§ Income Tax in respect of income arising from securities, stocks, shares, or rents in any place out of the United Kingdom shall, notwithstanding anything in the rules under the fourth and fifth case in Section one hundred of the Income Tax Act, 1842, be computed on the full amount of the income, whether the income has been or will be received in the United Kingdom or not, subject in the case of income not received in the United Kingdom to the same deductions and allowances as if it had been so received and to a deduction on account of any annual interest or any annuity or other annual payment payable out of the income to a person not resident in the United Kingdom; and the provisions of the Income Tax Acts (including those relating to returns) shall apply accordingly and in particular for the purpose of computing Income Tax in respect of securities, stocks, shares, or rents to which this Section applies in pursuance of the rules under the fourth and fifth cases in Section one hundred of the Income Tax Act, 1842, the income arising from the securities, stocks, shares, or rents shall be substituted for the sums, profits, or gains, as the case requires, received therefrom in the United Kingdom:
§ Provided that this Section shall not apply in the case of a person who satisfies the Commissioners of Inland Revenue that he is not domiciled in the United Kingdom.
§ Mr. CASSEL
I beg to move to leave out the Clause.
Although this Clause involves a comparatively small amount of money, it involves a very important question of principle. It goes to the very roots and fundamentals of our Income Tax practice. Under our existing system the income on which the tax is collected may come under one of two headings—income which is taxed that arises in one sense or another in the United Kingdom, or income which, although it arises outside the United Kingdom, is received within it. In other words, we only tax the income in cases 464 where that income is created or enjoyed under the protection of British law. Now, for the first time, it is proposed to depart from that principle, and to tax income which neither arises nor is received in the United Kingdom—that is to say, income which neither in its creation nor in its enjoyment receives the protection of British law. It is proposed to do that in face of opposition from the self-governing Dominions, which do give protection to the creation and enjoyment of that income, and can legitimately claim that that income is more properly a subject for taxation by their Governments than it is a subject for taxation by ourselves. This Clause has had a somewhat curious history. It began almost without criticism or opposition when the right hon. Gentleman introduced it. On his Budget Statement and on the Report stage of the Resolution hardly any criticism was offered. The only voice raised against it was that of the hon. Member for Wandsworth (Mr. Samuel Samuel) in a maiden speech, to which the right hon. Gentleman paid a well-merited tribute. He congratulated the hon. Member on his courage in having stood out alone to criticise this Clause. Since we have known its terms and seen it in black-and-white, the criticism and the opposition have grown and developed.
In the first place, there has been criticism in the Press. In the second place, there has been a deputation which went to the Secretary of State for India, representing the views of those interested in the trade and commerce of India. In the next place, there have been representations from the self-governing Dominions, and, lastly, it is interesting to follow the course of the Debate on the Committee stage, because then, apart from the Treasury Bench, there was not a single voice raised in favour of the Clause. Three hon. Members opposite spoke from the Back Benches. One of them was the right hon. Gentleman the Member for the Spen Valley (Sir T. Whittaker), who is peculiarly well-fitted to speak on a financial question of this character because of his great knowledge and experience of these matters. He joined in the plea I myself urged, that this matter should be referred to the Royal Commission before it was dealt with. The hon. Member for Dumfriesshire (Mr. Molteno) said that the Clause was going to injure the international trade of Great Britain abroad, and complained that it was contrary to the principles of Free Trade. 465 Lastly, there was the hon. Baronet the Member for Elgin and Nairn (Sir A. Williamson), whose speech I can only describe as condemning the Clause with the faintest possible praise. So that on the Committee stage the only speeches from the other side of the House which were made in favour of the Clause were those made by the Chancellor of the Exchequer and the Attorney-General. They, sitting on the Treasury Bench, could hardly have spoken otherwise.
The Clause in itself has certain attractions. I confess that, to my mind, at first blush, it had attractions, perhaps because what the right hon. Gentleman was endeavouring to do was to tax certain classes of income which now escape taxation, and which, if we could do it without injury in other directions, we might wish to tax, namely, the income of wealthy persons who can afford to leave it outside the jurisdiction of this country and reinvest it there without bringing it home. The points that have to be considered are, in the first place: Are you really and substantially going to hit the person at whom you are aiming and, in regard to that class of persons, to do justice as between one taxpayer and another; and, secondly, in order to be able to do it, are you not going to do an infinite amount of harm and mischief to Britsh companies trading in this country with foreign companies, and to British companies which do trade in foreign countries? Although in the first instance, I was attracted by the proposal, on looking into the matter I have come to the conclusion that you are going to create ten injustices for every injustice of which you are going to get rid, and you are going to create a whole host of fresh anomalies.
The wise and proper course with regard to this Clause would be to defer it for consideration to the Royal Commission which is about to be appointed. I will give one or two illustrations of how this Clause is going to operate. Under it you are going to let off partnerships and tax shares in companies. You are not going to tax a share in a partnership, but you are going to tax a share in a company. Assuming that there are two tea plantations in Ceylon or in India exactly identical in character, and producing exactly the same profit, say, £5,000 a year each, and one tea plantation is owned by a partnership which is controlled abroad. A, who is domiciled and resident in England, owns 466 two-fifths of the partnership capital; he is entitled to £2,000 of the profits, and he reinvests it in India. He is not hit by this Clause. The next plantation, precisely similar in character, is owned by a company, and B, domiciled and resident in this country, owns two-fifths of the share capital of that company. He receives £2,000 in dividends, and reinvests in India, and is made liable to the double Income Tax of India and this country. What possible justification can there be for making the distinction in these two cases? You cannot put it on the ground that in the one case the profit is earned by the personal exertions of A, and in the other not by the personal exertions of B, because I assume A to be merely a sleeping partner. I will give a still stronger case to answer that, because if A, instead of owning two-fifths, owned the whole business, he would be liable under the existing law as controlling the business, however much he might leave it in the hands of a representative. The right hon. Gentleman is producing under this new Clause new anomalies which never existed in the Income Tax law before. It is absolutely indefensible on any principle of fair dealing and justice as between one taxpayer and another.
But that is not the worst of it. The right hon. Gentleman is going to do a most serious injury to British companies which carry on business in this country in competition with foreign companies, and while that will operate in any case, it will operate more strongly in the case of life insurance companies. There are foreign and Colonial life insurance companies in London, and there are British companies. By this Clause you are going to put a special handicap on British companies in that competition, because the foreign company will not be liable under this Clause and the British company will, and it is a matter of vital importance to insurance companies because the dividends on their investments are larger than the amount of their property. You are going to make British companies pay under this Clause, while you are going to let foreign companies off. Under that you are going to give such an advantage to foreign companies that it is bound to divert a great deal of the business which is now done by British companies to foreign companies. I raised that point in Committee, and there was no attempt at an answer from the Treasury Bench. They resorted to the usual device where a point is put which 467 is incapable of answer, and they ignored it. Take the reverse case, which I did not bring to the right hon. Gentleman's attention in Committee. That is the case of a company domiciled and registered in Great Britain but doing business abroad. In those cases, under this Clause, you are going to do very serious injury indeed. As I understand, the present law is this: These companies are liable on their profits wherever they are earned, whether they are brought home or not—that is to say, a land company domiciled and managed from England is liable now on any profit which is earned in the Argentine or any part of the world, whether it brings it borne or does not. You are going to go further than this; you are going to tax them whether they make a profit or a loss, if they receive anything that you can call rent or income from shares or stock.
