation is communicated to this House?
I will do my best.
How far is the revolt of the Swedish gendarmerie due to the fact that they have not received their pay?
Is not the gendarmerie really a Persian force in revolt under the Swedish officers who were formerly in command of them?
It is not a Swedish gendarmerie at all, but Persian. The officers are not Swedish officers in the sense of being under the control of the Swedish Government at all. They are persons of Swedish nationality who are employed by the Persian Government.
Will the right hon. Gentleman inquire whether there is not really an army in being at Hamadan?
Have the Government ever realised how much easier it would have been for the Persian Government to put a stop to this disorder if we had had another gendarmerie under British officers?
Nobody knows better than the hon. and gallant Gentleman the difficulty there would have been two years ago, before the War broke out, in organising a force of gendarmerie with the consent of the Persian Government under British officers.
Was not a force of Persian gendarmerie organised five years ago under Major Stokes, until the British Government insisted on his withdrawal?
Censor's Department (Staff)
asked the Under-Secretary of State for War how many males and females are employed in the Censor's Department, and how many are, respectively, of foreign birth?
The answer to the first part of the question is 1,081, and to the latter 235, the majority of whom are of the nationality of the Allies.
asked the Under-Secretary for War how many female assistant censors and deputy assistant censors there are in the Censor's Department, and how many of them are of foreign birth?
There are two female assistant censors and nine female deputy assistant censors. Of the former one is of Swedish birth but now a British subject. Of the latter two are of foreign birth.
Reserve Cavalry Regiments (Messing Allowances)
asked the Under-Secretary for War if he could give an assurance that the amount charged per diem for messing of officers in reserve Cavalry regiments to which third-line Yeomanry officers are attached for training is limited in any way; and if he will state the maximum amount allowed to be charged against these attached officers?
Messing charges are restricted not by expressly prescribed figures which may not be exceeded but by giving officers commanding full authority and by requiring them to check unnecessary expense or extravagance. A searching inquiry was instituted a few months ago into the whole question of messing charges, from which it appeared that the highest rate in operation (after the deduction of ration allowance) in a Reserve Cavalry Regiment was 4s. 5d. per day. This included hire of plate and linen and cost of stationery, but it was considered too high and the General Officer Commanding was informed.
Can the right hon. Gentleman tell me whether it has gone up or down since the inquiry?
I assume it has gone down, but I have no information. If the hon. and gallant Gentleman will put down a question I shall be glad to obtain the information for him.
Royal Field Artillery (Leave)
asked the Under-Secretary for War whether he is aware that only one member of Royal Field Artillery batteries at the front is allowed on leave at a time; and can he state how long it must be before every man therefore gets leave?
I find that there is no rule such as is indicated in the first part of the question, and I have consequently assumed that my hon. Friend would excuse me from executing the calculations suggested by the second part of the question.
Does the right hon. Gentleman know that it is the practice, whether it is the rule or not?
No, Sir, I am not aware of that. Perhaps my hon. Friend can assure me that it is so?
Staff Appointments
asked the Undersecretary for War whether there is any rule or practice which prevents an officer v ho holds1 a commission only for the duration of the War from being appointed on the Staff; and if so, whether the authorities of the War Office will consider the propriety of modifying such rule or practice in proper cases?
There is no such rule.
Hutting in United Kingdom
asked the Undersecretary for War whether he will grant the return relating to hutting standing in the name of the hon. Member for Rushcliffe? [Return relating to hutting during the present War for troops in the United Kingdom showing:—
I regret that the necessary figures are not yet available in a good many instances. Perhaps my hon. Friend will repeat his request at a later date.
Will the hon. Gentleman issue the return as soon as the figures are available otherwise we shall have to wait a considerable time?
There is not the slightest desire to hang the thing up.
Recruiting
Territorial Home-Service Battalions
asked the Under-Secretary for War, how many men there are in Territorial Home-service battalions; and whether these men if of military age will be compelled to join for foreign service before the married classes are called up under Lord Derby's scheme?
I have already stated in answer to the hon. Member for Chertsey Division that I cannot give the number of the officers and men of the Territorial Force who are under Home-service obligations only. I have also stated that in the event of Lord Derby's scheme not producing the necessary results all classes of the population other than those already enlisted for Imperial service must be dealt with on the same footing
Infantry Captains (Promotion)
asked the Under-Secretary for War whether he is aware that the new decision to promote all Infantry captains of fifteen years' service to the rank of major, provided that they are the senior of their rank in the regiment, is acting harshly in the case of those regiments where there happens to be a junior. captain brought in from some other regiment at the head of the list; whether he is aware that in the Middlesex Regiment there are no less than twelve captains of fifteen years' service kept back from promotion in this manner; and what steps he proposes to take to remedy this grievance?
I understand that there are some peculiar features in the case of the Middlesex Regiment in regard to this matter, and that special steps are being taken. The regimental system of promotion has always been liable to produce cases of individual hardship, and it is impossible to provide against them altogether. But the other advantages of this system are considered sufficiently great to outweigh this objection.
Will the right hon. Gentleman consider this case—it is a very serious case?
The Middlesex case?
Yes.
Yes, Sir.
Questions
Sandbags
asked the Financial Secretary to the War Office whether he has seen the advertisement issued by the commanding officer of the central training camp at Havre asking for 100,000 sandbags to keep the trenches, breastworks, etc., in repair during the winter months; and, seeing that this request conflicts with the recent statements made on behalf of the War Office regarding the Army's requirements in the matter of sandbags, can he advise the various hospital depots how to proceed in the matter?
I am having inquiries made regarding the advertisement referred to by my hon. Friend. As I informed him in answer to a supplementary question on this subject on the 11th November, there are many millions of sandbags in reserve at Havre and other bases in the North of France.
Will the hon. Gentleman communicate with me when he has received the information?
Certainly.
Sugar Brokers (Tolme and Runge—Runge and Bacmeister)
asked the Chancellor of the Exchequer whether he is aware that the partners in the firm of Tolme and Runge, sugar brokers, of Mincing Lane, are Mr. Hermann Runge, born of German parents in Cuba, Mr. Richard Runge, brother of Hermann Runge, and Mr. J. J. Runge, son of Hermann Runge, born in England and expert adviser on sugar to the Royal Commission on Food Supply; whether the firm of Tolme and Runge is or was until recently closely associated with the German firm of Runge and Bacmeister, of Hamburg; whether any of the partners in the firm of Tolme and Runge are partners in the firm of Runge and Bacmeister; whether Mr. A. Goldfinger, an Austrian by nationality and not naturalised till 19th August, 1914, is or was until recently a confidential clerk in the employment of Tolme and Runge; whether Mr. E. Lorenz, a German by nationality but naturalised in this country, was until 31st July, 1915, a confidential clerk of Tolme and Runge; whether Mr. Gattke, a German by nationality but naturalised in this country, is or was until recently the cashier of Tolme and Runge; whether the firm of Tolme and Runge can properly and accurately be described as a British firm; and whether he will instruct the Royal Commission on Food Supply in future to buy sugar only through firms of British origin and associations?
I have nothing to add to the reply given on the 2nd of this month to a question on the same subject by the hon. Baronet the Member for Mansfield.
Can the right hon. Gentleman tell the House who are the members of this firm who have been purchasing sugar for the Government, and whether any of these persons are partners in the German firm of Runge and Bacmeister?
No, Sir. If the hon. and learned Gentleman will look at the answer I gave he will see that all the parts of his question relative to members of this firm are answered. In regard to the employés of the firm I have not answered, and I see no reason why it is necessary to go into the question as to the origin of the clerks of particular firms. All the other points in the question have been answered.
If a firm employs entirely German or Austrian clerks of alien enemy origin, does it not come to the same thing, and show that it is a firm of German origin or associations?
No; this is not a firm of German origin, nor is it of German associations. The fact that it employs one or two clerks of German or Austrian origin is not really germane to the question. If the hon. and learned Member will inquire he will find that a great many sugar firms have employed German or Austrian clerks, for the simple reason that the main business in sugar has been done in the past in Germany and Austria.
Will the right hon. Gentleman say whether the partners in this firm, which is purchasing for the Government, are not of German origin, and whether the head of the firm is a German, born of German parents?
So far as I have been able to investigate the descent of the family tree, I believe on one side the gentleman's parentage is entirely German, but three generations back. If the hon. Gentleman will look round he will find a great many families many of whose ancestors, generations back, have been Germans.
Is it quite impossible to find an English firm without all these German connections to do this particular work?
No, Sir. I understand that in the sugar trade the principal firms have all got foreign members. The names of principal firms will readily occur to the hon. Gentleman. He will know that there are foreign members in almost every case. We are employing all the principal firms, and it would be undesirable—indeed, I think it is most undesirable—to press questions of this kind which, while they are detrimental to one firm, cannot fail to be advantageous to another firm.
Naval and Military War Pensions Committee
asked the Chancellor of the Exchequer what sum the Government proposes to place at the disposal of the Statutory Committee constituted under the Naval and Military War Pensions Act; and what will be the basis upon which this sum will be estimated?
The matter is under consideration.
Treasury Bills (Facilities to Small Investors)
asked the Chancellor of the Exchequer if he will consider the question of removing the present restriction under which Treasury Bills are issued only in sums of £1,000, £5,000, and £10,000, and permit of their issue in amounts of £500, or even £100, so as to enable smaller investors to avail themselves of this security?
I would refer my hon. Friend to the answer I gave to the hon. Member for South-West Manchester on the 11th November.
H.M.S. Transport "Woodfield."
asked the First Lord of the Admiralty if he can give any facts of the attack on His Majesty's transport "Woodfield"?
The "Woodfield" was sunk off the coast of Morocco by an enemy submarine on the 3rd November. The casualties amongst the military and crew were 6 persons killed and 14 wounded. The survivors, 45 British and 9 Arabs (firemen), are all understood to be now in the hands of the Spanish authorities, by whom they have been treated with every consideration and kindness, the wounded in particular being well looked after.
Christmas Leave (Royal Navy)
asked if any arrangements, and what, are being made for giving such men in the Navy as have had no leave for twelve months leave for Christmas?
As I pointed out in the reply which I gave to the hon. Member for Devonport on the 22nd July, the granting of leave must entirely depend upon the exigencies of the Service. I am afraid I cannot carry the matter beyond that.
On the question of leave, will the right hon. Gentleman insist on the railway companies giving soldiers proper facilities for travelling? I travelled last night for eight hours, and— [HON. MEMBERS: "Order!"]
This is not a matter of debate.
Coastguards (Overalls and Overcoats)
asked if the Admiralty are responsible for providing overalls and overcoats for the coastguards and auxiliary coast watchers?
Coastguard ratings have to provide their own kit in the same manner as other service ratings. Over- coats are part of their compulsory kit; overalls are optional. Civilian coast watchers are expected to provide their overcoats; but oilskins are issued on loan whilst the men are patrolling. In Ireland, however, where wages are generally lower, coast watchers have been provided with overcoats. It has been decided recently that, having regard to the exceptional wear and tear to which, under present conditions, the overcoats of coastguard ratings on coast watching and war signal duties are subjected, any service overcoats taken up by these men this winter shall be charged for at half price.
Chartering Agents (Admiralty)
asked if the Admiralty chartering agents who requisition tonnage on behalf of the Admiralty are paid by an annual salary, or are they being paid a commission on the enormous tonnage now engaged on Admiralty service; and, if so, what is the rate of commission and the total amount that has been paid for their services since the outbreak of war?
The Admiralty Transport Department requisitions the tonnage necessary for all war purposes direct, with the exception of collier tonnage. In this case, the Admiralty agents at Cardiff and Newcastle, who, prior to the War, were entrusted with the chartering of the colliers as well as the stemming of the coal, have been employed in requisitioning collier tonnage in accordance with the requirements notified by the Admiralty. Under their agreement they are paid a salary, with a commission on the number of tons of coal shipped or put on rail—not on the tonnage of the ships employed.
What is the total amount paid for their services since the outbreak of war?
I must have notice of that.
It is in the question.
I understood that the hon. Member wanted to know how they are paid.
Then I will repeat the question.
Munitions
Financial Control
asked the Minister of Munitions whether there is the same system of internal financial control in the Ministry of Munitions as in the War Office and in the Admiralty, exercised through a duly appointed accounting officer whose function it is to review all schemes of expenditure as well as audit actual charges and to keep a record of liabilities incurred?
Yes, Sir. A finance department on generally similar lines to those in the War Office and Admiralty has been established in the Ministry of Munitions, and an accounting officer has been appointed by the Treasury.
Is the accounting officer made acquainted with all schemes of expenditure and the terms of contracts before the money is spent?
Yes. We have settled very elaborate machinery whereby the accounting officer is consulted before we are committed to the contract.
Workers (Cheap Railway Tickets)
asked the Minister of Munitions if he will consider the desirability of arranging with the railway companies for the issuing of return tickets at reduced fares whereby men engaged on munitions work may return to their homes from Newcastle and elsewhere to London for the Christmas holiday?
I must refer my hon. Friend to the reply given to a similar question by the hon. Member for Sunder-land on the 1st December. I am still in communication with the Railway Executive Committee, and will let the hon. Member know the result at the earliest possible date.
Control Board (Liquor Traffic)
asked the Minister of Munitions whether the Central Control Board (Liquor Traffic) is contemplating an Order scheduling, with other districts, the whole or a large part of the county of Berkshire preliminary to the issue of regulations which may drastically affect the convenience of the inhabitants; and, if so, whether he will see that all classes in the area to be dealt with are given a full and early opportunity of stating their views and wishes in the matter, so as to ensure that no steps of this kind are taken unless and until it is ascertained that they are supported, on the whole, by local sentiment?
I understand that the Central Control Board (Liquor Traffic) have under consideration the application of the Defence of the Realm (Liquor Control) Regulations, 1915, to part of the county of Berkshire adjoining or forming part of the Aldershot training centre, and the issue of an Order in respect thereof. I am informed that representatives of the county and of local authorities and licensing justices have already been given an opportunity of expressing their views at conferences which were held at Alder-shot on 28th October and Salisbury on 19th November, and that representatives of the licensed trade were also received.
Will the Control Board take into consideration the statement made on this subject by the Minister of Munitions on 10th May in this House?
I will draw the attention of the Chairman of the Control Board to it.
Ministry Staff
asked the Minister of Munitions whether he will present to the House a Memorandum showing the numbers of staff, duties, rates of pay, and, generally, the organisation of his Department?
As the staff of the Ministry already numbers more than 3,000 and is growing daily, and the organisation of the Department is continually being modified by each development, the preparation of such a Memorandum would involve an expenditure of time and trouble which, in my right hon. Friend's opinion, would not be justified in view of the great pressure of work and of the fact that it would almost immediately be out of date. He will, however, be glad to give my hon. Friend any information possible, if he will communicate with the Department.
Would not all these particulars have been prepared for insertion in next year's Estimates, which must be nearly ready?
We have certain particulars including the names of principal officers and I will be glad to send the hon. Gentleman a copy.
