 In addition to income tax, companies were also subject to a profits tax, introduced by Labour Chancellor Sir Stafford Cripps, which was deducted from company profits when determining the income tax liability. It was a differential tax, with a higher tax rate on dividends (profits distributed to shareholders) than on profits retained within the company. By penalising the distribution of profits, it was hoped companies would retain profits for investment, which was considered a priority after the Second World War. The tax did not have the desired effect, so the distributed profits tax was increased by 20 % by the post-war Labour government, in an attempt to coerce companies into retaining more of their profits. At the time of Hugh Gaitskell's 1951 budget, the profits tax was 50 % for distributed profits and 10 % for undistributed profits.