Take the case of a land company which makes a loss on the year and receives a certain amount of rent in the Argentine, and applies it in the Argentine in meeting losses or expenditure on its general business. You are going now, although it has made a loss and though that rent is paid in meeting losses, to tax it in this country. That is an entirely new proposal. It is not a proposal to which the House ever gave its sanction. The House never knew it was doing so, and if it had known what it was doing, it would never have consented to it. Take another case. An English company owns two hotels abroad, lets one at a rent and works the other itself, and applies the rent which it receives from the first in meeting its liabilities abroad, never bringing it home. In that case the right hon. Gentleman is going to tax it on the amount of that rent, although the company has never made any kind of profit. The worst case of all is the case of insurance companies, for the reason that the normal position of an insurance company is that its dividends and interest are greater than its profits. It is the normal position of several kinds of companies, but mainly of insurance companies, and in insurance companies a large number of very small people are interested. When we were discussing Clause 10, the hon. Member (Mr. Worthington Evans) gave us a very striking example of it, and since then I have had an interview with the director of an English insurance company which does a large amount of business abroad, and as he puts it, interest and dividends received abroad 468 are six times the amount of profits earned abroad. So the right hon. Gentleman is going to make that company pay on the interest and dividends received abroad, although they are six times as great as the profits, which is virtually making them pay six times 1s. 3d. on the amount of their profit. In addition to that, they have to meet a local Income Tax. There is only one course for companies in that position, and that is to transfer their businesses to a foreign country. It is the only way in which they can continue to carry on business. It is not confined to the case of insurance companies. Take a bank which has branches abroad. Supposing in a particular year it makes a loss; you still make it liable on the interest and dividends of the investment which it has abroad, and which it uses to meet the current requirements of that business abroad, and never brings into this country. That was not the object of the House when the Clause was brought forward. The object was to hit rich men who escape Income Tax now by sending their investments abroad. The by-product of your Clause is an injury far greater than any good which you could hope to achieve.
Now let me give the right hon. Gentleman another case. You have included in this the case of rent. To begin with, under our present Income Tax law, we do not tax rents as such at all. You tax profits or the annual value of land, but when you tax rent it means that in the case where a fine has been paid, and there is a small rent, the man escapes, but where no fine is paid he is made liable Surely that is absurd and utterly unjust. Again, these rents may be used for the purpose of developing an estate. I will take a case where a man has an estate in Canada, and receives a certain amount of rent in connection with it. I am not dealing with the case of gross or net rent, but I am assuming that he is using the rent for making capital improvements or making roads. Although he never brings it back into this country and uses it in developing his property in Canada, you are going to make him liable to Income Tax in this country when he may already be charged Income Tax in the country where he receives protection for his property. Surely, that is an utterly unjustifiable proposal. Moreover, you are taxing him on gross rent, but that arises on another Amendment. I will assume that it is net rent. I say it is unjust in the case of net rent to charge a 469 man on rent which is used for the purpose of developing an estate, and which he never brings back to this country at all. In conclusion, I again venture to repeat my suggestion to the right hon. Gentleman that this would be a proper case to refer to the Royal Commission. Chancellors of the Exchequer for years have had present to their minds the fact that there is a certain amount of income abroad which is now escaping taxation and which they would like to make liable to it, but they have always seen the difficulties with which that path is strewn. The right hon. Gentleman at the very moment when we are going to appoint a Royal Commission to which that question is to be referred rushes in with this half-baked and crude Clause, which is going to do ten injustices for every case where it properly applies. To do that when you are about to appoint a Royal Commission is the high-water mark of political folly. The right hon. Gentleman says that if you pass this Clause now you will gain experience, and the Royal Commission will have something to go upon. The corpus vile of the experiment is the whole national trade of Great Britain, and the right hon. Gentleman is going to create an amount of dislocation, inconvenience and disturbance which is difficult for us in this House to estimate. There are many insurance companies which will have to make entirely new arrangements in view of this Clause, and it would be wiser before taking this step, when it is going to produce so little money, to have the whole question fully and carefully considered. If the right hon. Gentleman wishes to act up to the principle of his Government, to legislatate in haste and repeal at leisure, that is likely to cause the greatest possible inconvenience to many people doing important trade throughout the Empire and abroad, and I am confident that if hon. Members were only allowed to vote as they please they would vote in favour of letting this matter, first of all, be carefully sifted. As the right hon. Gentleman knows, they only support him out of party loyalty and devotion. I would ask the right hon. Gentleman himself to give effect to what he knows to be the real wishes and desires of his own supporters.
§ The ATTORNEY-GENERAL (Sir John Simon)
The hon. and learned Gentleman who moved the rejection of this Clause is really a very difficult person to please. 470 This is not the first time he has made a speech about this Clause. The last time he made a speech about it he did not condemn it. On the contrary, on the last occasion, which was as recently as 13th July, he said that he sympathised with the objects of the Clause, and that he thought hon. Members in all quarters of the House must feel sympathy with the objects of the Clause. The last time he made a speech about it he felt very much concerned lest the machinery available for applying the Clause would not be strong enough to catch the people who ought to pay the tax, and that attitude and temper was so generally shared by hon. Members opposite that, though in the course of the Committee stage the Clause had been elaborately discussed from many points of view, it was felt that it should be part of the Bill, and nobody could be found to vote against this proposal. We pass from 13th July to the present date.
§ Mr. CASSEL
The hon. and learned Gentleman has not represented quite accurately what I said in my last speech. A great many of the arguments which I urged to-day I urged then.
§ Sir J. SIMON
Do I do the hon. and learned Member an injustice when I say that when he made his previous speech he gave us to understand that he was sympathetic with the objects of this Clause, and that he thought everybody else would be? Has the hon. and learned Gentleman changed his opinion or has he not?
§ Sir J. SIMON
I thought when I heard his speech to-day that he was of a different opinion from that which he formerly held. When this Clause was previously discussed in Committee nobody could be found to vote against it, although there was a great deal of discussion in detail. The hon. Member for Colchester (Mr. Worthington Evans) and the hon. Member opposite (Mr. Cassel) made criticisms which I agree were valuable and important, and both, I think, were careful to explain that the general object of the Clause was one which they were not to be understood as condemning in toto. What is the object of the Clause? We have an Income Tax which calls upon many citizens to make contributions out of their incomes for various purposes—purposes which, so far as this Budget is concerned, nobody has disputed. Supposing a man has investments 471 abroad which produce an annual revenue, and his resources are such that he cannot afford to roll that revenue up, and he has to bring it to this country to spend it—he is taxed. But the person who at present does not bring home the revenue is not taxed, and he is the citizen to whom the hon. Member, if he had his way, would show a special favour—the citizen who has such a revenue, but who, nevertheless, is so well provided with this world's goods that he does not need to spend the income he has got, but can invest it indefinitely, and he invests it abroad. That is the man the hon. Member for St. Pancras thinks ought not to be caught by this Clause.
§ Sir J. SIMON
I beg pardon. I do not wish to misrepresent the hon. and learned Gentleman. It seemed to me that he said that man ought not to be caught. If he does mean that that man should be taxed, what does he mean by moving the rejection of the Clause?
§ Mr. CASSEL
I say you are trying to catch that man by this Clause. I do not think you will do it, but you will do a great deal of harm to the trade of the country.