Will the hon. Gentleman kindly say what is now the population of Wales?
Great Eastern Railway (Travelling Facilities)
asked the Minister of Munitions whether representations have been made to his Department regarding the inconvenience caused to munition workers and others travelling on the Bruce Grove and Enfield to Liverpool Street routes on the Great Eastern Railway through the overcrowding of the trains, particularly the workmen's trains; and whether he will communicate with the railway company with a view to the provision of increased accommodation on the routes in question?
My right hon. Friend has asked me to answer this question. I have communicated with the railway company, and am sending my hon. Friend a copy of their reply.
Questions
Mr. C. Masterman's Appointment
asked the Prime Minister if Mr. Charles Masterman is now in the employment of the State and, if so, at what salary; whether he is the first occupant of a post newly created; and if he is subject to the rules of the Civil service prohibiting interference in political affairs?
My right hon. Friend the Prime Minister is unavoidably detained at a conference, and perhaps the hon. Gentleman will put the question down for to-morrow.
Metropolitan Special Constabulary
asked the Secretary of State for the Home Department whether he is aware that in certain sections of the Metropolitan special constabulary the equipment sanctioned by him has not yet been provided; and, in view of the inclemency of the weather, the character of the duties performed by members of the force in exposed positions, and the desire to make the burdens of service press as lightly as possible, will he issue instructions for the equipment, without avoidable delay, of all men who desire equipment or its monetary equivalent, and are qualified by the discharge of the necessary number to duties to receive it?
The provision of equipment for so large a body of men necessarily takes some time, but I have made inquiries, and am able to say that the special constabulary headquarters staff and their divisional commanders are completing this work with as little delay as is possible.
Great Central Railway Company
asked the President of the Board of Trade if his attention has been called to the action of the Great Central Railway Company in restraining women clerks from joining the Railway Clerks' Association, preventing them from attending meetings called by the association, and removing women who join the association to offices where the scale maximum rate of pay is lower than that in force in the offices from which they have been removed; and whether he will take action through the Railway (Executive Committee, over which he presides, or by some other means, to put a stop to these practices?
I must refer the hon. Member to the reply given to the question asked on Thursday last by the hon. Member for Stockport, with whom I am conferring to-day.
Is the right hon. Gentleman aware that a great deal of dissatisfaction is felt throughout the railway world with that answer, and could not the matter be put in a very much better light so as to satisfy the railwaymen?
I do not know whether the hon. Gentleman is referring to the answer given in this House or to the answer given by the railway company; if the answer of the railway company, it is under consideration.
Of course. I referred to the answer given in this House.
May I inform my hon. Friend that the answer given in this House merely gave the substance of the reply of the railway company.
Coal Freights
asked the President of the Board of Trade whether he is aware that the freight for coal from this country for Genoa has reached as much as 60s. per ton, and the freight from Newcastle to London as much as 16s. per ton, and that these charges are primarily due to the conditions and want of organisation in the shipping industry; and whether he will state what prospect there is of this state of affairs being remedied without delay?
The whole question of shipping freights is being carefully watched. The governing fact in these problems is the pronounced and serious shortage of tonnage for this and every other trade. I would refer my hon. Friend to the answer given him on 23rd November as to the steps which are being taken.
Is it not the fact that the raising of the freights for interned ships is mainly responsible for the increased rate of freights of homeward coal?
The interned vessels are entirely for the home trade—the coasting trade—and in no case is the rate as high on interned vessels as on vessels in the open market. Interned vessels have acted as a drag on the market.
Have not the rates for interned vessels risen from 8s., fixed by the Board of Trade, to 12s.?
That may be possible. At the same time, the outside rates have risen from 9s. to 13s.
British Mercantile Marine (New Tonnage)
asked the President of the Board of Trade if he can state how many of the fifty-three steamers wrecked during the month of November were engaged on Government work; and whether he can give the numbers and the tonnage of new vessels launched during the year by the British mercantile marine?
The fifty-three steamers to which my hon. Friend refers were reported to the Board of Trade during the month of November as having been wrecked, but only twenty-four of them were lost during that month. The Admiralty do not think it in the public interest to say how many were engaged on Government work. According to the returns of Lloyd's Register of Shipping, the number of new vessels of 100 tons gross and upwards launched in the United Kingdom during the first nine months of 1915 for British owners was 254, and the aggregate gross tonnage was 511,166 tons.
Royal Fusiliers (Empire Battalion)
asked the Attorney-General whether the Public Prosecutor has examined the Report of the Military Inquiry into the affairs of the Empire Battalion; and whether he proposes to take any action?
The Report of the Court of Inquiry and the documents which were produced to the Court have been considered by the Director of Public Prosecutions, who does not propose to take any further action in the matter.
Indian Civil Service
asked the Secretary of State for India what is the annual number of appointments necessarily made to the Indian Civil Service to keep it up to the usual strength; whether casualties from death, sickness, and other causes are expected in the next two years to be only one quarter of, or very much less than, the normal figure; and, if so, for what reason?
In 1914 fifty-three appointments were made, and the theoretical number to be offered in 1915 had not most of the candidates joined the Army, would have been thirty-six. The service is at present somewhat in excess of the aggregate provincial cadres, and serious disadvantage is not anticipated from reducing recruitment while the War lasts.
Indian Chaplains
asked the Secretary of State for India whether any and, if so, what reply has been given to a petition presented by the Indian chaplains asking inter alia for the cancellation of the rule of 1892 regarding the addition of three years' probation to the period of qualification for pension; whether the enforcement of that rule has made it more difficult to obtain chaplains, who necessarily commence to serve in India at a later age than men in other India services; whether the petition was backed by the Indian bishops; and whether he will inform the House what was the actual disposal of the representations made?
The Government of India have been informed that I am unable to accede to representations which involved a considerable addition to the ecclesiastical charges. The representations were generally supported by the Indian bishops, but it has not been found that chaplains are not forthcoming to fill the vacancies that from time to time occur.
Will the right hon. Gentleman take this opportunity, when economy is so desirable all round, to reduce ecclesiastical charges in India in respect of chaplains and others?
The Government of India is devoted in its attention to economy, just as the Government of this country must be.
Powder Extinguisher
asked the Secretary of State for the Home Department whether his attention has been called to a powder extinguisher made by an Eastbourne firm for which it is claimed that during the recent air raid in the London area a police constable successfully extinguished an incendiary bomb, also a fire in a roof by its means; and, if so, whether he has any official reports on the subject?
Yes, Sir. Inquiry was made by the Commissioner of Police when the advertisement referred to appeared in the Press, and he has ascertained that the claim is not in accordance with the facts.
King of Greece
I wish to ask the Home Secretary a question, of which I have given him private notice: Whether his attention has been directed to an alleged interview with the King of Greece, published in this day's "Times"; whether that interview was submitted to the Censor before publication, and whether the censorship accepts any responsibility for the authenticity or accuracy of the interview?
I only had notice of this question after I came into the House, but I have made inquiry by telephone, and I understand that the interview was submitted to the Censor; but whether it was submitted or not, the responsibility for its authenticity and accuracy, of course, remains with the newspaper. The fact that it was passed gives it no official authority.
German Ports (Blockade)
I wish to ask the Secretary for India a question, of which I have given private notice: Whether, with reference to the agreement concluded between the Government and certain trading associations in Denmark, he can give an assurance that it in no way violates the undertaking, given by the Prime Minister on the 1st March, to prevent commodities of any kind from reaching or leaving the German Empire?
My right hon. Friend (Sir E. Grey) has been called away, but he had only just received notice of this question as he entered the House. He asks me to say that he can add nothing to the reply given in the House on this subject yesterday. He does not think it would be in the public interest to do so. If the right hon. Gentleman wants to carry the matter further, I must ask him to be good enough to put a question on the Paper to my right hon. Friend. Obviously I cannot add anything.
War Loans Savings (Working Classes)
Committee Appointed
I wish to ask the Chancellor of the Exchequer a question, of which I have given him private notice: Whether he is in a position to state the names of the members of the Committee which he is setting up to consider the question of obtaining contributions to War Loans from the working classes?
Yes, Sir. The names of the Committee are as follows:—
Questions
Edinburgh Prison (Head Store Warder)
asked the Secretary for Scotland whether Mr. M'Donald has been promoted head store warder to Edinburgh Prison and is being paid the maximum amount of salary as a commencing wage; whether it usually takes fourteen years to reach the maximum; and why this exception is made in this case?
The answer to the first two parts of the question is in the affirmative. A vacancy having occurred in the office of steward of Edinburgh Prison it has been decided not to fill the vacancy at present, but to assign the duties to an officer of the rank of head warder, who is remunerated on a much lower scale of pay than a steward. In respect of the discharge of the higher duties the head warder will be allowed the maximum rate of pay of his class, namely, £3 a week. The arrangement effects a saving to the State of approximately £75 a year.
Can the right hon. Gentleman say if any other officer has ever been started at the maximum salary?
This is not a case of starting at the maximum salary. It is a case of a man doing different Work and being paid a salary which is an economy to the State.
Greenwich Hospital
asked the First Lord of the Admiralty whether any contributions out of Greenwich Hospital funds are made to the Admiralty for work done in connection with Greenwich Hospital business; whether the salaries of the clerical staff and director are paid out of hospital funds; and, if so, can he see his way, in view of the many applicants now awaiting their small pensions from these funds, to transfer the expenditure in question to Naval Votes, so as to allow of more money being available to meet the primary objects of the fund?
The following contributions are paid annually out of the funds of Greenwich Hospital to Navy Votes for work in connection with Greenwich Hospital business performed by other Admiralty Departments, namely:—
Is it not a fact that there is a considerable number of these men who have served their country loyally who are still waiting for their 5d. a day, and could they not be better able to get it if this £4,000 a year was placed as public funds?
If we put this expenditure on the Navy Votes, certainly a larger number of applicants would get this. I may say that we have got 1,360 applicants waiting. The great majority of those have life pensions of £20 a year.
National Insurance Act
Approved Societies
asked the Comptroller of the Household, as representing the National Health Insurance Commissioners, whether he is aware of the growing uneasiness of the leaders of the approved societies as to the future of their organisations; and whether he has invited the officials of the societies to meet him since his taking up his present office?
The hon. Member does not specify the grounds of the alleged general feeling among responsible officers of approved societies, and I am not aware that any such general feeling exists. I have been in constant communication with officers of societies through my Department, and in many cases personally, on matters arising in the course of their administration. I am always ready to arrange a conference where necessary with any society on points of difficulty, and I believe that the conferences hitherto held have satisfactorily attained their object.
Does not my right hon. Friend see the necessity of hearing the point of view of these people and not confining himself to the views of bureaucratic officials?
What I said was that I had been in constant touch with the officers of the approved societies.
Sickness Benefit
asked the Comptroller of the Household, as representing the National Health Insurance Commissioners, if he will state the basis of his statement on the current sickness experience of the approved societies; whether he is aware that many large societies keep careful records which are analysed by actuaries; and will he make himself acquainted with the tabulated results before giving assurances to the House?
I explained the basis of the statement referred to in the course of debate on the 1st instant. My Department is in close touch with approved societies of all types, and is much indebted to them for the readiness with which they have furnished particulars of their sickness benefit experience.
Publications and Debates' Reports
Second Report from the Select Committee, with Minutes of Evidence and an Appendix, brought up, and read;
Report to lie upon the Table, and to be printed. [No. 398.]
Orders of the Day
Finance (No. 3) Bill
Order read for resuming adjourned Debate on Amendment moved on consideration of Bill, as amended.
CLAUSE 29.—(Provisions with Respect to the Charge of Income Tax on Non-Residents.)
(1) Section forty-one of the Income Tax Act, 1842 (which relates to the charge of Income Tax in special cases), shall, so far as it relates to the taxation of non-residents, be extended—
( a ) so as to make non-resident persons chargeable to Income Tax in the name of any branch or manager as well as in the name of any factor, agent, or receiver; and
( b ) so as to make non-resident persons so chargeable, although the branch factor, agent, receiver, or manager may not have the receipt of the profits or gains of the non-resident.
(2) A non-resident person shall be chargeable in respect of any profits or gains arising, whether directly or in indirectly, through or from any branch, factorship, agency, receivership, or management, and shall be so chargeable under Section forty-one of the Income Tax Act, 1842, as amended by this Section, in the name of the branch, factor, agent, receiver, or manager.
(3) Where a non-resident person not being a British subject or a British, Dominion, or Colonial Firm or Company, or branch thereof, carries on business with a resident person, and it appears to the Commissioners by whom the assessment is made that, owing to the close connection between the resident and the non-resident person, and to the substantial control exercised by the non-resident over the resident, the course of business between those persons can be so arranged, and is so arranged, that the business done by the resident in pursuance of his connection with the non-resident produces to the resident either no profits or less than the ordinary profits which might be expected to arise from that business, the non-resident person shall be chargeable to Income Tax in the name of the resident person as if the resident person were an agent of the non-resident person.
(4) Where it appears to the Commissioners by whom the assessment is made or, on any objection or appeal, to the General or Special Commissioners that the true amount of the profits or gains of any non-resident person chargeable in the name of a resident person with Income Tax cannot in any case be readily ascertained the Commissioners may, if they think fit, assess the non-resident person on a percentage of the turnover of the business done by the non-resident person through or with the resident person in whose name he is chargeable, and in such case Section fifty-three of the Income Tax Act, 1842, shall extend so as to require returns to be given of the business so done by the nonresident through or with the resident in the same manner as returns are to be given under that Section of the profits or gains to be charged.
(5) The amount of percentage shall in each case be determined, having regard to the nature of the business, by the Commissioners by whom the assessment on the percentage basis is made, subject, in the case of an assessment made by the additional Commissioners, to objection or appeal to the General or Special Commissioners.
If either the resident or non-resident person is dissatisfied with the percentage determined either in the first instance or on objection or appeal by the General or Special Commissioners he may, within four months of that determination, require the Commissioners to refer the question of the percentage to a referee or board of referees to be appointed for the purpose by the Treasury, and the decision of the referee or board shall be final and conclusive.
(6) The fact that a non-resident person executes sales or carries out transactions with other non-residents in circumstances which would make him chargeable in pursuance of this Section in the name of a resident person shall not of itself make him chargeable in respect of profits arising from those sales or transactions.
Amendment proposed [6th December]: At the end of Sub-section (5), to insert the words,
"(6) Nothing in Section forty-one of the Income Tax Act, 1842 (as amended by any subsequent enactment or by this Section), shall render a non-resident person chargeable in the name of a broker or general commission agent in respect of profits or gains arising from sales or transactions carried out through such a broker or general commission agent."—[ The Chancellor of the Exchequer. ]
Amendment proposed to proposed Amendment to the Bill, to leave out the words "a broker or general commission," and to insert instead thereof the word "an."—[ Sir Frederick Banbury. ]
Question proposed again, "That the words proposed to be left out stand part of the proposed Amendment to the Bill." Debate resumed.
