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S E C R E T
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1
"
w
r
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CABINET
C . ( 5 2 ) 148
The attached paper
be considered at the meeting
the Cabinet on
will
of
T u e s d a y , 6th M a y ,
u n d e r i t e m 3 of t h e A g e n d a .
Cabinet Office, S. W. 1.,
5TH MAY, 1952.
( T H I S D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y ' S G O V E R N M E N T )
S E C R E T
CABINET OFFICE
RECORD COPY
C O P Y N O . \\ V-
C . ( 5 2 ) 148
5 T H M A Y , 1952
CABINET
EXCESS PROFITS
LEVY
M e m o r a n d u m b y t h e C h a n c e l l o r of t h e
Exchequer
I have d i s c u s s e d with m y colleagues the p r o p o s a l s set out in
m e m o r a n d u m of t h e 2 8 t h A p r i l .
my
2.
I h a v e c a r e f u l l y c o n s i d e r e d t h e v a r i o u s a r g u m e n t s in f a v o u r of i n c l u d i n g
1950 in t h e s t a n d a r d .
T h e r e i s , h o w e v e r , so m u c h to be given a w a y e l s e w h e r e
that I could not afford to do this and I a m satisfied that a fairer solution can b e
r e a c h e d in other w a y s .
I p r o p o s e , t h e r e f o r e , that the t r a d e r should be given the
o p t i o n o f b a s i n g h i s s t a n d a r d o n a n y t w o o f t h e t h r e e y e a r s 1 9 4 7 , 1 9 4 8 a n d 1949,
w h i c h w o u l d p e r m i t h i m t o o m i t 1947 a n d t a k e a s t a n d a r d b a s e d o n 1948 a n d 1949
a l o n e if h e s o w i s h e d . A t the s a m e t i m e , I p r o p o s e t h a t t h e o v e r r i d i n g m a x i m u m
s h o u l d b e r e d u c e d f r o m 1 8 % t o 1 5 % . T h i s w i l l g i v e r e l i e f i n a l l c a s e s of r e a l
h a r d s h i p , w h i l e t h e i n c l u s i o n of 1950 w o u l d give r e l i e f o n l y w h e r e t h e p r o f i t s of
that y e a r h a p p e n to be p a r t i c u l a r l y favourable.
F o r companies operating in ,
Malaya and the F a r E a s t , where exceptional considerations apply, the standard
w o u l d b e b a s e d o n 1949 a n d 1950.
3.
M y c o l l e a g u e s h a v e p r e s s e d u p o n m e t h e d e s i r a b i l i t y of e x e m p t i n g
a l t o g e t h e r a l l c o m p a n i e s o p e r a t i n g o v e r s e a s , or a t l e a s t t h o s e e n g a g e d in the
extractive and productive industries.
I have the u t m o s t sympathy with the point
of v i e w t h e y p u t f o r w a r d a n d I a m d e e p l y a n x i o u s t h a t w e s h o u l d n o t c r e a t e
difficulties with Commonwealth and foreign G o v e r n m e n t s .
I feel, however, that
q u i t e a p a r t f r o m s u c h q u e s t i o n s a s t h e d i f f i c u l t y of d e f i n i t i o n , i t w o u l d b e q u i t e
unfair to our own people producing goods for export at home that British companies
o p e r a t i n g o v e r s e a s should be wholly e x e m p t f r o m this t a x . M o r e o v e r , a n y such
e x e m p t i o n would r a i s e in an a c u t e f o r m the question w h a t to do about shipping
companies and British companies which operate o v e r s e a s not directly but through
foreign subsidiaries,
I a m anxious, h o w e v e r , that we should do everything
r e a s o n a b l e t o m e e t the c a s e of B r i t i s h e n t e r p r i s e a b r o a d . A p a r t f r o m t h e c o n ­
c e s s i o n in f a v o u r of M a l a y a , w h i c h I h a v e a l r e a d y m e n t i o n e d , I w o u l d p r o p o s e ,
t h e r e f o r e , e x a m i n i n g w i t h m y c o l l e a g u e s t h e p o s s i b i l i t y of e x t e n d i n g t h e o u t p u t
a l l o w a n c e p r o p o s e d for m e t a l m i n e s to oil a n d c e r t a i n o t h e r specified m i n e r a l s
such as asbestos,
I a m also p r e p a r e d to consider reducing the overriding
m a x i m u m i n t h e c a s e of B r i t i s h c o m p a n i e s o p e r a t i n g o v e r s e a s t o 1 0 % .