§ Sir J. SIMON
That might be a good reason for getting the hon. and learned Gentleman's valuable assistance in altering and improving the Clause. I fail to see how anybody in favour of putting Income Tax upon persons who at present escape because they get income from abroad should reject such a Clause, the object of which is to secure that they shall pay Income Tax. I remember that the hon. and learned Gentleman in his previous speech raised some question as to whether the machinery would be adequate to secure this new source of revenue from persons, who, as I then understood him, would be very proper persons to pay the tax. I pointed out that while no doubt the subject is a difficult one, you have available for the purpose of collecting the revenue under this new Clause the whole machinery of the Income Tax Acts—the system of declaration, the system of penalty, the system of exacting treble duty, the system of calling executors to account if their testator in the last years of his life is found to have concealed improperly his true income—and that just those same methods which in practice have been found to be effective for securing revenue under other classes of 472 Income Tax are available to be used, and are to be applied, for the purpose of getting Income Tax from this new branch of the subject-matter. Therefore, so far as effectiveness goes, I should have thought that we had very good reason to say that this Clause is going to produce the result expected. The hon. and learned Gentleman says, "Here is a Clause with very little money in it." I remember the ex-Chancellor of the Exchequer, when he came to criticise the Clause, complaining that because the Chancellor of the Exchequer had so grossly underestimated, as he thought, the amount the Clause is going to produce—
§ Mr. CASSEL
I do not think I said there is very little money in it. I said it involved a small amount of money, but it involved a principle.
§ Sir J. SIMON
As the principle is a good one, and as the hon. and learned Gentleman says there is a little money involved, surely it must be a very good Clause. The latest estimates I have been provided with—they are, of course, only estimates, but they have been formed by very skilful persons in the Department—show that in this present year, when, of course, you only get a few months' revenue, it will produce £250,000. It is estimated that next year it will produce £470,000, and I think the hon. Member below the Gangway pointed out that, he anticipated a full year might produce £1,000,000. That is not a matter to be dismissed very lightly, unless the hon. Gentleman is opposed to the principle of the Clause, which, he tells us, he is not. If it be true that there are certain citizens in the country who at present escape Income Tax, though they are persons above all others who should pay it, to say that these persons ought to continue to escape a tax which in a full year will amount to £1,000,000, means that that amount has got to be found by other taxpayers who are already under the burden of the Income Tax, and who, it may be, cannot bear it so easily. The hon. and learned Gentleman says that here is a Clause which he thinks is likely to produce grave embarrassment in the Empire beyond the seas. He is quite right in thinking that this particular topic is one which those responsible for the Clause are anxious to consider most carefully. The Chancellor of the Exchequer has explained that the Clause in the way now proposed—there is an Amendment on the Paper, of which the Chancellor of the Exchequer has given 473 notice—is expressed in the form which has been devised after consultation with representatives of the Dominions here in London. It is expressly so framed as to avoid those very objections which the hon. and learned Gentleman, after a process of mature reflection on the Clause, thinks will work for embarrassment. The Clause applies the general principle, and the burden of the tax is not to fall upon any individual who is not domiciled in the United Kingdom to begin with. That is to say, a great number of persons are to be found in the United Kingdom who have got an adress here, but who, nevertheless, are not domiciled here, although they may spend a great part of their life here, and they are not touched by this Clause at all. That, to begin with, is an important exception, and it is, I think, a very proper exception, which operates in order to relieve the kind of case which the hon. and learned Gentleman has in view. He referred to the Anglo-Indian case. That, again, is a very proper case to bring forward. It may be said that there are some of these persons who are domiciled in the United Kingdom. Domicile does not depend upon where you actually reside; it depends on other circumstances; and it may be that though a person is domiciled in the United Kingdom he is not ordinarily resident here, British subject though he is. The Anglo-Indian, whose case I think was mentioned by the hon. Member for Nottingham, who spends very little of his time in this country, but who is a British subject, and is usually resident in India, or it may be in any part of the world, is by the Clause, as we propose to apply it, exempt from this tax altogether. When you have excluded these men, the man who is not domiciled in the United Kingdom and the man who, though a British subject, is not ordinarily resident in the United Kingdom, you do provide for those very cases to which the hon. and learned Gentleman referred when he said that he thought that this Clause would produce feelings of soreness and resentment in the Dominions beyond the seas.
The Chancellor of the Exchequer, having entered into negotiations in London with the representatives of those areas, now has got this Clause in a form which does not produce that resentment, and in a form which ensures that no such charge can fairly be made against this Clause. Then the hon. and learned Gentleman goes on to complain because businesses are exempt. What would he have said if 474 businesses were included? In a Finance Bill, and most of all in Income Tax Clauses, you always have the complaint either that it does not do enough or that it does too much. But the proposal here made is a proposal to tax securities, stocks, shares, and rents, and not a proposal to tax businesses. The right hon. Gentleman the Member for West Birmingham, an ex-Chancellor of the Exchequer himself, put that point yesterday, and if the hon. and learned Gentleman had been in the House he would have heard the right hon. Gentleman express great satisfaction that the new Clause does not include businesses. Are we to understand that the hon. and learned Member wishes that it did?
§ Mr. CASSEL
The right hon. Gentleman is not fairly representing me. What I stated is that you are making an absolutely illogical distinction between cases of partnership and companies.
§ Sir J. SIMON
But then what is it to be? On what basis does the hon. and learned Gentleman say that it is to be put? I agree that it happens quite often in income Tax laws—and anybody who is familiar with the subject knows many instances of it—that the actual line which you draw is a line which leaves on one side of it cases about which arguments might be made that they ought to be on the other side and vice versa. There may be a commission which is going to have the result of removing all those anomalies. If so, it will be a highly successful Commission. The truth is that in any Income Tax proposal, while you have to try to do what is fair, you do not found any valid criticism of the proposal by saying, "If you go as far as that why do you not go a little farther?" May I remind the hon. and learned Member that yesterday the right hon. Gentleman the Member for West Birmingham asked a question on this point, and it was pointed out, and I think he expressed great satisfaction with the answer, that our new Clause 5 is not addressed to businesses as such at all. Its primary object is to deal with the proceeds of securities, shares, stocks, or rents, and quite deliberately that is not extended to the case of the ordinary business. That is not to say that a business which is carried on abroad in all cases escapes Income Tax altogether, and if anything I said yesterday by accident produced that impression—I am sure it will not have produced it in the mind of the right hon. Gentleman, who knows the subject so well—I would like to 475 take this opportunity of correcting it. As I understand businesses carried on abroad at present stand in this position that they are independent of Clause 5 altogether.
Suppose that an individual who carries on a business is resident in the United Kingdom, and carries on his business, it may be partly in the United Kingdom and partly abroad, as not infrequently happens, under the existing Income Tax law as administered by Government after Government, he has got under Schedule D his balance of profits and gains to bring the whole matter in; but supposing he is a main in whose case the business was exclusively carried on abroad, then in that case, so long as it is really carried on abroad, it is under the old law only the proceeds of that business, so far as they are remitted to this country, that come under the tax. On this point I may quote a well-known authority:—Where a person resident in the United Kingdom has profits from a trade carried on entirely elsewhere than in the United Kingdom, those profits are not assessable until they are received here by the person entitled to them.That is undoubtedly how the matter stands now. What we propose in this Clause 5 does not touch such businesses at all. The hon. and learned Gentleman says, Suppose that the business was a company, and that its profits were expressed in the form of dividends on stock or interest on shares in that incorporated company, then, he says, if the individual who owned any of those stocks or shares was a person under Clause 5 he would be caught by it, though the owner of the business would not be caught by it at all. The criticism is just. What the hon. and learned Gentleman says is quite right, in so far as that shows that the line we draw is a line which to that extent has got to involve that anomaly. I admit that that happens, but unless the hon. and learned Gentleman is coming forward to say that that shows that we should not have such a Clause at all, which he does not say, or unless he is coming forward to say that that shows that we ought to extend the Clause to businesses, which he does not say, really his criticism leaves the Clause exactly where it was before. If the hon. and learned Gentleman is going to make that criticism, and then to say that you ought not to have such a Clause at all, and that you ought not to tax people who are drawing interest or dividends from securities abroad which they do not bring to this country, that would be another thing, 476 but he does not say so. He says, "I approve of the principle." He did on the 13th of July and I understand he does so now.