I beg to ask leave to withdraw my Amendment to the proposed Amendment, in order that the new Amendment put down by the Chancellor of the Exchequer may be discussed. If my Amendment is not withdrawn, then the words will stand part if I am defeated, and the Chancellor cannot move his Amendment.
Amendment to proposed Amendment, by leave, withdrawn.
I beg to move as an Amendment to the proposed Amendment, after the word "agent" ["general commission agents"], to insert the words "or in the name of an agent not being an authorised person carrying on the nonresident's regular agency, or a person chargeable as if he were an agent in pursuance of this Section."
I think those words carry out the desire of the House as expressed in the Debate, and I think they will be quite satisfactory to hon. Members opposite. The effect is to exclude all agency transactions, except such transactions as come within the existing law —that is to say, it must be a regular constituted agent in order to bring the relations between the foreign resident and the agent under the conditions of taxation prescribed by this Clause and the Act of 1842.
I believe that the Amendment now proposed does meet us a certain way and I think on the whole we might agree to it. I think where the right hon. Gentleman and some other hon. Members made a mistake is in the definition of the word "agent." I have been reading the Act of 1842 and I have come to the conclusion that it really applies to a factor such as you have in Scotland or the agent of a large estate in England. Our object is to protect trade that has been coming into this country. I think it would be very much clearer if my Amendment were accepted, but the Chancellor has done what he can to meet us and under the circumstances, I can speak only for myself, I should be rather inclined to agree to his Amendment. I am going to make this stipulation, that if this is found not to meet the point which I believe the vast majority of the House desire, when the next Budget comes round the Chancellor of the Exchequer will give way and allow us to put in words which will have the effect of rendering the broker or agent, when he is acting as a broker or agent—using the term agent as synonymous with the term broker—not liable for Income Tax on the profits of the person for whom he is acting. I do not know whether the Chancellor will give any undertaking of that sort. I throw out the suggestion in the interests of the Amendment.
I will be very glad to make the statement which the hon. Baronet desires. We have no desire to press the law in any way which is injurious to the general interests of British trade. Equally we have no desire that persons should escape taxation whom the whole House thinks ought to be taxed under Subsection (3) of this Clause. I think everybody is agreed on that. Our sole object is to bring in persons who ought to be liable under Sub-section (3) of this Clause. Our present words effect that purpose, and nothing more.
I think the proposed Amendment meets the difficulty and ought to be accepted by the House. I have in mind parcels of reinsurance which may come, and we hope will come, to this country from Russia after the War, and which had previously gone to Germany. Of course the broker who gets the commission in London on handing over the trade clearly ought to come within the full purview of the Income Tax, but if there is any suspicion that the Government is going to deal with the Russian or other foreign company that would probably do harm to business. I think the point is satisfactorily met by these words.
It is very difficult for an ordinary layman to understand the difference between the two kinds of agent, and one is always afraid that whilst the Chancellor gives us an assurance as to what he means, when it comes to Court it is possible that the judges may interpret it quite differently and rely solely on the reading of the Clause.
I wish to put to the Chancellor of the Exchequer a case of great importance. The whole of the iodine manufactured in South America is consigned, under an arrangement of many years' standing, to one house in London for sale. That arrangement has been in existence at least twenty years, perhaps longer; therefore I think it may be called a regular agency. This iodine is consigned by a number of different persons, some of them British. The British manufacturers in South America would be excluded from liability to Income Tax on their profits under the exemption in Clause 3, but some of the consignors are foreign subjects, and not British at all. Some of the iodine is sold and consumed in this country; some is sold in London and consumed in Germany or the United States, but the sales are directed from London. When the iodine is consigned to a firm abroad the consignor parts with all direction as to its destination. It is quite conceivable that the iodine of an Italian manufacturer in South America might be sent to New York, to London, or to Hamburg. It would be very unfair to the Italian manufacturer, if the iodine were sent to London, that he should be held liable for Income Tax on the merchant's profit on the iodine, whereas if it had been sent to New York he would have escaped. It seems to me there is a possibility of great confusion unless it is made quite clear that the words "regular agency" would not touch such a case as that. I am afraid that a case of that kind would be interpreted by the Courts as a regular agency. If the only amount subject to Income Tax is the commission which the consignee in London gets for his trouble, the position is clear and satisfactory. We are all agreed that the consignee ought to pay Income Tax upon his commission, but we are unanimous that the consignor ought not to pay Income Tax upon his manufacturer's or merchant's profits. If the Chancellor of the Exchequer can give us an assurance in that sense it would be satisfactory.
It depends on the relations existing between the principal and the agent. If the conditions are as set out in Sub-clause (3), that is to say, that the course of business between the principal and the agent is so arranged that the business done by the non-resident in pursuance of his connection with the agent produces to the resident—that is, the agent—either no profits or less than the ordinary profits which might be expected to arise from that business, the non-resident principal shall be chargeable to Income Tax in the name of the agent.
One per cent. is the commission.
If the agent is doing a bonâfide business and receiving his 1 per cent., the ordinary trade return, there will be no more Income Tax charged, except on the agent's profit of 1 per cent. But if there is a collusive arrangement whereby the agent gets no profit, he will be charged in respect of the proper profit of the agent. That is what Clause 3 says. Otherwise we are not extending the existing law.
I am not yet clear about the matter. Supposing the produce of a non-resident person or firm is sold here. I understand that if the non-resident person has a regular agent here he will then become liable, whereas if he employed an occasional broker he would escape. As I read the Amendment, it will make the merchant or broker who acts for a non-resident liable to the tax. That is what we want to avoid. It appears to me that the Amendment does not prevent the tax from being placed upon a merchant who acts as regular agent of a non-resident person desiring to sell his produce here.
The hon. Baronet (Sir F. Banbury) referred to the position of factors under the Act of 1842. I would like to put a case and ask whether the firm is an agent or a factor or a broker. I heard of a case last night where from the Persian Golf thousands of boxes of dates are shipped every year to a merchant in London. This merchant is a factor in the sense that in the spring he advances money to the growers of the dates, and the crop is shipped to him in the autumn. Active competitors in New York try to get this trade from the London merchant. Is this factor in London an agent or a broker under this Clause? Does he come under the 1842 Act or does he not?
If he comes under the Act of 1842 the question is settled; he is liable. If he does not come under the Act of 1942 he will not come under this fresh Clause. The only new effect of this Clause as it relates to agents is that contained in Sub-clause (3)—that is to say, it relates only to conditions in which there is a quasi-collusive arrangement between the non-resident principal and the agent. It is the universal desire of the House that Income Tax should be charged in that case. Apart from that, the Clause does nothing as far as the agent is concerned.
In the case put by my hon. Friend, where there is no possibility of a collusive arrangement, he would not be liable?
Not unless he is already liable. We do not propose to make any change in the existing law in that respect. If the hon. Gentleman wishes in another Bill to modify or cut down the effect of Section 41 of the Act of 1842, that is another point.
No!
The hon. Gentleman says "No"; I do not know to what the "No" refers.
He is liable if he gets profits passed through his hands?
If he is liable under the Act of 1842 he is liable now. The only addition to his liability is the liability which arises out of this Sub-secton (3)— a collusive arrangement. If the hon. Member wishes to allow the non-resident principal to escape because of this collusive arrangement then he is quite right in opposing this Clause.
No.
The hon. Member does not. It says in the Clause that a nonresident principal shall be liable. That is the only new liability which we create so far as it relates to a non-resident principal becoming liable through agents.
The right hon. Gentleman has put this matter quite clearly— and I have listened to the whole of the Debate—that I am sorry to intervene, but it seems to me perfectly certain that the House is at cross-purposes. It would, therefore, be wise for one moment to look at what we desire to achieve, and see whether the words actually carry into effect what I believe the majority of the House intend. The Act of 1842 was certainly passed in a very ambiguous fashion. No one, for very, very many years, ever thought of using it for the purpose for which it has been used of late. A case came before the Appeal Court in 1896, or thereabouts. A firm of wine merchants who were, of course, in the habit of making their wines in France, and selling it in England through an agent, had to answer as to whether or not they were liable to Income Tax. I will not at the present time go into the history of how the case arose. They made an effort to get out of their liability, because, they said, the Act of 1842 only applied to agents who had receipt of profits themselves. Therefore there was a way of evading this newfound form of liability in the Act of 1842. This Bill does something rather more than the right hon. Gentleman has inadvertently stated. To begin with, it makes a most important alteration, and a valuable alteration, with the question of the receipt of profits by the agent. This is the first time the standing of the agent who receives profit or does not receive profit has been stated. The object of the Government was not only to hit the people who really come under Sub-section (3), but also to hit the very wine merchant's agents and similar people who caused the original trouble some years ago. That, probably, was the object.
The question, therefore, we are trying to solve, and that the phrase "a regularly constituted agent" is intended to mean, is this: that if a wine merchant in Germany, say, has an agent over here who sells his wine, then he shall be liable to pay Income Tax, because he is, in the words of this new Amendment, a nonresident's regular agent. It is intended to hit a case of that kind. If it does no more than that, so far as I understand nobody objects to it. But the hon. Member who spoke on the opposite Benches raised a point which I view with the greatest fear. These words in the Clause will, it is feared, go too far. Take the case mentioned by the hon. Member behind me. He said that his firm had been in business for a hundred years, and had been in the habit of having certain clients in Persia who sent each year some particular article of merchandise which his firm always sold for them in London. Do the Government mean to hit that firm or not? In this particular case we are told they do not handle the receipts. If they do not handle receipts before this Bill came into force, my hon. Friend certainly ought not to be hit under this new Act. It does appear to me that under these words that such a case as just mentioned certainly would be hit, because hitherto the regular agent of the nonresident firm in Persia would have handled receipts. Read Sub-section (2) as I think most laymen would read it; it goes very-far—
"(2) A non-resident person shall be chargeable in respect of any profit or gains arising, whether directly or indirectly, through or from any branch, factorship, agency, receivership, or management, and shall be so chargeable under Section 41 of the Income Tax Act, 1842, as amended by this Section, in the name of the branch, factor, agent, receiver, or manager."
So that you have got the whole liability under the Income Tax Act of 1842, as amended by this Section, but the receivership of profits is not touched at all. I should imagine he certainly would be liable. Perhaps I have referred to the matter at some length, but the point is an important one, I think, for the merchants behind me and others—I have no feeling either one way or the other. The difficulty in the case has arisen in this way, that the Act of 1842 was held to mean a thing which I am perfectly certain no one thought it meant. The House of Commons has got the matter before it. If he wishes to make the law this, that a regular agent of a non-resident shall be liable—
Will the hon. and learned Gentleman allow me to interrupt? These are the words: It is not a regular "agent," but a regular "agency"—which is a very different thing. An agent may be a person who is ordinarily and regularly employed as an agent, but he may not be conducting an agency. We understand, and I should have thought it was common to ordinary business practice, that to push a sale or do a piece of work on behalf of a principal regular agent ought not to render a man liable. The exclusion comes here, "not being an authorised person carrying on the nonresident's regular agency." It is really a sort of branch business. In conducting a regular agency a man is doing something more than acting as an agent. We have taken words which must be interpreted to draw a distinction between an agent and an agency. It must be so, otherwise they are quite meaningless. I do not see how any Court of Law can fail to draw the distinction, because we say "or in the name of an agent not being an authorised person carrying on the non-resident's regular agency."
If you say business instead of agency, that would meet it?
That would, I am afraid, limit it to a partnership. We mean the carrying on of the non resident's regular agency—that and nothing else.
4.0 P.M.
The right hon. Gentleman is quite right to interrupt. I quite see the distinction which he draws between agency and agent. I am very glad I have not hundreds of pounds dependent upon successfully arguing the point. We have got the whole matter before the House to-day. Whatever one may think about the Act of 1842, the Chancellor of the Exchequer has put the matter perfectly clearly before us. He says he means, as Sub-section (2) says, that if a person is making a profit through the sale of his goods in this country by an agent, then he will be liable unless he comes under this exclusion, namely, that he could be said not to be carrying on a non-resident regular agency. The question is whether or not we can by any form of words hit the people who are wanted to be hit—I know the person the right hon. Gentleman really wants to hit is the person in Germany, or a neutral country for that matter, carrying on business in partnership over here—and yet not hit the kind of business which, apparently, the House does not desire should be hit in any way. I think it is very essential that the matter should be cleared up.
I think these words are perfectly satisfactory, the only doubtful words being "regular agency." The Act of 1842 implies not merely agency, but an agent carrying on the business of a non resident person. The only cases decided under that Act were wine merchant cases, where a man called himself an agent but was really carrying on the business of a wine merchant here. In Sub-section (3) of the Clause under discussion you see the same words—"Where a non-resident person … carries on business with a resident person"—so that it all depends where he carries on his business. In the new Amendment you say, "an agent not being an authorised person carrying on the non-resident's regular agency." Why not say business? I think that would meet it and make it perfectly clear, in conjunction, of course, with the Amendment which is coming on presently. I do not know whether the right hon. Gentleman would consider the alteration of the word "agency" to the word "business," so as to bring it into line with Sub-section (3 and with the Act of 1842. Agent, as intended in Sub-section (3), as the right hon. Gentleman said, is the person who carries on the business of a non-resident person.
( indistinctly heard ): There is no doubt, as the hon. and learned Gentleman opposite said, that this position of an agent is very, very doubtful and very, very difficult. As a matter of fact, under the Act of 1842 the only questions that have come before the Courts for decision have been wine merchant cases, and they all turn upon what seems to be a very absurd thing, and that was, Did they collect the money? If they collected the debts they became, or rather the wine growers became, subject to the tax on profits, although these agents only got an ordinary commission. There has evidently been great uneasiness in the minds of the Commissioners as to the fairness of the decisions given. I think they are altogether wrong. There are agencies for Canadian and American businesses, and there is a system of paying certain Income Tax upon the turnover of the business in this country; but they have nothing to do with the business at the head office in Canada or America, What the 1842 Act decision amounted to was, that you had a wine merchant with an agent, who happened to have an office for his own convenience, and he procured an order and got his commission, and because the cheque was not sent on to the firm directly he became chargeable for the whole of the profit of the wine sold in this country. Is there anything more absurd than to say that that is a fair thing to do, simply because the cheque passed through his hands?
Therefore you have a very dangerous position in regard to an agency. The position surely ought to be that the amount of agency business done here by a branch ought to be subject to taxation, and nothing else except the commission the man gets. If my right hon. Friend wants to get at anything collusive, then, of course, he is entitled to disentangle the profits. Take the case of tobacco growers. They all advance money on the crops in Virginia, and when the tobacco is sold in the market in this country they debit the bank's advance and debit the commission. All that the broker gets out of it is simply his brokerage and commission. All the wool-brokers do the same business, and bills are advanced through these brokers, who do a great deal more than sell the stuff. If we do not watch it, these men will be mulcted in Income Tax on the value of the goods sold in this country, when all they take out of it is their commission. In so far as my right hon. Friend wants to get at anything collusive, I am quite sure the whole House is with him. It is a different matter if you are going to bolster up what I consider to be the bad decision of 1842, that, simply because an agent collects cheques and forwards them to his principal in another country, you are to levy a tax for all goods through that agent, when all he gets out of it is simply his commission for doing the work. That, I say, is all the Government are entitled to tax him for.