4,
I h a v e a l s o c o n s i d e r e d t h e q u e s t i o n of w h a t i s r e p r e s e n t e d t o b e t h e
" d o u b l e t a x a t i o n " of i n v e s t m e n t i n c o m e , w i t h p a r t i c u l a r r e f e r e n c e t o t h e p o s i t i o n
of i n v e s t m e n t t r u s t s ,
I a m p r e p a r e d to a c c e p t a p r o p o s a l o n t h e l i n e s of t h a t p u t
o n t h e O r d e r P a p e r b y M r . A s s h e t o n f o r t h e e x c l u s i o n of a f r a c t i o n of t h e e x c e s s
profit in the proportion that the franked investment income b e a r s to the c o m p a n y s
total income.
This concession would be confined to investment c o m p a n i e s .
It
would not extend to t r a d i n g c o m p a n i e s since its application t h e r e would p r o d u c e
indefensible results.
,
5.
The o t h e r p r o p o s a l s put f o r w a r d in m y m e m o r a n d u m , n a m e l y , the n e w
a l t e r n a t i v e s t a n d a r d b a s e d on capital employed; the i n c r e a s e in the m i n i m u m
s t a n d a r d to £ 5 , 0 0 0 ; the i n c r e a s e in t h e a l l o w a n c e on p r o f i t s p l o u g h e d back, into
t h e b u s i n e s s a n d o n n e w c a p i t a l f r o m 10% to 12% (with i n c r e a s e s in t h e
additional a l l o w a n c e s given on m e t a l m i n e s and oil wells to 3 % and 6%), and the
p r o p o s a l t o g i v e a n a d d i t i o n a l a l l o w a n c e of 4 % o n b o r r o w e d m o n e y ( a s w e l l a s
allowing the interest paid as a deduction), have all been accepted by m y colleagues.
6,
T h e t o t a l c o s t of t h e s e p r o p o s a l s , i n c l u d i n g the f u r t h e r r e l i e f f o r c o m p a n i e s
o p e r a t i n g o v e r s e a s , would be £ m 5 6 .
T h i s w o u l d r e d u c e t h e n e t y i e l d of t h e
E x c e s s Profits Levy, allowing for the concessions m a d e on the Profits T a x , to
£ m 4 4 . I could not defend reducing the yield to a figure a s s m a l l a s this and
I p r o p o s e , t h e r e f o r e , t h a t t h e d i s t r i b u t e d r a t e of P r o f i t s T a x s h o u l d b e p u t b a c k t o
2 2 ^ % w h i c h w o u l d t h e n l e a v e a n e t y i e l d of £ m 7 6 .
While the 22f % r a t e on the
dividend will still be les? than the existing r a t e (which is about 25%), I g r e a t l y
r e g r e t having to m a k e this i n c r e a s e in the Profits Tax.
The reductions
I p r o p o s e d in the Budget p r o c e e d e d on the b a s i s t h a t a s s o o n a s the p r e s e n t
e m e r g e n c y w a s o v e r t h e t a x a t i o n of i n d u s t r y o u g h t t o b e r e d u c e d , a n d i t i s w i t h
B u t if s u b s t a n t i a l
r e g r e t that I a m forced to reduce this prospective relief.
c o n c e s s i o n s a r e to be m a d e on the E x c e s s Profits Levy t h e r e is no a l t e r n a t i v e .
R.A.B.
T r e a s u r y C h a m b e r s , S . W . 1. ,
5 T H M A Y , 1952.
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