If he was going to say, "I have shown you that there is a difference between the treatment of a business and of a company, and therefore businesses ought to be brought within the Clause," that would be an argument leading to some result, but he says that businesses ought not to come within the Clause, and therefore unless it be one wants to examine the Clause on the Report stage in order to make some quarrel with it—any quarrel will do—I fail entirely to see what is the importance of that particular criticism which the hon. and learned Gentleman has made. I am sorry if I seem to be unnecessarily vehement in my opposition to the hon. and learned Gentleman's criticism, but we all appreciate him when he makes a good point, and I suggest that the criticism which he is now putting forward cannot be a criticism which is going to be of any service to the Opposition, because this Clause, submitted as it has been to a great deal of discussion, is a Clause which was passed by common consent, as embracing cases which it was desirable to bring within the Income Tax law. The hon. and learned Gentleman made a reference to rents. I agree that that is rather a different case, and if he will be so good as to follow me for a moment, I would like to call attention to how the difficulty arises. I see an Amendment down on the Paper in the name of the hon. Member for Tewkesbury, and an Amendment in the name of the hon. and learned Member for Gloucester. I do not think that in that form we could contemplate accepting the Amendment, but in substance, what I would like to do is this: I am sorry to have to speak on rather technical things, but it is necessary, first, to put the following point on the Clause. The Clause deals with securities, stocks, shares and rents. From some points of view the case of rent is rather different from the case of securities, stocks, and shares. So far as securities, stocks and shares are concerned, I think that it will be found beyond question that on the Clause as it stands it is quite right in making a proper allowance in the event of those things not being sent to this country. But rent may be in a different position.
Suppose that a man has, say, house property in Canada, the rents which are paid in Canada by his tenants in respect of 477 the occupation of that house property might be and might not be sent to this country. If they are sent to this country in the ordinary way, as I think was pointed out earlier in the Debate, they would be sent less the expenses of insurance, repairs, and things of that sort, and I think myself also in the ordinary way, they would be sent less any Income Tax which is payable on them. On the other hand, it is conceivable that they might not, and that they might be sent over here, as one might say, in gross, and that the owner might pay his Income Tax out of some other sources. The Chancellor of the Exchequer pointed out last night that it was not our intention at all to say that a man who had this property and kept it there should pay on a larger sum than the sum on which he would pay if the income was sent here, and we think that the words of Clause 5subject in the case of income not received in the United Kingdom, to the same deductions and allowancesreally cover that case, at any rate in most instances; but to make the thing doubly clear, we shall be prepared when the time comes to agree to a modification rather on the lines of the hon. Member for Tewkesbury, and I think it will be found best if I may just indicate it now. We should be prepared to bring in at some place, within a line or two of the passage which I have just quoted, words something to this effect: that the income which is not remitted to this country, though not remitted to this country, is to be taxed as though it had been received in the United Kingdom, subject to the same deductions and allowances as if it had been so received, and the deduction, where such deduction cannot be made under any other provisions of the Income Tax Acts, of any sum which shall be paid in respect of Income Tax in the place where the income shall have arisen. If we put that in it will make it doubly certain, because the last thing we would wish is that in the interpretation of this Clause—the interpretation of which is necessarily rather difficult—should be different from that which we indicate.
I indicate that because of the desirability of avoiding further misunderstanding. Having explained that, I turn to the main point, and I submit with confidence that the principle at the bottom of this Clause is a good one. The principle is to tax income of certain persons who enjoy income, and who at present escape Income Tax. If you are going to draw a distinction, they 478 are a class of person who, as it seems to me, ought to be taxed more readily and more easily than some other people who cannot afford to roll up their incomes abroad in this way. I accept the criticism of the hon. and learned Member that the Clause might conceivably go further. Since he does not desire that it should go further, and since, on the other hand, he does not urge that the Clause in principle is a bad Clause, I would suggest that he might leave the thing as it stands in that regard. Thereby we shall catch the man who invests his money abroad and rolls up the interest of that money abroad. Whether the investor's money is in securities, in companies, in land, or house property we shall do that. At the same time we shall not in the least add to the burdens of the ordinary business man, whose case the right hon. Gentleman opposite so particularly raised last night. The addition was suggested of words which will make it quite clear that there will be no attempt to tax income which is not remitted to this country in a larger sum that the sum available to be taxed if it had been remitted to this country. After we have made these adjustments we submit to the House that we shall have made an addition to the Income Tax law which is thoroughly justified. I repeat that it is far better, if there is going to be an inquiry into the Income Tax law, that the inquiry should take place after this Clause has been put into practical operation than to simply leave it to the realm of theory, where it would not have the slightest opportunity of being tested practically in order to see whether the theoretical objections are well founded or not. I believe that the inquiry and the recommendations made would be far more effective if the Clause were passed and put into actual work, when it would be seen whether or not it operated on the whole fairly and justly.
§ Mr. HAYES FISHER
We are all very glad that the right hon. Gentleman the Attorney-General has recovered his vigour and his volubility. He simply remained silent last night when we asked him for an answer on this point, and I am very glad indeed that after a night's consideration he is able to reconcile his view of the law with the view of the law laid down by the Chancellor of the Exchequer. We might have saved an hour's Debate last night had the right hon. Gentleman been in the same mood as he is to-day. We recognise the return of his vigour and 479 volubility, but I can only say that I regret his references to the speech of my hon. and learned Friend (Mr. Cassel), for I believe if the right hon. Gentleman reads that speech made on the Second Heading of this Clause, and then reads his own speech, he will see that he has merely produced a caricature of the speech of my hon. and learned Friend. The hon. Member for West St. Pancras has been twitted—he has been more than twitted—he has been censured by the right hon. Gentleman because he stated on the Second Heading of this Clause that he was in sympathy with its general object. We have all been in sympathy with the general object of the Clause. [HON. MEMBERS: "Oh, oh!"] I have heard no dissenting voice on that matter. We all of us wish that the Treasury may be enabled to exact from any rich man who invests his money abroad, whether in a foreign country or in one of our Dominions, a proper amount of Income Tax on the income from his investments. Whoever that gentleman may be—where he is so rich that he can afford to leave the dividends on his money abroad and so evade his proper share of Income Tax, or probably prevents them from being added to the aggregate of his income so that they may come from one grade of Income Tax to a lower grade of Income Tax, we have no sympathy with that; nor have I heard any expression of sympathy with it. We agree that so far as Clause 5 operates to defeat the cleverness of that class of investor we are in favour of it. But because we are in favour of the general principle of the Clause, are we bound to say that we shall support that Clause whether it is amended or not amended, and though we think that the Clause is faulty in other prospects, and though we infinitely prefer that it should be dropped out of the Bill and sent to the Royal Commission, who are investigating the whole of these difficult problems? That is the attitude which was adopted by my hon. and learned Friend from the very beginning. He said, "I agree with the general object of the Clause, but I hope that when we discuss it many Amendments may be drafted to prevent that Clause from doing many acts of injustice." Those were pointed out by my hon. and learned Friend.