I deeply sympathise with the Chancellor of the Exchequer in the difficulty in which he finds himself in amending the Income Tax of 1842. It is, perhaps, necessary that his Amendment which deals with that Act should have the same quality of prolixity as the Act itself, and I congratulate my right hon. Friend on having thoroughly acquired the style of the Act which he desires to amend. I have had occasion in the last few days to peruse the Income Tax Act of the Federal Government in the United States, which was only passed in the year 1913, and therefore they had the opportunity of knowing, and perhaps avoiding, some of the difficulties into which we have fallen. Now the Act of the United States simply says that every person carrying on business in the United States, whether resident or non-resident, whether an American subject or not, shall be liable to pay Income Tax. That, I take it, is what this House would desire, and we have got into an extremely difficult discussion as to the various classes of agents, and the way in which they should respectively be treated. It seems to me that there is considerable agreement in this House with regard to this matter. None of us wish the foreigner to carry on business in this country through an agency and make large profits and escape taxation on the ground that he is non-resident, thus making the taxation of British subjects resident here heavier than it otherwise would be. We therefore sympathise with the Chancellor of the Exchequer in his desire to extend in this direction the area of taxation. We will all agree about that; but there is some anxiety expressed by my hon. Friend below me as to the profits of a business which is really carried on abroad but, as an episode, sells through a com- mission agent in this country. The Chancellor of the Exchequer does not desire in ordinary cases to attach those profits, I think, and the suggestion of my hon. Friend that he should tax a man who carries on business through a regularly constituted agency would not quite do, because a man might discontinue his old-established custom of carrying on business through a branch or house which is in effect an agency, and commit his business in future to an agent, solely with a view to evading taxation. I submit that the Amendment which the Chancellor of the Exchequer has now proposed substantially solves the difficulty with which we are grappling. I hope he will persevere with it, and that the House will sanction it. It is a difficult thing to do, and it may not be quite certain whether even now the Chancellor of the Exchequer has given us words which are wide enough to cover all the area which he ought to tax; but it covers a great deal of the ground, and it has allayed the suspicion of a number of anxious business men. In those circumstances I hope the Amendment will be accepted.
Question, "That those words be there inserted in the Bill," put, and agreed to.
Further Amendment made: Leave out the words "general commission" ["such a broker or general commission agent "].—[ Mr. McKenna. ]
I beg to move, at the end of the proposed new Sub-section, to add the words—
"nor render a non-resident person chargeable in respect of the sale or purchase of goods by a non-resident firm or person through an agent in this country, which are imported into or purchased in this country and bought or sold through an agent in the ordinary way of business, nor shall it apply to the purchase and sale of raw materials of any kind."
The Chancellor of the Exchequer did not answer the question which I put to him on this point.
If liable already he would remain liable; if not liable already he would not become liable.
He would not be liable already, because he does not receive the proceeds, and this Clause now makes it unnecessary. I propose these words to meet the difficulty, and to try to get rid of the liability which attaches to ordinary business transactions through an agent. I would remind the Chancellor of the Exchequer that he used the following words in Committee:—
"If wool is bonâ fide sold in this country to a manufacturer, merchant or dealer, there is an end of it so far as this tax is concerned, because the profit on that transaction would be brought into the account of this company."
All I ask is that the right hon. Gentleman should carry out that undertaking, and I think my words carry it out, and would free any ordinary transaction in regard to the sale of raw materials of any kind. It is extremely difficult to deal with a Clause in such extraordinary wide words as those contained in this Clause, and it is difficult to introduce words which will omit those things which we want to take out without taking out those which we wish to leave in.
I beg leave to second this Amendment.
As a mere matter of drafting, I would point out that this Amendment, extending over many lines, has precisely the same meaning as the Amendment in the name of the hon. Baronet the Member for the City of London (Sir F. Banbury), which contains only three or four words. My hon. Friend has now reopened the whole question which we discussed on the last Amendment. I beg the House not to go over the whole ground again, and I can assure the hon. Member that we will watch the operation of this Clause with the greatest care. It cannot be long before another Budget will have to be introduced, and if we find the alarming things happen which he has predicted, we can then deal with the matter. We do not want to kill British trade; in fact, it is absolutely essential that British trade should be maintained in all its branches. The Government, equally with the hon. Member, desires to bring within the harrow of the Income Tax all persons whom we are all agreed ought to be taxed, and if we find that we have done more than that we shall be able to remedy it next year.
Amendment negatived.
Proposed words, as amended, there inserted in the Bill.
CLAUSE 31.—(Payment of Income Tax by Instalments in Certain Cases.)
(1) Income Tax for any year shall, in cases to which this Section applies, instead of being payable on or before the first day of January in that year, or such other date as is specified in Section eighty-two of the Taxes Management Act, 1880, be payable in two equal instalments, the first on or before the first day of January in that year, or such other day as aforesaid, and the second on or before the following first day of July:
Provided that where the assessment is not signed and allowed till after the said following first day of July, this provision shall not have effect, and the duties shall be due and payable as provided by Section eighty-two of the Taxes Management Act, 1880.
(2) The cases to which this Section applies are Income Tax charged on any individual or firm under Schedule B in respect of lands occupied for husbandry only and Income Tax charged on any individual or firm under Schedule D or the rules thereof in respect of the profits or gains of any trade, manufacture, adventure, or concern in the nature of trade or of any profession or vocation:
Provided that, as respects the tax for the current Income Tax year—
( a ) this Section shall have effect as if two instalments, the one being the amount of tax payable under the Finance Act, 1915, and the other being the additional amount of tax payable under this Act (including any tax which is payable solely owing to alterations made by the provisions of this Act), were substituted for two equal instalments; and
( b ) the cases to which this Section applies include cases in which Income Tax could be charged quarterly under the provisions of this Act if those provisions were in force during the current Income Tax year.
(3) The provisions of the Income Tax Acts as to the recovery of Income Tax shall apply to each instalment of the tax in the same manner as they apply to the whole amount of the tax.
I beg to move, at the end of Sub-section (2), to insert the words,
"and Income Tax charged on any individual in respect of any office or employment, whether under Schedule D or E, except individuals whose Income Tax is deducted at definite intervals of less than half a year, and weekly wage earners whose tax is, under this Act, assessed and charged quarterly."
This Amendment is consequential on the Amendment made in Clauses 25 and 26. Having left only the weekly wage earner to pay quarterly, we want to make it possible for those assessed under Schedule D or E, who were included under Clause 25, and have now been excluded, to have the facility to pay half-yearly. Otherwise having cut out Clause 26, they do not get the facility of half-yearly instalments. That is the sole purpose of this Amendment.
Question, "That those words be there inserted in the Bill," put, and agreed to.
CLAUSE 33.—(Computation of Profits and trains in Relation to Excess Profits Duty.)
Where any person has paid Excess Profits Duty under this Act in the course of any year, the amount so paid shall be allowed as a deduction for the purpose of computing the profits and gains of that person for the year with respect to his liability to Income Tax in any subsequent year; but where any person has received repayment of any amount previously paid by him by way of Excess Profits Duty, the amount repaid shall be treated as profit.
The payment of Excess Profits Duty shall not be deemed to be a specfic cause for the purposes of Section one hundred and thirty-four of the Income Tax Act, 1842.
I beg to move to leave out the words "in the course of any year." This Amendment is to carry out a pledge given to the hon. Member for Liverpool and the hon. Member for Wandsworth (Mr. S. Samuel) that the Income Tax shall not be chargeable on that portion of excess profits paid as duty under a subsequent part of this Bill, and that the Income Tax paid because the assessment has already been made should be returnable for the year in which the profits have been made. It was represented to us that the Clause did not carry out the promise given by the Chancellor of the Exchequer, and therefore I move the omission of these words.
Amendment agreed to.
I beg to move, after the word "Act" ["Excess Profits Duty under this Act"], to insert the words
"or any sum of money to the Exchequer in accordance with the provisions of the Munitions of War Act, 1915, or any regulation made thereunder."
The object of this proposal is to remove that anomaly from controlled concerns which come under the Excess Profits Duty tax. The apparent differentiation against the controlled establishments is not intentional, and I have strong reason to suppose that the Government are quite willing to give controlled establishments the benefit of that which is here conceded. Clause 33 contains a very fair provision by which concerns which pay this new profits tax are allowed to count the tax which they pay as a trade expense, so that in assessing them in the future for Income Tax that sum is included on the three years' average. There is no provision apparently by which controlled establishments will be granted the same privilege, and I think it is quite obvious that such a privilege ought to be extended to controlled establishments, and there can be no reason why there should be a differentiation between the two classes. It will be quite unnecessary for me to go into details, because I know that communications have taken place on this question between certain individuals and the Treasury in regard to the present position counting against controlled establishments, but if the right hon. Gentleman tells me he has had all that information in his hands, I need not go into details. Otherwise, I think it is well to point out that under the existing arrangement of this tax a controlled establishment being allowed only to secure to itself a profit not exceeding lay one-fifth, which was its standard profit before, would be under a serious disadvantage if it made a greater profit which -would pass into the hands of the Exchequer, because it would be used to raise the assessment in the future, and unless some provision is taken that would be a position which would have very grave results, because it would be to the direct interest of the manufacturer to curtail his output. That being so, this proposal is obviously necessary. Although it may have been said that there is no intention of basing future assessments in this way, still I know that there is a considerable amount of uneasiness amongst the owners of controlled establishments, and they would feel much more satisfied if a provision was inserted in this Bill for them to have the same advantage now given to concerns which come under the provisions of the Munitions of War Act.
I beg leave to second this Amendment.
I want to submit that under no circumstances whatever can Income Tax be chargeable in this year under the Finance Act on any profits of a munitions, controlled firm. The Munitions Act was not passed in 1915 until the 1st July, and as the Income Tax is paid on the three years' average, it cannot possibly come into this Finance Bill or this Income Tax which is to be reviewed before April next. Therefore I think, if it stood alone, it is more relevant to the next Finance Bill than to this one. There is another reason for delay. The whole construction of this Finance Bill has been designed so as to leave for future consideration the relation between excess profits taken under the Munitions Act from controlled firms, and the excess profits taken under the excess profits part of this Act. That matter has been deliberately left over for future consideration, and the excess profits part of this Bill has been so drawn that no year of accounting comes under the Excess Profits Tax of this Bill which ended after 30th July of last year, in order that all accounting periods of which we take note should have been ended before the Munitions Act came into force.
I can give my hon. Friend the assurance with every emphasis, that it is not the intention of His Majesty's Government that any part of the Excess Profits Duty taken by the Exchequer, whether under the Munitions Act or under the excess profits part of this Act, will be subject to Income Tax. Next year, when we come to legislate, we shall have the experience of the working of the Munitions Act upon controlled firms, and it is clearly obvious that many questions left over in discussing excess profits will have to be taken into consideration in the Finance Act of next year. When that time comes it will be possible to review the exact method of exempting excess profits under the Munitions Act from Income Tax. It is not easy to do it now, because as my hon. Friend will see, when both taxes are charged together the Munitions Act Tax and the Excess Profits Tax, the question has got to be determined as to the destination of those taxes, and as to whether the relief from taxation of the profits taken under the Munitions Act shall tend to diminish the receipts in the Exchequer from the Income Tax, or whether they shall be paid in the first place to the Munitions authorities, and then the Munitions authorities pay to the Exchequer the corresponding relief from Income Tax. It is a question of book-keeping between the two Departments. It does not seem to me that we have the material until we have decided the relationship between the Munitions Act and the Excess Profits Tax, and, as the question cannot arise here and it is quite impossible for anybody to be called upon to pay Income Tax on the profits of a controlled firm under the Munitions Act, I suggest my hon. Friend should accept the assurance that it is not the intention of the Government —and they will take steps to prevent it— that any controlled firm should pay Income Tax on that part of their profits which are taken under the Munitions Act into the Exchequer, and that he should bring the matter up for discussion again on the Finance Act of next year.
It is very evident that it would be impossible for the Government to expect to treat these two cases in a different way, but I would ask the right hon. Gentleman whether he is perfectly satisfied he is correct that these controlled firms do not come under the purview of this Bill at all. Is it not the case, perhaps not under the Munitions Act, but under the Defence of the Realm Act, that some of the larger munition firms were taken over long before 30th June? My impression is that Vickers and Armstrong's were taken over long before that date, and I think any doubts in the minds of these people with regard to this particular tax should be removed.
I should like the right hon. Gentleman to say whether the amount of Income Tax paid by controlled firms does not come under the purview of this Act, or having had the assurance that controlled firms do not pay Income Tax on their excess profits, are we to wait until another Bill is brought forward? My point really is whether all these questions of taxation do not come under this Bill.
This question is one which really ought to have been dealt with—
The hon. Member cannot make a second speech; he can rise to withdraw the Amendment if he likes.
Is it not permissible for an hon. Member moving an Amendment to make a second speech?
That is only when the Bill has been through Grand Committee.
Then I will ask leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
Amendments made: After the word "of" ["deduction for the purpose of computing"!, insert the words "Income Tax in."
Leave out the words, "that person for the year with respect to his liability to Income Tax in any subsequent year," and insert instead thereof the words "the year which included the end of the accounting period in respect of which the Excess Profits Duty has been paid."
After the word "profit" ["the amount repaid shall be treated as profit"], insert the words "for the year in which the repayment is received."—[ Mr. McKenna. ]
I beg to move, at the end of the Clause, to insert the following new Sub-section:—
"(2) Where in any Income Tax year the profits or gains from which a deduction may be made under this Section come into computation, but owing to the time at which the amount of Excess Profits Duty became ascertained it was impracticable to give effect to the deduction when assessing Income Tax, the amount by which the Income Tax would have been reduced if effect had been given to the deduction shall be deducted from the amount payable for Excess Profits Duty or, if there is no Excess Profits Duty, shall be repaid to the taxpayer."
I think the House is indebted to the Chancellor of the Exchequer for the way in which he has amended this Clause. As it stood originally, it undoubtedly inflicted great hardship, seeing that it would take a man four years to get his money back, but, as it now stands, when he pays his Excess Profits Duty he will pay so much less and will therefore set himself right. I would like to point out, however, that whilst this Clause refers to Income Tax it has no reference to Super-tax, and I should like ah explanation from the right hon. Gentleman in reference to that point. It does not affect limited companies at all, but an individual who has to pay Super-tax will have paid the Income Tax, and when he pays his Excess Profits Duty he will only adjust the position as regards the Income Tax and will be left minus, the Super-tax to get it back in four years I am not quite sure whether when a man adjusts his Income Tax payment he will be at liberty to make an appeal that his Income Tax having been adjusted he is entitled to have his Super-tax adjusted and get a repayment. If it is so, then the Clause as it stands is quite correct, but, if it is not so, then I am rather afraid that there will be considerable hardship on a man who has paid Super-tax in the fact that it will take him four years to get his money back. I would like a little explanation of the position, but at the same time I must express my great obligation to the Chancellor of the Exchequer and the Financial Secretary for the fact that they have gone so thoroughly into this matter and have so satisfactorily adjusted it.