To-morrow night, supposing we do not vote against the Third Reading of the Budget it will be because we approve of 480 things in it, because we approve of Clause 12 and of Clause 9. We find ourselves in this position, that we have to say in this House whether we agree in the main with something, or whether we think that we so disagree with it that we are bound to go into the Lobby against it. In the main we agree with the objects of the right hon. Gentleman in this Clause, and if there had never been any prospect of a Royal Commission I daresay we might not have taken up the attitude that we have taken up all through these Debates. The right hon. Gentleman said, "Do not let us send this Clause to Commission without having made some experiments which may be very useful to them." Many of us say that it is very hard that possibly on 10,000 victims of little acts of injustice, as possibly will be the result of this Clause, should be experimented upon for the good of the State. We think that if you are going to set up a Royal Commission, it would be much better to set it up before you do inflict many of these injustices which my hon. and learned Friend thinks undoubtedly will be inflicted by this Clause. As I have said, we have no sympathy with the investor who seeks to evade his proper share of the Income Tax by keeping dividends abroad and rolling them up, and does not have them sent over here. But I am not at all sure that we should agree as to another class of case which would be hard hit by this new Clause—the case of a man who puts his money into a small syndicate or company, and who is in the habit of keeping £2,000 or £5,000 in the business, and which sum never comes over here. But now he will have to declare the whole of the £5,000 here, whether it is from rent, securities, stocks or shares, and his income, very likely, will have to pay two Income Taxes, the Income Tax of the country of origin and the Income Tax of the country to which it is brought, and that will be aggregated, with other sources of income, and exposed to a higher rate of Super-tax than to which many of us think it ought to be exposed.
Hon. Members on the other side may ask why we should differentiate between the man who invests his money in business abroad in this way and the man who invests his money in business here; and the man who invests his money here and does not choose to spend the whole of his income, but returns a large part of that income into the business, would still have to declare the whole of his income in respect of Income Tax in this country. 481 But I would point out that the whole of the benefit of the tax inures to his business in this country. There is a great difference between the man who derives £5,000 a year in Australia, Canada or Ceylon, and the man who derived £5,000 from his business in Yorkshire, Lancashire or London. In this country the tax will go to the benefit of the one who has his business in this country. Take National Insurance, part of the Income Tax goes to National Insurance claims, and possibly the man may have 400 hands employed in his business in Lancashire or Yorkshire. Let the same man of business go to Australia, Ceylon or Canada, he would have to pay the same Income Tax here, and that Income. Tax would not inure to his benefit. He might have 400 hands employed in Canada or Australia, and some of the Police Rate, the Poor Rate, or other purposes are matters on which the Income Tax there is spent. Therefore, I think there is a very great difference between the man who derives his income from properties and business situated abroad, and the man whose property and business are situated in this country. From the point of view of public policy I very much doubt whether it is wise to discourage men in this country, Englishmen, Scotchmen, Irishmen and Welshmen, from going abroad and putting their money into businesses and various industries or landed properties, and so on. I think it would be contrary to public policy to discourage them.
It may be said that if you put your money into business here and do not spend the whole of it, still you must return the whole of your rents, securities, and so on for Income Tax. After all, that has always been so. But this is a new departure altogether in taxation, and therefore I think it requires a very great deal of justification. I think the Attorney-General has had glimpses of certain acts of injustice that may be done under this particular Clause. I notice that he did not attempt to reply to the criticism of my hon. and learned Friend as to foreign companies. The learned Attorney-General did not attempt to meet that point at all, nor several other points. We have not been satisfied about this Clause from the very beginning in regard to the position of those who have to pay two sets of Income Tax—the Income Tax abroad and the Income Tax here. There again the discussion has been useful, because the Chancellor of the Exchequer, I think, is seriously disturbed in his mind as to 482 whether it is not going to inflict a very great injustice indeed on those who will have to pay on the income which they derive abroad—who will have to pay two sets of Income Tax, one in Australia, or South Africa or New Zealand, and one here. Obviously that is contrary altogether, apart from its actual injustice to public policy. I have already heard in the last few days two people declare that in future people will not come over here to live in this country, but will go to Switzerland, France, or Italy, if they have to pay two sets of Income Tax when they return here. I am not quite sure that it is not good public policy to encourage all our citizens who leave this country for Australia or New Zealand or Ceylon to come over and live here as much as possible, either for the education of their children, or for other reasons. The reservations and conditions, which the right hon. Gentleman has made in regard to people domiciled here will meet many cases, but I believe there will still be under Clause 5 many instances where double Income Tax will be incurred by those who derive income in any of our Dominions abroad.
§ The CHANCELLOR of the EXCHEQUER (Mr. Lloyd George)
Will the right hon. Gentleman suggest one or two possible cases where double taxes will be paid?
§ Mr. LLOYD GEORGE
If the hon. Gentleman will suggest to me any case where a gentleman from the Colonies will be subjected to double taxes under this Clause, I am prepared to meet it.
§ Mr. HAYES FISHER
I think a very great deal would depend on the Definition Clause. "Domicile" is a word on which lawyers quarrel very often, and on which there have been many cases in the Courts. All we say as regards this Clause is that, while we do support the right hon. Gentleman in trying his best by its means to catch those who seek to evade their proper share of the tax, we still think that in the Clause as it is devised there are a great many acts of injustice that will be done under it, both to individuals and companies, and the case of the companies has not been met or attempted to be met by the Attorney-General. Therefore while we have sympathy with the general object of the Clause, we have taken this line all along that the Clause 483 is so uncertain in its operation, and so likely to bring about a great deal of injustice, that we thought it would be wise and more just if he did not put the Clause into the Bill this year, and if he referred the whole of this difficult matter to the Royal Commission which the Government are going to set up. That has been the whole of our case from the very beginning. Therefore, we have no right to be subjected to the taunt by the Attorney-General that we have not been thoroughly consistent in our general support of the Clause, while we have endeavoured to the best of our ability to show the weaknesses of the Clause, and to point out the injustices which might be perpetrated under it. Because we have taken up that position we are told, "Why do you not vote against the Clause. You are not consistent." We say we are thoroughly consistent in all our actions and criticisms as to this Clause, while at the same time we think that the general object of the Clause is good, and that is why we do not vote against it. And that is why, in all probability we shall not vote against the Third Reading of the Budget. It may contain many things to which we object, but with the Budget as a whole, we are not in disagreement, and just as we think that in the main this Clause is good, and ought to be supported, so we think in the main the Budget is good, and we have not voted against it, and we say that that is thoroughly consistent with our attitude.