I very much appreciate the hon. Member's remarks, and I should like to reciprocate by thanking him for advising on the form of the Clause to meet the difficulty which was raised by himself and others on the Committee stage. With regard to the point of the Super-tax, I do not think, subject to anything any hon. Member may have to say, that it is a question of repayment, because Super-tax is based on the aggregate of the Income Tax assessments for the three preceding years. The first Income Tax assessment that can be affected by this concession is that for 1915–16; therefore, the first Super-tax assessment that can be affected is for the year 1916–17. It may be possible that Income Tax assessments have been made for the year 1915–16 before this new concession, and, unless something is done to meet it, that will affect the Super-tax assessment for next year. I will give the assurance the hon. Member asks for, that the Inland Revenue authorities responsible for the administration of the Super-tax will be instructed and will see that Income Tax assessments which are amended as a consequence of the relief given under these Amendments will be also amended for the estimate of the Super-tax in the year 1916–17.
Question, "That those words be there inserted in the Bill," put, and agreed to.
Part III
Excess Profits Duty
Fourth Schedule
Part I.—Computation of Profits
1. The profits shall be taken to be the actual profits arising in the accounting period; and the principle of computing profits by reference to any other year or an average of years shall not be followed.
2. The principle of the Income Tax Acts under which deductions are not allowed for interest on money borrowed for the purpose of the trade or business, or for rent, or royalties, or for other payments Income Tax on which is collected at the source, not being payments of dividends or payments for the distribution of profits, and under which profits or gains arising from lands, tenements, or hereditaments forming part of the assets of the trade or business are excluded shall not be followed.
3. No deductions for wear and tear or for any expenditure of a capital nature for renewals, or for the development of the trade or business or otherwise in respect of the trade or business, shall be allowed except such as may be allowed under the Income Tax Acts, and only of such amount as appears to the Commissioners of Inland Revenue to be reasonably and properly attributable to the year or accounting period.
4. No deduction shall be allowed on account of the liability to pay, or the payment of, Income Tax or Excess Profits Duty, but a deduction shall be allowed (if not otherwise allowed by means of the adoption of the principle of the Income Tax Acts) for any sum which has been paid in respect of the profits on account of any Excess Profits Duty or similar duty imposed in any country outside the United Kingdom.
5. Any deduction allowed for the remuneration of directors, managers, and persons concerned in the management of the trade or business shall not, unless the Commissioners of Inland Revenue, owing to any special circumstances, otherwise direct, exceed the sums allowed for those purposes in the last pre-war trade year or a proportionate part thereof as the case requires, and no deduction shall be allowed in respect of any transaction or operation of any nature, where it appears, or to the extent to which it appears, that the transaction or operation has artificially reduced the amount to be taken as the amount of the profits of the trade or business for the purposes of this Act. Where any company, either in its own name or that of a nominee owns the whole of the ordinary capital of any other company carrying on the same trade or business or so much of that capital as a single shareholder can legally own, the provisions of Part III. of this Act as to Excess Profits Duty and the pre-war standard of profits shall apply as if that other company were a branch of the first named company, and the profits of the two companies shall not be separately assessed.
6. Where in the case of any trade or business—
( a ) the percentage standard is adopted as the pre-war standard of profits; and
( b ) the net result of the trade or business during the three last pre-war trade years has shown a loss; and
( c ) any part of the profits has been applied in extinction of that loss;
then in estimating the profits a deduction shall be allowed equal to the amount of profits so applied.
7. In estimating the profits no account shall be taken of income received from investments except in the case of businesses such as those of investment, trust, or assurance companies where the business to a great extent consists of the making of investments. Where account is taken of any such income and the income has been derived from profits in respect of which any payment or repayment of Excess Profits Duty has been made under this Act, such deduction or addition shall be made in computing the profits as will make proper allowance for that payment or repayment of duty.
8. In the case of societies registered under the Industrial and Provident Societies Acts the Excess Profits Duty shall be charged on the sum by which the profits per member for the accounting period (including any surplus arising from transactions with members) exceed the like profits per member in the pre-war trade year or average of years taken as the basis of computation for the purpose of pre-war standard of profits, multiplied by the number of members in the accounting period.
9. In the case of any contract extending beyond one accounting period from the date of its commencement to the completion thereof and only partially performed in any accounting period there shall (unless the Commissioners of Inland Revenue, owing to any special circumstances, otherwise direct) be attributed to each of the accounting periods in which such contract was partially performed, such proportion of the entire profits or estimated profits in respect of the complete performance of the contract as shall be properly attributable to such accounting periods respectively, having regard to the extent to which the contract was performed in such periods.
Part II.—Pre-War Standard
1. The profits of any pre-war trade year shall be computed on the same principles and subject to the same provisions as the profits of the accounting period are computed.
2. Where the accounting period for which the Excess Profits Duty is to be assessed is less than a year, the amount of the pre-war standard of profits shall be proportionately reduced.
3. Where it is shown to the satisfaction of the Commissioners of Inland Revenue in the case of any trade or business that the three last pre-war trade years have been years of abnormal depression, any four of the last six pre-war trade years may be substituted for the purposes of the pre-war standard of profits for any two of the three last pre-war trade years.
The three last pre-war trade years shall not be considered as years of abnormal depression unless the average profits of those years have been at least twenty-five per cent. lower than the average profits of the preceding three years.
4. Where owing to the recent commencement of a trade or business there have not been three pre-war trade years, but there have been two pre-war trade years, the pre-war standard of profits shall be taken to be the amount of the profits arising from the trade or business on the average of those two years or, at the option of the taxpayer, the profits arising from the trade or business during the last of those two years, and where there have not been two pre-war trade years, but there has been one pre-war trade year, the pre-war standard of profits shall be taken to be the profits arising from the trade or business during that year; and where there has not been one pre-war trade year, the pre-war standard of profits shall be taken to be the statutory percentage on the average-amount of capital employed in the trade or business during the accounting period.
Where the trade or business is an agency or business of a nature involving capital of a comparatively small amount, the pre-war standard of profits shall be computed by reference to the profits arising from any trade, business, office, employment or profession of any sort, whether liable to Excess Profits Duty or not, carried on by the agent or other person before his new trade or business commenced as if it was the same trade or business; but only to the extent to which the income from the former trade, business, office, employment or profession has been diminished.
5. Where since the commencement of the three last pre-war trade years a trade or business has changed ownership, the provisions of this Part of this Schedule-shall apply as if a new trade or business had been commenced on the change of ownership, except in cases when the taxpayer makes an application that the provisions of Part III. of this Act and this Schedule should apply as if the trade or business had not changed ownership, but in that case such modifications (if any) shall be made in the application of this Schedule as may be necessary to make the basis on which the profits standard is computed the same as that on which the profits of the accounting period are computed.
Part 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.
( d ) Accumulated profits employed in the business shall also be deemed capital.
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. Patents and secret processes shall be deemed to be material assets.
I beg to move, to leave out paragraph 2 of Part I.
On the question of capital the Financial Secretary said that they had heard chartered accountants and business men, but the trouble was that they could not get all their advisers to agree, and he pointed out that owing to the fact that in this part of the Schedule special provision was made that the principle of the Income Tax Acts should not be followed, which did not allow for reduction of interest on borrowed money, that would cover the question of debentures as well. That having been already passed it was impossible for the hon. Member for Hanover Square to bring on the question of debentures being included in the capital. I want to clear away that difficulty by moving, in the first instance, to omit this paragraph, which provides that special facilities should be given in respect to Excess Profits Tax. In order to arrive at that I have another Amendment later on in which I hope to make a clear definition of capital, which I think is very necessary in this Bill. This further Amendment comes in the third part of this Fourth Schedule, after the words providing that the amount of capital of a trade or business shall, so far as it does not consist of money, be taken to be," then we have the three Clauses, ( a ), ( b ) and ( c ). At that point I want to add the words,
"the value of the fixed and liquid assets of the trade or business, whether such assets shall have been acquired by the investment of the proceeds of the issue of debenture, preference, or ordinary stock, or of moneys borrowed for use in the trade or business, and."
I listened to the whole Debate in Committee as to what constitutes the capital of the company for the purpose of this Excess Profits Tax, and with all respect to the House my own conclusion from that Debate, and the consensus of opinion both of business men and chartered accountants, was that on the question of the capital, whether it be the issue of debenture stock or preference stock, or ordinary stock, or whether it was borrowed in a large measure, as it is in the case of almost all the great statutory companies carrying on water and gas undertakings—that all those questions were perfectly irrelevant, and that what we had really got to consider was what were the fixed and liquid assets employed in the business. I think that it is a great advantage to have that stated clearly in the Bill, particularly in view of the fact that two or three hours were spent in the Committee stage in discussing this question, and the analogous question whether debenture issues should be included or not. I will put the matter very shortly. It appears to me that what we are now dealing with under this Bill, and which is of the essence of the Bill, is not the incomes which individuals get by means of dividends paid from one class of stock or another, but the income of the company—that is the income which is being taxed. We know quite well that in many cases these individuals are not in receipt of any excess profits at all. The individual may have suffered owing to the War. Probably in most cases he will have lost a great part of his income, but he may in certain cases have got a single investment in a company which is producing excess profits.
On a point of Order. I submit that to leave out paragraph 2 must be in many cases to increase the charge. I quite admit that in other cases it might reduce the charge. It must depend on the rate of interest whether the charge would or would not be increased, and I submit therefore that this Amendment is out of order on this stage of the Bill.
On the point of Order. I would call attention to the fact that it was held to be impossible to insert any sufficient definition of "capital" in the Committee stage because of the provision which I propose to omit. If we are not to be allowed to do that, and if we allow interest on the issues of debentures to be deducted, we cannot deal with the question of the proper definition of "capital" at all.
That may be as the hon. Member says, but I am bound to say that the effect of the Amendment, as suggested by the Chancellor of the Exchequer, would be to increase the charge.
On the point of Order. The hon. Member for Devizes has a subsequent Amendment which puts the matter right.
It is the rate of interest.
I understood that it would not have that effect.
There is no certainty that the second Amendment would be accepted, and you cannot divide Amendments in that way.
Amendments made: In paragraph (3), leave out the word "No" ["No deductions for wear and tear."]
In the same paragraph, after the word "shall" ["shall be allowed"], insert the word "not."
In the same paragraph, after the word "and" ["and only of such amounts"], insert the words "if allowed, shall be." — [ Mr. McKenna. ]
I beg to move, at the end of paragraph (3), to add the words, "Deductions shall be allowed from the actual profits paid for the accounting period on account of the payment of interest or dividends on cumulative preference shares in respect of the three pre-war trade years on which such interest or dividend may be payable."
This Amendment was moved in Committee in a more comprehensive form, but this Amendment is that deductions shall be allowed for the actual profits paid for the accounting period on account of the payment of interest or dividends on cumulative preference shares in respect of the three pre-war trade years on which such interest or dividend may be payable. The Amendment, which was not accepted in Committee, did not contain the words "three pre-war trade years," but said, "all arrears of preference dividends." This Amendment, therefore, is substantially different, and its effect is not so serious as was that of the other one. The fact that preference dividend has not been paid in the three pre-war trade years shows that the company has been doing badly and doing next to nothing, or else have just paid dividend interest and nothing more. The result of that is that profits being so low before the accounting period, the company has to pay very much more excess profits in the accounting period because the three pre-war trade years have been so bad. The cumulative preference shares are a charge on profits; they have got to be paid before the ordinary shares get anything at all in any circumstances, and it seems only fair that where a company has been doing so little business and has not been able to pay cumulative preference shares, some of that should be taken into account. I have cut it down to the three pre-war trade years. What you are seeking to tax here are the actual profits that any trader or company makes, and if you do not deduct some of the cumulative preference interest from the three pre-war trade years you are deducting more out of profits than goes with them.
I endeavoured to satisfy the hon. Member and the right hon. Gentleman the Member for Islington (Mr. Lough) on a similar Amendment on the Committee stage, and, although the hon. Gentleman has altered his Amendment slightly, I venture to think that the argument that commended itself to the House then still holds good. The principle of the Bill has been all the way through to treat a business or trade as a whole. We have made no distinction between preference shares of any sort or kind, cumulative preference shares and ordinary shares; we have treated them all as shareholders and as those who enjoy the profits of the business. If we altered that principle now and distinguished between one class of proprietor and another, then I am perfectly certain we should carefully examine the other parts of this Bill which have already been passed by the House in order to see that the alteration of the principle in the Fourth Schedule did not involve some illogical provision in previous parts of the Bill. I would further point out that arrears in the payment of dividend on cumulative preference shares are usually cases where there has been a loss, and in so far as that is true a Government Amendment to a Schedule deals with the case, treating the company as a whole in which there has been a loss. If the hon. Member's Amendment were accepted, and the cumulative preference shares bore a high rate of interest in excess of the statutory rate of 6 per cent. it is obvious that the provision which the hon. Member desires to incorporate would give an excess of the pre-war year of the rate of interest on the statutory rate, which would be clearly wrong in view of the decision we have come to. I will give one instance of the sort of difficulty in which we should be landed if we made the alteration. Take the case of a private partnership in which one of the partners only enjoys profits when the total profits of the firm exceed a certain amount. We made no provision for that case, but treated the business as a whole. If we admitted the distinction then by analogy, the other case would be irresistible. I venture to think we have been on good ground throughout in treating all on the same basis, and we ought now, as in the Committee stage on an Amendment resembling this, resist the Amendment now proposed.
There is a point to be considered here. In the ordinary case the excess profits are to be divided and the State takes a large slice, leaving 40 per cent. in the hands of the firm. In this case by not recognising the cumulative dividend on preference shares it may interfere with the position of the ordinary shareholders. Some preference shareholders are allowed to vote when the dividend is in arrears. If you pay them off, then the ordinary shareholders, whose money is at stake much more than the preference, are in control of their own establishment. I am quite conscious of the fact that to put forward that argument will not make it any easier for the Government to accept this Amendment, and I suppose we must accept it as one of the recognised evils of the Act. The answer to the hon. Member is that he is seeking to remedy some of the inequalities and injustices of the measure, but as he cannot remedy nineteen other points he is not allowed to remedy this. Many firms would be distinctly strengthened and set upon a more businesslike basis, for the benefit of the State and the Exchequer in future years, if they were enabled to strengthen themselves with the preference shares. It does not make a case for the Amendment, but it is another illustration of how this measure will interfere with legitimate business and retard many an enterprise which but for this Finance Bill could have been successfully carried on.
I am satisfied with the explanation of the right hon. Gentleman that it is the difficulties of the Bill alone which prevent the acceptance of this Amendment, the essential justice of which is clear. I therefore ask leave to withdraw.