§ Mr. WORTHINGTON EVANS
The right hon. and learned Gentleman, the Attorney-General, quoted, very unfairly I think, remarks of the hon. Member for West St. Pancras (Mr. Cassel) as to the attitude he had taken up with regard to this Clause. As I was included to some extent, I propose to claim that my attitude in this matter has been consistent. I say now that I sympathise with what the Chancellor said was the object of the Clause, but I say that the object which he expressed in his Budget Speech is not carried out. This is what he said the object was, dealing with this Clause:—I come now to another proposal from which I hope to get some revenue, and that is income that escapes taxation now owing to arrangements purposely made by men who are rich enough to leave their incomes abroad for reinvestment. In most cases those arrangements are made deliberately in order to escape subscribing to services which both parties consider essential to the well-being of the country."—[OFFICIAL REPORT, May 4th, 1914, col. 89, Vol. LXII.]If that is the object, the so-called object, of the Chancellor, I do not suppose 484 there is a single Member of the House on whatever side he sits who is not in favour of preventing those who purposely endeavour to escape bearing their fair share of the taxation of the country from escaping in the way they endeavour to escape. What I object to, and pointed out in Committee, was that that object is not met by this Clause at all, but that, on the contrary, it will have results which are not at all in consonance with that object, and which results ought to be very carefully examined and ought to be avoided if the House is to be asked to support this Clause or any Clause like it. Let me first of all deal with the question of avoidance. I put to the Chancellor of the Exchequer in Committee two methods, one of which was now employed for investing and accumulating incomes abroad, and another which might be substituted if the person was found to be stopped, and I put it to him that unless he could show that by this Clause, or by the Income Tax Acts or otherwise, he could stop that form of avoidance, that then all he is going to do by this Clause is to tax those who are more scrupulous and to let off those who are sufficiently clever, we will say, or sufficiently unscrupulous to take advantage of the means which are at their hands. That criticism has never been answered. The Attorney-General said not a word about it to-day.
The Chancellor in his speech the other day said that the business men who are clever enough to think of schemes of avoidance are far too well employed in business to think about putting any such schemes into operation, and that it would not be worth their while. That is what he seems to rely upon. The sum involved may mean £500, or even £1,000 or more, by the mere change in methods. Do not let anyone think that that is too large an estimate, because if a £5,000 income was accumulated abroad that would mean at least the avoidance of about £500 in taxation, if you take the Income Tax and the Super-tax into account, because it would pay in each case the tax at the highest rate. If £10,000 was accumulated abroad, then it would mean £1,000 at least in taxation, and that is only referring to the Income Tax. The same means that could be taken to avoid the payment of Income Tax could to a, large extent be employed for the purpose of avoiding Death Duties, and if you take into account what it would mean if those methods were adopted for the purpose of 485 avoiding Death Duties, then it might become very well worth the while on the part of anybody who choose to take advantage of the scheme. So that the Chancellor's answer that it is not worth the while of anyone to do so seems to me to fall far short of what is necessary to convince us that the wrong people are not going to be hit by this Clause. I think that the House is entitled to some more specific answer when a direct method is pointed out, and when the Chancellor is asked to say how it is going to be dealt with. That was pointed out in Committee, and I confess I pointed it out for the very purpose of warning the Chancellor that this Clause would be avoided. I do not want it to be avoided. If it is to be applied at all, it ought to be applied to all and equally. There was plenty of time between Committee and Report for the Government to consider this, and to put down whatever alterations in the Clause were necessary if they could prevent avoidance in the form that I pointed out to them. I believe it is because they cannot prevent avoidance that they have not made any attempt to meet it.
The Attorney-General, in answering, endeavoured to put my hon. Friend the Member for West St. Pancras on the horns of a dilemma. In dealing with the business, he said, "Do you not agree with the right hon. Gentleman the Member for West Birmingham (Mr. Chamberlain), and do you not want business to be excluded from taxation under this Clause?" That was not the point at all that my hon. and learned Friend was making. What he was pointing out was this, that if the business is carried on by a partnership it is not taxed, and if, on the other hand, the business is carried on by a limited company, then it is taxed. How can you reconcile a Clause which leaves open such a vast difference between the people carrying on the same class of business, one as a firm and the other as a company, and having as the result the taxation of one and the leaving out from taxation of the other? What is the answer to that? Some people may think that all companies are big. But it may be a private company with two members only, and with just exactly the same capital as would have been employed in a private partnership. But because the two partners turn themselves into a limited company, with exactly the same capital, they are to be taxed, and those who remain as partners are not to be 486 taxed. What is the Attorney-General's answer to that? He asks, "What do you want?" and he said to my hon. and learned Friend, "Of course, there are anomalies, and this is one that the Income Tax Commission will inquire into, but is it that you want to bring in the business man or is it that you want to leave him out?" What we say is this, that if you are going to start a new form of taxation, such as is contained in Clause 5, then do not start it before you have made your inquiries and got it into such a form that it will be fair to the taxpayers and equally fair to all taxpayers. The right hon. Gentleman is doing in this Clause exactly what he did with the Insurance Act. He is legislating first and proposing to run over to Germany to inquire afterwards. It would be far better for him to make his inquiry first and to legislate afterwards.
There is one other point to which I desire to refer, and that is the question of insurance companies. I do not want to go into detail as to it again, but as no one has made any sort of reply, I think perhaps I ought to put in round figures a case which has come within my knowledge, and which has also come within the knowledge of the Chancellor, because I have here a copy of a letter which was written to the Chancellor giving the details of the case of at least one company. Let me remind the House what that case is, and let me state what happens now. Under Clause 5, the whole of the dividend and income from the investments of life insurance companies, whether they are in England or abroad, will be taxed quite irrespective of what the profits of the company are. They will be taxed as dividends and interest. In the case which I have in mind there is a company which has been established a largo number of years. It has branches in almost every Continental country, and in South Africa, the Argentine, Canada, and many other places. By the law of all those places where branches are, except three, the insurance company is compelled to deposit abroad in the hands of the foreign Government national securities—that is, money invested in the securities of that foreign Government. That is the condition of business, and so long as that company continues to carry on business that deposit has to be maintained. This particular company has deposited nearly four and a half millions of money in various national securities in the places where it carries on business. It cannot 487 bring that over here so long as it carries on business in those countries. This company has an income from premiums of about a million a year. Eighty-five per cent. of that comes from foreign policy holders—that is, not British subjects at all, but policies derived from the deposits of those various sums of capital abroad. The assets are about ten and a half millions, of which eight and a half millions consist of foreign securities, or 79 per cent. The foreign assets are therefore about 79 per cent., and the liabilities of that company are about 83 per cent. foreign liabilities. In this company the foreign assets are actually not quite so great as the foreign liabilities. It is necessary to keep those assets abroad for several reasons—for example, the policies are met by, and the premiums are received in, the currency of the foreign countries in which the business is being carried on in order to avoid loss from the fluctuations in exchange, and the dividends of the various investments abroad, being received in the currency of the country in which the premiums and the claims are paid, go to balance one against the other. This is not a large capitalist company. The average policy issued amounts to £320, and 90 per cent. of the profits belong to the policy holders. So that the policy holders, relatively small people, are the people who will suffer from the particular tax which the Government are now proposing. The tax to them means that instead of a 1s. 3d. Income Tax they will have to pay a 7s. 4d. Income Tax, and that tax, being a reduction of the profits of the policy holders, will fall upon people whose average policy is £320, and who, consequently, are likely to be people who ought to be exempt from Income Tax.
Nor would the Government really be losing if they accepted the Amendment which I have on the Paper, but which I understand I shall not have an opportunity of moving, because 75 per cent. of the premiums are being paid to this company out of the savings of foreigners. Those savings would never come to this country, and therefore would not be subject to taxation here; but because they are paid to this company, and the company makes a profit, that profit comes over here and is taxed as such. Hence if this company and similar companies are so affected that they remove their head offices from England in order to escape Income Tax, 488 the Government will lose the tax upon profit which they might fairly claim to have. My hon. and learned Friend pointed out that this is a grave handicap to British insurance companies, in relation to the competition which they now have to face from insurance companies founded in foreign countries and in the Colonies. Foreign and Colonial insurance companies, if carrying on such a business as I have described, would not have to pay any Income Tax at all, except upon the profits made in this country. They would not have to pay Income Tax on their dividends and interest; therefore British companies will be handicapped to a very large extent. The Attorney-General had this case before him, but he said nothing in reply. He has never attempted to justify the Clause in regard to insurance companies, or to contradict the statement of the case that has been put before the House. He has remained discreetly silent upon the subject. I hope the Chancellor of the Exchequer in his reply will attempt to justify the Clause as it affects insurance companies.
§ Mr. WORTHINGTON EVANS
I am not sure that I shall have an opportunity of moving my Amendment; therefore I am putting the matter to the right hon. Gentleman now. Of course, if he would accept the Amendment, or any part of it, no doubt he could put a star to it, and then it could be moved in any event. But I wish the right hon. Gentleman to deal with two points—the question of avoidance and the question of the effect of the tax, not upon rich individuals who pile up their income abroad—I do not want those people to escape—but upon insurance companies and upon companies doing precisely the same business as that which is carried on by private firms. How can he expect the House to support this Clause so long as it is in its present crude form?
§ Mr. CHAMBERLAIN
I am sure it must be the intention of the Chancellor of the Exchequer to deal with the very serious question raised by my hon. Friend in relation to insurance companies as affected by this Clause. The question is a big one; it is very important to British business, and almost vital to the companies themselves, for it is perfectly evident that under the provisions of the Clause, as it stands, they would in many cases, and might in all cases, be called 489 upon to pay Income Tax on foreign investments altogether in excess of any profits they were making. So that it would be a tax not upon their income, if income is treated as profit, but upon such revenue as they draw from those investments, irrespective of whether that revenue is wholly profit, or even if it is only part profit, but is exceeded by their losses or expenses. I am well aware that the whole relation of insurance companies to Income Tax, even apart from this Clause, is a difficult one, and has been the subject of representations to the Chancellor of the Exchequer. But I do not think it will be a sufficient reply to the arguments of my hon. Friends to say that similar anomalies can be pointed to in our domestic law. You may be able to point to them, and you may not at present be in a position to relieve them; but that is no justification for inflicting such an additional and crushing injustice as would be inflicted by this Clause. I shall await with great interest what the right hon. Gentleman has to say upon that point. The Chancellor of the Exchequer challenged my right hon. Friend the Member for Fulham (Mr. Hayes Fisher) to point to specific cases of double taxation being paid by Colonists.
§ Mr. CHAMBERLAIN
I agree with the answer of my right hon. Friend that it very largely depends on the question of domicile. Very few people except qualified lawyers would care to attempt to discuss in this House the question of domicile, which has afforded much material for discussion in the Law Courts, whose decisions, even now, often give the greatest difficulty to people who have to advise upon them. It will be admitted on both sides, and by nobody more readily than by lawyers, that there is perhaps no question of law which raises more points than the question of domicile. Yet in this Clause the Government actually propose to leave the Commissioners of Inland Revenue to determine the question of domicile, without appeal. I think that must be an omission. I do not know whether the officials of the Inland Revenue would themselves like to have this delicate and invidious task devolved upon them. I cannot believe that the Chancellor of the Exchequer and the Law Officers really think that this is a fitting subject to leave to a non-expert body without appeal. I submit to the Chancellor of the Exchequer, 490 in connection with his challenge and his desire that there should be no cases of hardship in this respect, that it is very desirable that he should give a right of appeal on the question of domicile.
The answer of the Attorney-General today amplified, and with the offer that he made partly met, the case which I put with more or less success yesterday. I frankly admit, for my own part, that I was thoroughly dissatisfied with my attempt to make my meaning clear, and I was astonished that the Attorney-General understood so much of the point that I was trying to put. It is, I think, admitted by the Attorney-General that he is unable to draw any very logical line under this Clause—that there are cases practically on all fours, but which, owing to technical circumstances, will be treated differently, for instance, the case of a partnership, or the case of a company. I have been fairly answered on this point, and shown that I need not be afraid: I put the case of a man carrying on a Colonial business—the exploitation of land, a manufacturing business, or whatever it may be. He brings home part of his revenue, and puts the other part into the further development of his property or business. I think that case was met by the Attorney-General's statement that I was mistaken in supposing that such a man was affected by the Clause, subject to the qualifications which the right hon. and learned Gentleman thought it necessary to make. I do not profess to pin myself to the technical language, and I am not trying to claim more than the Attorney-General himself stated. But take the case of a man who owns property, a portion of which he has developed, and from which he derives a rent of £1,000 a year. Rents are subject to this Clause. The other portion of the profit is undeveloped, and cannot be developed until, say, roads are made. Of the £1,000 rent that the man receives, he brings to this country £500, and spends the other £500 annually in developing the further portion of the estate. Hitherto he would have been taxed on the £500 which he brought to this country. Are you not proposing now to tax him on the £1,000? You are Is that the kind of case described by the Chancellor of the Exchequer in introducing his Budget?
The Chancellor of the Exchequer and others have often put it in controversial argument with us on Tariff Reform questions that one of the greatest 491 services that the United Kingdom can render to other portions of the Empire is to help to develop their resources by our superfluous capital. Are you helping if you put a British Income Tax on money which is earned in one of these foreign possessions which is at once employed to develop that foreign possession and which is never brought home? In due course the income which these investments there produce and the developments to which they lead will be brought home and will be taxed. But do you really want to tax money that may be employed in such cases of development as that? I cannot think that that is so, or that it is wise that you should. I will not go into any further points of detail, but I confess that so much of the discussion that I have listened to—and, of course, from the Committee discussion I was absent, and I must admit that I have only been able to give a very summary perusal to the brief reports in the papers, which are quite inadequate to inform me fully as to what took place in the House at that time—has produced on my mind very grave doubts as to whether this Clause will be successful for its avowed purposes, and whether it will not do a good deal which is not part of its purpose, avowed or otherwise!
Like my hon. Friend who has spoken, I take no exception to the Chancellor's announcement of his intention to deal with income rolled up abroad. I think it a perfectly fair and a perfectly proper thing to do; but I do suggest to the right hon. Gentleman, gravely and seriously, that the matter wants further consideration than he has been able to give it, and that it is not in the interests of the revenue to pass a Clause which hits a good many people whom you do not want to hit, which hinders that which you would like to encourage, and which will probably allow to pass through its meshes a good deal of income which men in all quarters of the House, irrespective of party, are agreed ought to be subject to tax—perhaps ought to be subject to taxing even before much of the revenue which is already attached for taxation. As to the cases which you admit, where you do not intend to do wrong or injury, but which you will do without intent, I draw my conclusions from the discussions which we have had, and in which very interesting and entirely non-polemical speeches have been made in the House. As to your failure to get revenue to reach the people 492 whom you really want to reach, I draw my inference from the Estimates which the Chancellor of the Exchequer has presented to the House as the best his advisers can frame of the revenue to be derived from this proposal. If he really is of the opinion that this Clause was really going to be effective, I cannot conceive that the Inland Revenue authorities would estimate its yield at so low a figure. I am convinced that they have given him that figure because they are certain that a great part of the income which he means to subject to taxation will, in fact, succeed in evading it. Under these circumstances, without challenging the principle, and, indeed, while giving the principle my support, I say as my last word to the Chancellor of the Exchequer that I think he would be well advised to consider this matter further, to see whether he cannot meet the grievances put forward, and see if he cannot stop up some of the loopholes before we leave this Clause.