Amendment, by leave, withdrawn.
Amendment made: In paragraph (4), leave out the words "No deduction shall," and insert instead thereof the words "Deductions shall not."—[ Mr. McKenna ]
had given notice of the following Amendment: In paragraph (4), after the word "duty" ["or similar duty"], to insert the words "whether in the form of an export duty or otherwise."
The paragraph refers to "any Excess Profits Duty or similar duty," and the hon. Member proposes to insert the words "whether in the form of an export duty or otherwise." An export duty is not a similar duty.
May I explain my meaning? Some of the Colonies are putting on duties which have the same effect as the Excess Profits Duty, in the form of export duties. That has happened in the case of Ceylon.
If that is the explanation the Amendment is unnecessary, as the duty would be deducted as an expense.
That meets the case.
I beg to move, in paragraph (5), after the word "circumstances" ["owing to special circumstances"], to insert the words "or to the fact that the remuneration of any managers or managing directors depends on the profits of the trade or business."
This Amendment is in fulfilment of a qualified pledge that I would do my best to meet the case of managers and managing directors who are paid by commission on the profits.
Amendment agreed to.
I beg to move, in paragraph (5), after the word "on" ["any other company carrying on the same trade or business"], to insert the words "or authorised to carry on."
As the Bill is drawn, it limits the benefit proposed to be given to the case of a, company owning the ordinary capital of another company carrying on the same trade or business. I believe the intent is to give this benefit where the company is not engaged in any business at all except owning the shares of the subsidiary company. The general practice is for authority to be given in the articles of association either to hold shares or to carry on. It would be very unfair that such a company should be deprived of the benefit intended to be given by this paragraph. I therefore propose to extend the benefit of this not only to companies holding the ordinary capital in any company carrying on the same trade or business, but also to companies holding the shares or capital in a company authorised to carry on.
I beg to second the Amendment. It is quite clear that it will alter the Clause and carry out the intention of the Chancellor of the Exchequer. It ought to be accepted in order that companies which hold practically all the shares in other companies, like the Associated Cement Company, and others, which make only one account, should be charged only as one in respect to excess profits.
As I understand the Amendment, it is not to alter the effect of the Clause so far as the holding company is concerned, but to alter the effect of the Clause so far as the company that is held is concerned. We have gone very far in the Clause as it stands to tax only once, and as a whole, what are practically two identical companies doing the same business, and if the words of the right hon. Gentleman are inserted you might give the benefit to a subsidiary company which is carrying on a totally different trade or business, being no relation to the trade or business of the parent company owing, somehow or other to a neglected article of association which authorised it to carry on the same trade or business, but which has never been acted upon, is not acted upon, and which there is no intention of acting upon. That would clearly be wrong.
May I put a question to the right hon. and learned-Gentleman the Solicitor-General as to the case of a company interested in a subsidiary company carrying on the same kind of business? I should like to know whether the term as applied to insurance, would include a fire company and a subsidiary life company, or a life company with a subsidiary marine company, both of them with their articles, as is customary, take part to-day in almost any kind of insurance? Unless the Government are careful there may be an evasion, because it is a very frequent thing in this country for companies to be bought up. and then to be drafted in a more or less jelly form, so as to prevent anyone else getting the title, in order to preserve the goodwill and agencies and so on.
I should think it is quite clear that a life insurance company does not carry on the same business as that of a fire or marine insurance company. If the Amendment proposed were made we might get into difficulties.
Amendment negatived.
Further Amendment made: In paragraph 5, after the word "as" ["so much of that capital as a single shareholder can legally own "], to insert the words, "under the general law."
I beg to move, after the word "of" ["in the case of businesses"], to insert the words "life assurance."
This is one of a series of Amendments which were promised in Committee on the Bill in order to meet especially the case of life assurance business. When I get to the third Amendment, I have handled it in a slightly different form from that now on the Paper, although meaning exactly the same in substance.
I do not understand why this concession is limited to life assurance. I do not think a case has been made out for life assurance as apart from other kinds, of insurance, particularly as regards Lloyd's. In the case of the underwriters of Lloyd's, many of them make their whole profit on the investment of their funds. Some of them, as is well known, are quite content to write an exact equivalent of the risk. Of course, they do not want to make a loss, but they do not wish to make any substantial profit on their underwriting. They are quite content on their business accounts to come out level, and to have as their reward for all their risks and pains the interest on their investments. I cannot understand, therefore, why this is. limited to life insurance, because when the discussion took place before, the Clause as drawn did not mention life insurance.
But my hon. Friend did. He mentioned life insurance, and he quite rightly pointed out that in the Amendment we proposed we must make an exception in life insurance because that was not an undertaking whose principal business was the making of investments. I recognised the truth and force of my hon. Friend's objection, and therefore I promised to bring up on the Report stage an Amendment carrying out his point, as well as the other points relating to banks. This is the first of the series of Amendments solely carrying out the agreement arrived at in Committee.
I am in the recollection of the House. I never named life insurance companies. I have never professed to represent them. They are represented in a very capable manner by the right hon. Gentleman the Member for Spen Valley (Sir T. Whittaker). I may have pointed out it was not true of any kind of insurance companies to say that their principal business was the making of investments. But investments are just as important a point to Lloyd's as they are to the life assurance companies; in fact, I venture to predict the amazement of the underwriters of Lloyd's when they find they are left out.
I am not in the position of being an underwriter at Lloyd's, and I speak quite impartally, but I am sure that the hon. Member for Lowestoft will bear me out when I say that this was one of the things we have been relying upon. These underwriters have no chance. The premiums are paid in advance and they must, as a rule, invest them in gilt-edged securities, and they cannot put them in corporation stocks or mortgages. As a rule they invest them in Consols or Government securities, because they never know when they may have to pay a very large sum at short notice. As is well known, a large vessel like the "Titanic" may go down and hundreds of thousands of pounds have to be found in a very short time, and while some of this may be reinsured they often have to pay large sums before they can get the reinsurance money. These people have been hit exceptionally hard by the recent national crisis. Life assurance companies are not in that position at all, and although I do not wish to deprive them of this concession, which is mere justice to them, it is an important matter for the marine underwriters, because the life assurance companies are not so restricted.
It is not a concession. I know that my hon. Friend is seriously trying to get at the meaning of this proposal, but will he allow me to read how the Amendment will arise? As amended paragraph (7) will read:—
"(7) In estimating the profits no account shall be taken of income received from investments except in the case of life assurance businesses such as those of investment, trust, or assurance companies where the business to a great extent consists of the making of investments."
Life assurances are businesses in which already under the existing law the income received from investments is taken into account, and we add to life assurance businesses other businesses whose principal business is the making of investments. So far as life assurance business is concerned, we are simply safeguarding the existing position.
When you come to this case, why do you not recognise others on the same footing? It is more important to others because a life assurance company has had an opportunity of making its investments in American securities, whereas the marine insurance insurer must get his investments nearer home, so that he can realise them more readily in the City. The income should be taken into account, and, of course, the depreciation should also be taken into account. I do not want one principle to be applied and then have it said that the House has made a distinction between life assurance companies and the case of marine businesses. It may be that a great deal of harm will not be done between now and the next Budget, but can anybody say why life assurance companies should be mentioned and not marine assurance companies? I defy anyone to produce a single argument on that point which will hold water. With the marine underwriter this is almost the dominant factor, but they are not in business to make investments.
11.0 P.M.
The answer to the hon. Member is that it is really the business of life assurance companies to make investments but not of fire or marine assurance companies. They are very glad to be described as businesses which are not primarily for the purpose of making investments, because they get out of obligations which the hon. Member seems to wish to force upon them.
Question put, "That these words be there inserted," put, and agreed to.
Further Amendment made: In paragraph 7. leave out the words "such as those of investment, trust, or assurance companies where the business to a great extent," and to insert instead thereof the words "and businesses where the principal business." —[ Mr. McKenna. ]
I beg to move, in paragraph 7, to leave out the word "and" ["where account is taken of any such income and"], and to insert instead thereof the words "( a ) any variation in the value of any of those investments which appears to the Commissioners of Inland Revenue not to be due to a variation in the profits shall also be taken into account and ( b ) where"
This Amendment has exactly the same meaning as that upon the Paper, but occupies half the number of lines—
"any variation in the value of any of those investments which bear a fixed rate of interest, and any variation in the value of those investments which do not bear a fixed rate of interest but which appear to the Commissioners of Inland Revenue not to be due to variation in the yield from the investments, shall also be taken into account."
The two alternatives can be included in the single statement, "any variation in the value of those investments which appears to the Commissioners of Inland Revenue not to be due to a variation in the profits." That covers both the cases mentioned in me Amendment as it appears on the Paper.
Why exclude them?
Because if you did not exclude them there would be cases in which the tax would be paid twice over, cases in which the profit and the increase in the value of the security would both be subject to the tax. Therefore, we have to limit it to fixed interest bearing securities or at any rate to securities in which the Commissioners are satisfied that the enhancement in price is not due to any variation in profits.
"Not to be due to a variation in the profits." Profits in what? Profits from the investment? I do not understand it.
Any variation in the value of any of these investments which appears to the Commissioners not to be due to a variation in the profits in the concern in which the investment is made.
I have an Amendment down but it is covered by the Chancellor's Amendment as now moved, and therefore I do not wish to move it. The object of the Amendment, so far as life assurance offices are concerned, is to provide that depreciation or appreciation in the value of their investments shall be taken into account in ascertaining their profits. It is necessary, because interest upon those investments is to be taken into account. When the Amendment was put down it was pointed out that in cases like those represented by the hon. Member for Lowestoft there are companies which hold investments in ordinary shares the dividends on which vary considerably, and these concerns will have been dealt with for the Excess Profits Tax before the life insurance and other companies which hold them receive their dividends, and thus under the Excess Profits Tax they will be taxed twice over. Therefore this Amendment is put in to provide that these allowances for depreciation shall only apply first to investments which bear a fixed rate of interest, and then to such appreciation or depreciation as takes place in ordinary shares with ordinary dividends upon them in so far as the appreciation or depreciation has not resulted from an increase or decrease in the dividend or profit. If it is a result of an increase or decrease in dividend it has been dealt with by the company itself. Take shares in the London and North-Western Railway Company. Apart from any movement of dividend they are depreciated in value owing to the change in value of money. These assurance and trust companies should be allowed to deduct that depreciation which is the result of other causes than a change in dividend. That is the object of the Amendment, and I recommend it as a sound and just one.
Now, of course, the House will see the bearing of the previous conflict. The, effect has been that the right hon. Gentleman the Member for Spen Valley (Sir T. P. Whittaker) is appropriating this Clause for the life insurance offices. I want a declaration from the Government as to whether Lloyd's underwriters and marine companies can get the benefits of this Clause. [An HON. MEMBER: "NO!"] Then there has been a misunderstanding somewhere. I do not believe that it can be contemplated to leave out Lloyd's underwriters. They have just as much to do with investments as the life companies. All their time is spent in watching investments. I am a director of a life insurance as well as a marine insurance company. I know their business and I say it is absolute rubbish to suggest there is any difference between them in this matter. I am sure the Government would not wish to specially favour one class of insurance as against another. I do not see what there is in this Clause which makes it inapplicable to the marine insurance companies or to underwriters at Lloyd's. I would like to hear what the Government have to say upon this point.
This Clause now says that no account of investments by any business will be taken in estimating profits, except in certain instances. These instances are life insurance companies and businesses where the principal business is the making of investments. These are the people in estimating whose profits their investments will be valued. But when those investments are valued you are going to take into account any variation of the value which depends not upon a variation of the profits, but merely on a variation of the capital value. It is quite impossible to take into account variation of capital value of investment if you do not take into account the investment at all. The hon. Member is interested in marine insurance. Marine insurance businesses are not life insurance businesses and their principal business is not the making of investments. Therefore their investments do not come into account of their profits at all. Therefore this Sub-section does not come into their accounts at all. I would earnestly recommend to my hon. Friend that he is not claiming the advantage of those whom he represents when he suggests that they ought to come in.
I raised this matter before in the right place. The Chancellor of the Exchequer then assured me to the contrary, or else, of course I should have moved. I was assured again and again then that that was not the point, and that I was mistaken. Now I find the marine insurance companies have been deceived. They want to be in both ways.
I am not sure I apprehend my hon. Friend. In estimating the profits on which he is going to be taxed the Bill does not provide for calculating in those profits the profits from his investments. Does he think it is a hardship to be left out?
Certainly, because we want to be included in the depreciation. This Clause deals with depreciation, and we must bring in income if we are to get the value of depreciation, and the object of keeping us out is that we shall not get the value of the Clause which the hon. Member claims as a great concession to the life companies and which is equally due to marine companies.
Is it intended by these, words to tax the appreciation of investments as well as to allow for depreciation?
Yes.
Will that apply if the investments have not been realised, because if that were so the tax must be levied on these investments and they must, be subsequently reduced in value. I think the word "variation" should properly be "reduction."
We are still in a difficulty owing to the fact that we have not the text of the Amendment. As. the Chancellor of the Exchequer read it, it concluded with the words "variation' in the profits." I want to be quite sure the Government are advised that the word "profits" is better than the words which are on the Paper, "yield of the investments," because it sounds rather odd. One would have understood what was meant by the words "yield for investments," but the word "profits" in that particular collocation might be either profits of companies which are the subject of investment or the profits of the companies you are proposing to tax. One usually speaks of the interest or yield on an investment and interest on dividends, not profits. Profits made are a different thing from moneys distributed. Is the right hon. Gentleman quite sure it is the right word?
I think it is the right word. I do not think there is any ambiguity about it.
There is a difference between profit and yield. The profit may be very large and the yield may have been a declaration of a much smaller amount than the profit, and that is the reason why the word "profit" is used instead of "yield." Yield would mean dividend. The profit might be much larger, and it would not be fair to deal simply with the yield when a much larger profit had been made.
Amendment agreed to.
I beg to move, after paragraph (7), to insert: "8. In computing the total profits of a local authority from any trades or businesses carried on by that authority the total amount which is required to be raised by them, out of the rates or otherwise, for sinking fund purposes in connection with those trades or businesses shall be allowed as a deduction."
I understand there are two points raised by this Amendment. One is whether a local authority might mass all its different businesses together for this purpose. I have nothing to say upon that point. But the Amendment goes further than that. It proposes to allow a local authority, in dealing with its profits, to deduct a sum which it puts by for the sinking fund for the repayment of capital. So far as I understand the matter—the right hon. Gentleman will correct me if I am wrong—a private individual or a limited company has no such power. Why should a local authority which is running in competition with a private individual— I speak strongly on the subject because I was connected with the steamers on the Thames which were run off by the London County Council—why should that authority, if they run in competition with a private company, an omnibus company or a railway company, and if they make excess profits—as they are exceedingly likely to do owing to the large amount being spent upon travelling this year and likely to be spent next year—be given this extreme concession which is denied to private companies? If it is to be made to anybody it should be made to the private company. I would appeal to the House not to sanction this preference being given to local authorities for no sort of reason. It should either apply to the limited company and the private individual or it should apply to nobody. I have no objection to it in principle, but the same law ought to apply to all people.
I am sorry I omitted to explain that point. I thought it was clear to the House. I think there is a difference. The difference is this: With a corporation or a local authority the sinking fund conditions are fixed by statute and their position is quite different from that of a private company. The sinking fund instalments must come out of the rates if the profits are insufficient, there 'fore unless we have this provision it might well happen that a local authority might have to levy a rate to pay the Excess Profits Tax, because they have to put a certain amount to the sinking fund. That makes a substantial difference.
How can that possibly make any difference in assessing the profits? A company would be perfectly entitled to make a deduction for capital charges if it thought right to do so. I feel sorely on this point. I submit that in dealing with a local authority or a private company the principle is exactly the same. Whether the money comes out of the ratepayers' pocket or the pocket of anybody else the same law ought to apply to people in the same position.
I am glad the Chancellor of the Exchequer has introduced this Amendment because many local authorities looked to the Government to protect them in this respect. The hon. and learned Member for Cambridge University (Mr. Rawlinson) takes exception to this concession being given to the local authorities. The city which I represent has to find about £70,000 a year as sinking fund in connection with the Bristol Dock extension. That obligation has been placed upon them by statute. At the present time the corporation is contributing £96,000 a year to the support of the docks and the whole sum which they are raising as a sinking fund has to be found out of the local rates. That is a very good reason why an Amendment of this kind should be introduced.
I do not follow the argument of the right hon. Gentleman. He says, "Unless this provision is put in there may be a burden put upon the rate payer." Why not? I thought this was to be a tax on profit, and that everybody who shared in the profit should pay something. If the ratepayers share in the profit why should they not pay? I think it would be an excellent thing that the ratepayers should pay. I do not understand what the argument of the hon. Member (Sir Howell Davies) was, except that the local authority should not be treated like anybody else. I do not agree with him at all I think a local authority should be treated just the same as anyone else. I do not know that they are any different from anyone else, except that they manage their affairs a great deal worse than private individuals do. That is the only distinction I see between them. I do not see why they should be put in this special position except that they have sent round a circular to Members who are afraid of losing a few votes.
The suggestion made by the hon. Baronet requires some answer. The fact that you have to levy a rate in these cases is the best of all possible indications, except the high and dry technical sense, that a profit has really not been made. That is why this provision is put in the Bill.
Amendment agreed to.
Further Amendments made: In paragraph (9), after the word "profits" ["such proportion of the entire profits"], insert the words "or loss"; after the word "profits" ["or estimated profits"], insert the words "or loss." — [ Mr. McKenna. ]
I beg to move, in Part II.—Pre-War Standard, paragraph (3), after the word "years" ["unless the average profits of those years"], to insert the words "after deducting the statutory percentage in respect of any increase in the average of capital employed in those years over the average of capital employed in the preceding three years."
I apologise to the House for introducing a manuscript Amendment, but I wish to clear up a point. Paragraph (3) provides that—
"the three last pre-war trade years shall not be considered as years of abnormal depression unless the average profits of those years have been at least twenty-five per cent. lower than the average profits of the preceding three year."
The point I wish to clear up by moving my Amendment is whether it is clear that the average profits of the three years of depression are to be subject to the deduction of the statutory percentage in respect of any increase in the capital employed in those years over and above the capital employed in the preceding three years. I am aware that the Bill provides that the statutory percentage in respect of new capital may be added for the purpose of ascertaining the datum line of the taxable profits. I cannot find that it is provided when it operates the other way, and that in calculating for the purpose of the datum line derived from the four years of the preceding six years, that the statutory percentage in respect of new capital employed during the last three years of the six years shall be deducted in comparing the profits for the three years of these six years. I believe that was the intention of the Chancellor of the Exchequer, but I want to be certain that it is carried out in the Bill.
I think the fears of the hon. Gentleman are not justified. If he looks at the words of the Clause as it stands, it says,
"the three last pre-war trade years shall not be considered as years of abnormal depression unless the average profits of those years"—
Then follows what must have happened. The average profits of those years must be the profits estimated in accordance with the provisions of this Bill, and all the conditions which go to the estimation of profits will go to the estimation of profits for those three years for the purposes of this Clause. I do not think there can be any doubt about it that due allowance will be given for increase of capital in the last three years as compared with the preceding period, which is the period of abnormal depression.
Among all whom I have consulted and who have read this over I have found no one who has given the interpretation which the Chancellor of the Exchequer has put upon it. The words of the Clause, as it stands, are quite ample. They provide that if you are to get the advantage of this concession made in the first part of the Clause you must show that the average profits for three years were at least 25 per cent. lower. But there is nothing as far as I can see which imports into that calculation the elaborate arrangements with regard to capital which are provided for in the Amendment.
There certainly ought to be.
I agree; and I think that that was the effect of the Amendment which my hon. Friend wished to propose. I do not know whether we can regard the Chancellor's; explanation as to what the Clause means as really satisfactory when the words are not in it. It is difficult to see how they can be construed into it except, of course, that the interpretation will have to be given by the Treasury when they come to act upon the Clause, and if they can be relied upon to take the speech delivered to-night by the Chancellor of the Exchequer as importing into the Clause words which are not there then, of course, that would be satisfactory; but at present the words are not there, and it would be much better to accept the Amendment of my hon. Friend if it is the intention to act upon it.
I do not like hastily to accept any words without having had the advantage of considering the Amendment, but it is certainly clear that this must be understood. If the capital of a business has doubled, and its profits have remained the same, clearly that must be regarded as a case of abnormal depression during the last three years, and clearly that must be taken into consideration. I should have thought that so obvious that nobody could consider it otherwise. We have, it is quite true, allowed specifically for increased interest in other cases, but administratively it would certainly be done in that case.
In view of what the Chancellor has said I have no desire to press the Amendment. I was anxious to have it made clear that a reduction in the statutory percentage should be made. With the leave of the House I beg to withdraw the Amendment.
Amendment, by leave, withdrawn.
I beg to move, at the end of Part II., to insert the following paragraph,
"6. It is hereby declared that, where any business or trade is confined to the management of any particular assets, but power exists to substitute other assets for those particular assets or any of them, such a substitution shall not be deemed, for the purposes of Part III. of this Act, to constitute a change of ownership of the business; but, where any such substitution has been carried out by the sale of assets and the purchase of other assets, the capital of the trade or business shall be taken to be increased or decreased, as the case may be, only by the amount of the difference between the price of the assets purchased and the price obtained for the assets sold, and the capital representing the assets purchased shall be estimated on the same basis for all the purposes of Part III. of this Act."
This looks very formidable on the Paper, but it is really quite simple. To illustrate what is meant I may take the case of a ship which two years ago might have been sold for £50,000 and which to-day might sell for £100,000. The vendor having sold the ship for £100,000 reinvests his money in another ship, I will not say the same one, for the same amount, namely £100,000. Then he starts under the Excess Profits Tax with a capital of £100,000, instead of £50,000. It is possibly an ingenious attempt to evade the tax, and I am sure that I shall have the support of the House of Commons in endeavouring to meet the case. The first four and a half lines of the Amendment are declaratory of what shall not be deemed to be a change of ownership, and then it goes on to meet the case of which I have just spoken. The last three lines of the Amendment, which may seem somewhat obscure, are meant to meet this case. Take, again, the case of a ship which is entered in the books at £50,000, and is sold for £100,000, and a new ship is bought for £105,000, the capital of the company would be £50,000 plus £5,000 instead of £100,000. I hope the House will allow me to have this Amendment in view of this explanation.
In the case of a company which is wound up and then reformed in another name, and purchasing the whole of the assets of the old company, it would be a very simple matter to evade the Excess Profits Tax.
That was dealt with under Clause 43.
Amendment agreed to.
I beg to move, at the end of paragraph 5, to insert,
"6. The amount fixed, or to be fixed, under the provisions and for the purposes of the Munitions of War Act, 1915, of any Act amending or extending the same as the standard amount of profits of any controlled establishment consisting of any establishment used whether solely or in conjunction with any other establishment for the purposes of, or in connection with, any trade or business to which the provisions of Part III. of this Act apply shall, notwithstanding any other provision of this Act,—
I beg to second the Amendment.
My hon. Friends are not content with suggestions made during the debate as to the relations between controlled firms under the Munitions Act and this Bill, but desire to renew the problem. Without wishing to say anything disrespectful, the Amendment in which they seek to re-open the question is really an absurd one, for this reason: We have already decided in the discussion which has just taken place how profits for the accounting period are to be estimated. Now the hon. Gentleman suggests in regard to controlled establishments that you should compare profits for the accounting period assessed under this Bill with the pre-war standard assessed under the Munitions Act. How can you possibly compare chalk and cheese. You must have some logical principle and some standard. We fixed the standard and we must adhere to the pre-war standard.
Amendment negatived.
had given notice of an Amendment in Part III. before paragraph ( a ), to insert the words "the value of the fixed and liquid assets of the trade or business whether such assets shall have been acquired by the investment of the proceeds of the issue of debenture, preference, or ordinary stock, or of moneys borrowed for use in the trade or business, and."
In the opinion of the Association of Municipal Corporations, by leaving out all borrowed capital and allowing only the deduction of the actual interest paid, corporations are in fact deprived altogether of the advantage of the percentage standard, because in the vast majority of cases they trade on borrowed capital. They have no standard of profits to compare with at all, and are in fact treated differently from any other company or undertaking in the whole country.
I beg to move to leave out paragraph ( d ).
I submit that this Amendment imposes a charge, and is therefore out of order.
Perhaps the hon. Baronet will allow me to explain. There is another Amendment on the Paper where I propose to insert the words, "Nothing in this part of this Schedule shall prevent accumulated profits employed in the business being treated as capital." If the hon. Baronet objects to the Amendment being moved in two parts in different places for the sake of drafting, I am prepared to move both parts here together.
My hon. Friend moved to leave out paragraph (2), and said he had an Amendment later on which would bring him into order, but you, Sir, ruled that he could not discuss the second Amendment because the first was out of order, it not being certain that the second Amendment would be carried. Does not the same rule apply to the right hon. Gentleman?
The Chancellor of the Exchequer has made an offer if the hon. Baronet, who is a purist in these matters, insists on these words being moved now.
I think it is as well to keep in order.
There is no analogy between the two cases, but I will move both parts now. I beg to move to leave out paragraph ( d ), and to insert instead thereof the words,
"Nothing in this part of this Schedule shall prevent accumulated profits employed in the business being treated as capital."
The two proposals are not quite the same. In the one case it is mandatory; in the other it says that nothing shall prevent these profits being treated as capital.
It is meaningless to say that accumulated profits employed in the business shall be deemed capital; they are capital. But there is one case where it might be held that accumulated profits were not capital, and that is the moment when the profits are passing from the condition of potential dividends into that of capital in the business. I think we had better have the Amendment here, "Nothing in this Part of this Schedule shall prevent accumulated profits employed in the business being treated as capital." It is only to make matters clear.
I certainly understood from the debate in Committee that it was possible for companies to compute their excess profits—at any rate part of their profits—as a depreciation fund which would become capital. After what the Chancellor of the Exchequer says that would become impossible. It would not be possible to allocate a certain amount of the profits to the depreciation or reserve fund.
Why not?
I want to know! Why not?
Let us get back to the Question."
Paragraph ( d ) was put in as an Amendment in Committee on my suggestion, as it was generally felt that if there had been no provision at all that accumulated capital should be considered capital it would be a mistake. The proposal of the Chancellor of the Exchequer will meet the difficulty even better than what was proposed in Committee.
Question, "That paragraph ( d ) stand part of the Bill," put, and negatived.
Proposed words there inserted.
I beg to move, in paragraph 3, to leave out the words,
"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. Patents and secret prosesses shall be deemed to be material assets."
This is a very important Amendment: if deals with the whole question of goodwill. In estimating the capital of a company the Bill as now proposed to be amended is in the words I propose to omit. The Chancellor of the Exchequer proposes to modify these words to a very slight extent by inserting, after the word "company," "unless the Commissioners of Inland Revenue is special circumstances otherwise direct." That direction, in face of this distinct no value, would be very difficult to apply. I think the Commissioners would overrule that nothing could create or nothing can give this goodwill any value so long as it was represented by shares held by the persons themselves. The absurdity of this is twofold or threefold. In the first place, the House will observe that where the goodwill has been sold for cash and passed on to the other parties then it is of value, but if it has been retained in the hands of the original vendor it is of no value. That, to begin with, seems to me to be very extraordinary and very unfair—that a man who has passed off a bad goodwill for shares and got cash should have it accounted for righteousness to him, and that that goodwill is of that value; but that where he has a goodwill, and a good goodwill, but retains it in his own hands, it is of no value.
One of the principal reasons why firms turn themselves into limited companies is that the goodwill which they have brought about by their own exertions should remain as an asset. Further, when a man who was a partner dies, the full estate value is paid on his share, but for the purpose of this Act it is to be of no value at all. That cannot possibly be right. The right hon. Gentleman must not forget that a vast number of people in this country have turned their businesses into companies from a perfectly honest motive. They have kept the business in their own hands by not parting with the goodwill, and really it is one of the best symptoms of a goodwill. When you know the goodwill shares are kept in the hands of the original owners, you may be perfectly certain that in nine cases out of ten it is a very good business. All along this has been regarded as a valuable asset to be taxed to the full, and why should it now go on the Statute Book that this has no value whatever?
If my right hon. Friend is afraid that people will put down an extravagant value for the goodwill, and he wants to check them, I have a further Amendment on the Paper to the effect that the Commissioners must satisfy themselves of the value of this goodwill, and see that it is not capitalised at too many years' purchase of known profits, after allowing interest on capital. It does seem to me that the words down to "acquired" meet the whole case. No doubt those men who are attached to the board of referees will know very well on what sort of basis to value any sum which may be put down in the balance sheet as the value of the goodwill. It "shall be taken to be the value of the consideration at the time the asset was acquired." That puts them on the inquiry, if they have any doubt about it, to find how it was capitalised, and if they find that it was capitalised on some extravagant or ridiculous basis they will disallow it. When you come down to the word "acquired" you give all the powers you require. Suppose that a goodwill has been fixed at £50,000 and the shares have been issued and £30,000 sold. Those shares which have been transferred are to be treated as capital, and are those held to be treated as of no value for this purpose?
I desire to second this Amendment, and I hope the Chancellor of the Exchequer will see his way to meet us on this point. I admit that he has made an effort in the latter part of the Clause to modify it in the direction which we asked during the Committee stage, but I think I shall be able to satisfy the House that in the shape in which it is now it is worse than it was before, and that there is really no cure except to omit all the words after "acquired." Various changes have been put down to meet the point that where the consideration for the sale consisted wholly or mainly of shares in the company no value should be attached to those shares. I have pointed out before the case, ten or twenty years ago, of shares allotted as a consideration for the business being sold to somebody else when the person to whom they were originally allotted died. The right hon. Gentleman saw the injustice of that, but he has put down an Amendment to the effect that if they are still held by the person who received them, they are to be considered worthless. Supposing £50,000 shares were allotted free, and £30,000 were sold—I happen to know a case very similar where the shares were sold at a premium of 25s.—but £20,000, or £15,000 remained in the hands of those to whom they were originally allotted twenty years ago. All those shares transferred are treated as capital, while those held are to be treated as of no value. Therefore I cannot think that the right hon. Gentleman can be quite serious in proposing to the House such an obvious injustice.
12.0 M.
A great many companies were capitalised ten or twenty years ago, when it was possible here to capitalise industrial companies in this way, but only a comparatively small amount of capital was invested in cumulative preference shares, and the greater amount was held in the hands of the vendors as ordinary shares. The vendors only received their chief remuneration, and the guarantee to those who invested in preference shares was the value put on the shares by the working of the company in subsequent years. I know of many large companies in which the ordinary shares are disposed of in this way, and now all that capital is to be treated as worthless. I would like to point out that in doing this my right hon. Friend is departing from the principle which has been followed all through this Bill. What has been done everywhere else in regard to profits is that you take the pre-war period and declare that as it was in the pre-war period so it shall be in the accounting period. The tax is based on the excess profits in the accounting period over the pre-war period. When it is a case of the capital, he says, "I will have another principle altogether. I will not allow you to treat your capital as treated in the prewar period; I will construct a new and fictitious standard. Part of the same block of shares I will declare as of no value, and, others, if they have been sold, I will allow to be treated as of the value of the price at which they were sold. It is an impossible position, and the attempt which has been made to meet it has made it worse rather than better. The Committee has been shown the difficulty in which we have been placed by a singular method proposed to be adopted. The best way would be to leave the words out altogether. I do not think that a single risk would be run. There was a powerful speech made by the hon. Member for South Ayrshire (Sir W. Beale) who said. quite apart from the principle of comparing like with like, "as you have done in the case of the profits, so do in the case of the capital." That is the appeal which I make.
I want to try and treat the Amendment as one dealing with good, honest, God-fearing traders. A man who is conducting a business as a private trader under this Bill for good or evil is allowed nothing at all for his goodwill. For other purposes, for reasons connected with the good and honest and God-fearing way in which he conducts his trade, he prefers to go on as a company, which is himself, rather than go on as a private firm. Why in Heaven's name should this House give him value for his goodwill when he trades as a company if they refuse to give him value for it when he trades as a private individual? I should like to read the paragraph because I do not think the two hon. Members have appreciated how it will stand when it has been amended.
I do not think you appreciate it.
( reading ):
"Where a trade or business has been converted into a company—"
When?
Any time ( reading )—
"Where a trade or business has been converted into a company and the shares in the company are wholly or mainly held by the person who was owner of the trade or business, 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 unless the Commissioners of Inland Revenue in special circumstances otherwise direct."
Now we have guarded in that Clause against the ordinary case of the man who sells his own goodwill to himself—a goodwill for which nobody ever paid anything, and the value of which is therefore nil. But my hon. Friend comes down and cites special cases, in which he says the value of the goodwill can be measured and ought to be allowed for. That is the sort of exception which is meant to be included in the words "unless the Commissioners of Inland Revenue in special circumstances otherwise direct." The whole case my hon. Friend makes out is met under the Bill, and I venture to suggest that we must be protected against the case of a man who has sold to himself an unestimatable asset which he has valued as he likes. It is for that purpose that the Clause is proposed to be amended.
The Amendment before the House is to leave out certain words after the word "acquired." I really think that the Chancellor of the Exchequer would be wise to accept the Amendment, and thus put an end to a whole list of Amendments which follow. The effect would be that the Clause would simply provide that where any essets had been paid for otherwise than in cash, the cost price shall be taken to be the value of the consideration. Surely that principle applies equally to all these difficulties. If the consideration had no value— if, for instance, it was shares which really had no value—nothing would be allowed in respect of them. The equities of the whole position, both under the Clause as originally drafted and under it as it is now proposed to be altered, would be quite met by stopping at the word "acquired," without embarking on any of these very difficult propositions involved in the suggested alterations.
There are a series of instances known to most Members of the House where even the Clause itself would create very considerable difficulties and very considerable inequalities in the future. Take the case of a company which has acquired for valuable consideration—in shares, say—the trade name of a manufacturing business. You are going to apply this Clause to that case. But you would have to do so on an entirely different basis from the other case of a company which has built up a trade name for itself by its own energy and enterprise. In the latter case it is to be considered as of no value at all, but in the other case it will be allowed the value of whatever was given for it. I venture to think that if the Clause stopped at the word "acquired," which is simply the Amendment now before the House, it would really ensure all that is required within the real meaning of the Clause. But when you face the other difficulty of saying that certain shares are to be valued and others are not, what do you find? Here are a number of shares which may remain in the name of the original allottee. Are these shares to be considered to be of no value at all, whereas should some of them have been sold they will be treated as being of value in the hands of somebody else, although the shares are identical, only bearing different distinctive numbers? It is a perfectly preposterous proposition, and it will be productive of all kinds of difficulties and complications. I do really seriously suggest that if the right hon. Gentleman will agree to stop at the word "acquired," and leave the matter to work out its own salvation on equitable grounds with regard to the value of shares, he will find no difficulty on the subject in actual practice.
I regret I cannot go with the hon. Member who has just spoken. I thought the hon. Member for West Aberdeenshire (Mr. J. M. Henderson) did make out a case, but I listened very carefully to the answer from the Treasury Bench and I thought his case was met. On the assurance that such a case would be considered, I do not see where the grievance is. If you leave out these words would you not be opening the door very wide? By taking the words out there are, as we men of business know, men of the wrong sort who will get through if we leave the door open. A man in future could sell his business to a company—
This applies to the past.
We are dealing with a tax that may go on year after year. Whether it has been done in the past or will be done in the future it is all the same. There are men who in the past for their own reasons, I believe that there are in this House some who for their own reasons, which may be good reasons, have effected such a change in their businesses as will enable them to evade this tax. I do not see why the door should be opened to undeserving people.
There is no reason why we should open the door. Every single case has been met.
The door is shut already.
Will my hon. Friends allow me to say that every single case they have named of hardship is a case we have already dealt with. The case was given of of man who sells his business to a company for £50,000, £20,000 for himself as goodwill and £30,000 for the rest.
That is for shares.
Yes. How do we deal with him? In his case the provision will read—
"Where a trade or business has been converted into a company and the shares in the company are wholly or mainly held by the person who was the owner of the business."
There the person who owns the £20,000 shares will not be owning wholly or mainly the shares in the company. His case would not arise. I have listened to the whole Debate and we have dealt with every case of hardship that has arisen, and in order to meet other cases we have left in the general words
"unless the Commissioners of Inland Revenue in special circumstances otherwise direct."
I agree with the hon. Member (Mr. Booth) that we ought not to blind ourselves to the fact that if we allow it a great number of people will sell their businesses to themselves for a very high price, and in future years we shall see a percentage standard upon a rate of capital which nobody ever dreamed of as possible until it was established for the purpose of avoiding the tax.
Does my right hon. Friend think these words would really, in the face of the distinct words of the paragraph, bring in such a case as I have mentioned? I do not think so.
Surely, if you find during this year a number of companies are being dealt with in that way, you can provide in the next Budget.
Amendment negatived.
Amendments made: Leave out the words "sold to" ["has been sold to a company"], and insert instead thereof the words "converted into."
Leave out the words "consideration for the sale consisted," and insert instead thereof the words "shares in the company are."—[ Mr. McKenna. ]
I beg to move to leave out the words "of shares in the company," and to insert instead thereof the words "held by the person who was owner of the trade or business."
Question, "That the words proposed to be left out stand part of the Schedule," put, and negatived.
Motion made, and Question proposed, "That the words, 'held by the person who was owner of the trade or business,' be there inserted."
I beg to move, as an Amendment to the proposed Amendment, to add at the end the words "for a period not exceeding seven years."
It is the same argument.
Not at all. My right hon. Friend made the same speech here that he made in Committee, but afterwards his conscience smote him and he changed the Bill. He took the case of a company with £50,000 capital, there being a block of 20,000 shares allotted to one person. I will take £26,000 out of the £50,000 allotted to one person, then he will see that the Bill would apply, because they would be mainly allotted to that person. Then I pointed out on the Committee stage that supposing that person had sold £16,000 of them—
The right hon. Gentleman is not arguing his Amendment, which is "for a period not exceeding seven years."
I was only to going to state that if part of them had been sold in that way this would have been treated as capital. What I want to suggest is that there must be some statute of limitations. If these shares have been held for ten or twenty years, always esteemed capital before, always paying dividends on which someone has been living, it is hard lines for them to be declared to be of no value. If seven does not satisfy him, let him say seventeen. Let him pay any deference he likes to the principle of common sense and justice. Let him make it ten. If for ten years they were treated as capital and saleable at a premium and paying large dividends, surely now they are not to be declared worthless. That is all I ask. I will take any other test. There has been no Amendment moved to help forward these hideous frauds which appear to be present to the minds of the Secretary to the Treasury and the Chancellor of the Exchequer. It is simply to protect the honest general business of the country. The Bill is honeycombed with these ideas of guarding against fraud, and I believe they exist in a very few cases indeed. They could not exist at all in this case for no arrangement can be made under this Bill. It deals with companies and businesses whose year ended on 1st July last. Therefore none of these fraudulent changes could be made. The argument put forward from the Treasury Bench has no basis whatever. If my right hon. Friend insists on pressing these Amendments into the Bill it is very difficult at this hour to deny him, but at least let us have a statute of limitation at the end of seven years.
If the Amendment carried out my right hon. Friend's intentions it would not touch the objection which I and my right hon. Friend have expressed to the Amendments which the right hon. Gentleman and his Friends desire to incorporate into the Bill, namely, that the owner would be receiving 6 per cent. protection upon capital which has never been money laid out and put into the business—a mere expectation of future earning power on which he never paid a, penny. But it does not carry out his intention. He moves to insert at the end the words "held by the person who was owner of the trade or business for a period not exceeding seven years." That is to say, that a man who was in business for more than seven years before he converted his business into a company would get nothing for his goodwill. The Amendment of my right hon. Friend does not really mean what he says it means.
It is shares held for a period of seven years. The thing has not been understood.
It is in the wrong place.
I will accept any drafting Amendment.
The objections of the Chancellor of the Exchequer are valid if this method of calculation is taken as the method for calculating the profit of this current year as well as of the year that has expired. If that be so and the goodwill is struck out of the calculation now and it was struck out before no difference would be made. I see an injustice if it is left in for the first period and struck out for the second period.
That case would not arise. The question of goodwill would only arise when the datum line is obtained by reference to a percentage standard upon the capital. The case put by my hon. Friend is where the datum line is based upon the pre-war standard of profit. In that case he would be comparing like to like. There we get a different datum line.
There is no different datum line.
Amendment to the proposed Amendment negatived.
Words "held by the person who was owner of the trade or business" there inserted in the Bill.
Further Amendment made: In paragraph 3, after the word "company" ["material assets of the company"], insert the words, "unless the Commissioners of Inland Revenue in special circumstances otherwise direct."—[ Mr. McKenna. ]
I beg to move, in paragraph 3, after the word "processes" ["Patents and secret processes"], to insert the words, "trade marks and trade names."
At an earlier stage of the Bill we raised the question of trade marks and trade names, and the Secretary to the Treasury promised to consider that point. Hundreds of thousands of people depend for their living upon the value of trade marks and trade names.
Sunlight soap.
Yes. Sunlight soap, Pear's soap, and so on. My right hon. Friend has put in the Bill the words,
"goodwill or otherwise than by material assets of the company."
These things are not considered material assets. I think it is a great pity that we should have gone into these questions at this stage of the Bill. I do not think the hon. Member (Mr. Higham), who asked a question of the Chancellor of the Exchequer, got a very complete reply. I only ask that the same treatment should be given in this last year as was given in the previous year—the pre-war period. If the Chancellor of the Exchequer thinks well to come in and divide the profits of these businesses, let him divide them fairly. Let him be content by taking half the profits from these people without cheating them as well. For the trade mark or trade name huge sums have been paid. These trade marks and trade names are the property that these people have to make their living by, to make their profits upon, and to pay their dividends upon. Let them carry out the same principle in this year as was carried out in previous years. If a trade mark or a trade name has been bought at a large price we know that they are very valuable, and I suggest that we should treat them in the same way during the accounting period as they were treated in the pre-war period.
A trade mark or trade name cannot be distinguished from goodwill. It is an identifying or specialised form of goodwill.
Goodwill is not included.
Yes, in every case except in one case that we have excluded. In the Amendments that we have carried goodwill is allowed for except in one special case. A trade mark or trade name is only a particular form of goodwill, and the same argument which applies to special cases, if you exclude goodwill, ought also to apply in the case of a trade mark.
May I put forward as an illustration the case of the sewing-cotton trade? Things of that kind do not arise by the passing of cash. In that case the development of business over a long series of years, the expenditure of money on advertising, and a study of the needs of customers have resulted in certain kinds of cotton being sent to certain districts. The colour of the cotton is carefully watched by the natives of certain islands, and they would not take a shade of cotton different from that to which they are accustomed. There may be and frequently have been lawsuits about it, and people may or may not have taken the expenses of those lawsuits into their balance sheets as a capital charge. Some people treat it in one way and some in another. It is not easy to identify the value of a trade mark or trade name by something which has been paid for it, because in the bulk of cases that can only be done by searching through the books. I think that the best thing is to rest on the general Clause, with the general assurance of the Chancellor of the Exchequer that it would be considered in that way.
FIFTH SCHEDULE.—ENACTMENTS REPEALED. Session and Chapter. Short Title. Extent of Repeal. 5 & 6 Vict. c. 35 … The Income Tax Act, 1842 Section one hundred and eight. 43 & 44 Vict. c. 24 … The Spirits Act, 1880 Table B in the Second Schedule. 7 Edw. 7. c. 13. … The Finance Act, 1907 Sub-section (4) of Section nineteen. 10 Edw. 7. c. 8. … The Finance (1909–10) Act, 1910. Sub-section (2) of Section eighty-one; and Part II. of the Third Schedule. 2 & 3 Geo. 5. c. 8. … The Finance Act, 1912 Section II. Amendment made: Leave out "10 Edw. 7. c. 8. … The Finance (1909–10) Act, 1910. Sub-section (2) of Section eighty-one; and Part II. of the Third Schedule. " — [ Mr. McKenna. ]]
Bill to be read the third time upon Thursday, 9th December.
The remaining Orders were read and postponed.
Amendment negatived.
It being after Half-past Eleven of the clock upon Tuesday evening, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at Twenty-nine minutes after Twelve a.m., on Wednesday, 8th December.