§ Mr. LLOYD GEORGE
I will deal, first of all, with some of the points of detail raised by the right hon. Gentleman and hon. Members behind him. I would, first of all, deal with the question of domicile, of the position of the Colonial resident in this country. I had conferences with representatives of the Dominions, and a proviso was drafted to meet their views. It was submitted to them. It meets the criticisms that Sir George Reid made on the Clause as it originally stood in the Bill. The right hon. Gentleman the Member for Fulham is still nervous lest every bonâ-fide Colonial resident in this country—resident temporarily in this country—because that is the point—who comes here to stay for a few years, either to educate his children or for some other temporary purpose, should be hit. I am sure it will be agreed that there is a vast difference between Colonials who come here to make it their permanent abode and Colonials who come for a few years. It may be that it would be very hard if the right hon. Gentleman the Leader of the Opposition could escape taxation in respect of exactly similar property that the right hon. Gentleman, his colleague, the Member for West Birmingham is taxed for. It would be unfair. Therefore, in order to protect the right hon. Gentleman the Member for West Birmingham, we are putting these words in against this inequality. The thing would apply also to hon. Members in this House who are Colonial born: those who have cast in 493 their lot finally with this country are Britishers for all practical purposes. I think they should be taxed just in exactly the same way as Englishmen, Welshmen, Scotsmen, or Irishmen, bred or born, but it is a very different thing when they have the intention of returning to the Colonies. I do not know the position of the hon. Member for East St. Pancras (Mr. Martin)—
§ Mr. LLOYD GEORGE
That is a question to be decided. The right hon. Gentleman said, "It is rather a tall order that you should leave this question to be settled by the Commissioners." It is a question subject to Amendment, and I think my right hon. and learned Friend will deal with it at the proper time, and satisfactorily, I hope, from the point of view of the right hon. Gentleman. Therefore, I do not propose to dwell any further on that at the present moment. As to the question of rents raised by the hon. and learned Member for St. Pancras, if I understand him rightly, he rather objected to the rents being put into the category of the class of income that should pay tax in the same way as interest on other investments. I rather think he drew a distinction between these cases. I cannot see the difference. Take the case of one man who invests in money and land—
§ Mr. CASSEL
I do not think the right hon. Gentleman quite interprets me correctly. I say that the word "rent" ought to be a fully interpreted word.
§ Mr. LLOYD GEORGE
The hon. and learned Gentleman's criticism is one, I think, of drafting. I take it that income that comes, that money which is paid for the occupation of land is equivalent to rent. I think the hon. and learned Gentleman will agree that it would be unfair to tax a man who puts his money, say, into Colonial railways, and not to tax the man who puts it into Colonial land. It would be unfair. Will the hon. and learned Gentleman accept that proposition to begin with. He generally, when faced with one proposition, jumps off to some other proposition. Let me first of all try to pin him down to some proposition. His contention 494 is one that will not stand. Let us take another point raised by the right hon. Gentleman the Member for West Birmingham. He says, "supposing a man puts money back into the development of particular real property, why should you tax it?" You are putting him in exactly the same position as the man who puts his rent into the development of his estate here. That is all we propose to do.
§ Mr. CHAMBERLAIN
Here he pays for the protection of his property to the Government which gives him that protection. In the case of a man abroad he does not get protection from the Government except in the sense that every subject of the British Empire is protected by the British Army.
§ Mr. LLOYD GEORGE
There the right hon. Gentleman goes to the root of the taxation of this particular investment. If the money comes over here he is taxed now. According to the right hon. Gentleman he ought not to be taxed because we are giving him no protection. [HON. MEMBERS: "Hear, hear!"] That is a very serious proposition. There are two hon. Members who cheer that proposition, that the man who brings his money over to this country now in respect of foreign investments ought not to be taxed. Does the right hon. Gentleman say that that ought not to be done?
§ Mr. LLOYD GEORGE
That is a remarkable proposition. He is taxed although he does not get the same measure of protection, according to the right hon. Gentleman, as he does here. The only exception we propose is, that if the money from real property comes over to this country he is taxed in respect of it, although that land is not protected by the British Army or the British police; he is taxed in respect of the income which is earned upon investments abroad.
§ Mr. CHAMBERLAIN
He is taxed in respect of his enjoyment under security afforded by this Government.
§ Mr. LLOYD GEORGE
No, the person who is receiving that money and is rolling up his wealth abroad is enjoying the same protection whether he spends the money here or whether he does not. There is the same measure of protection given to a man whether he is economic, or thrifty, or frugal enough to save his money and to 495 roll it up abroad, or the person who brings it here and spends it here. I only want to point out that you cannot say to the landowner here: "We will tax you if you put your rent into development, but if you sell your land here and put your money into foreign land and leave it there and develop the foreign land, we will take care that we will not tax you." I agree with the right hon. Gentleman that it is very desirable that we should take our share in the development of the resources of the world. Other countries are taking exactly the same view of that position. They are competing with us in that respect. At the same time we do not want to say, "We will give you advantages when you do that abroad which we shall deny to you when you spend the money for development at home." In so far as it is money spent upon repairs and maintenance the reduction will be made whether at home or abroad. I have always been in favour, as the right hon. Gentleman knows, of as liberal an allowance as the revenue will afford in respect of money spent on maintenance at home. I think the thing is different with money spent abroad. I come to the point of the hon. Gentleman below the Gangway. He wanted to know what our view was in regard to the effect upon insurance companies. Insurance companies are practically in the same position here as in other countries. The hon. Member took a very exceptional case. It is a very dangerous thing to take an exceptional case. I do not think there is any other case of the kind.
§ Mr. LLOYD GEORGE
It is not quite. It is not really, and the hon. Gentleman knows that it is not. It is so completely different to any other case that there is nothing comparable. I think he said that it was a case where 90 per cent. of the money was represented by the Company's foreign investments. There is the case of the Gresham; but the Gresham is in a totally different position from many other insurance companies to which he referred. Of course, that is no reason why the Gresham should not have fair play. I am not contending that; but I do not think it ought to be put as the case of every company. There is no other case of the same kind as far as I am able to ascertain. The complaint of insurance companies is, they say we are able to bear it at the present moment, but now that you are extending 496 the law, the inequality is one which has increased, and consequently they feel it much more difficult. I agree! My right hon. Friend (Sir Thomas Whittaker) in introducing the deputation which waited on me from the insurance companies, dwelt upon that with great force. I agree there is a good deal to be said, but what I say on the other side is this: Budgets of this kind which increase taxation also increase the business of the insurance companies. I do not say that is a final consideration, but I say it is a consideration. There is no doubt at all that Super-tax has had a great effect in improving the business of the insurance companies. It has been found very profitable, and they are pointing a way, I will not say of evading the Super-tax, but at any rate diminishing the amount of Super-tax you have to pay to the State. I should be very much surprised if the hon. Baronet the Member for the City of London has not discovered that. I do not think he is as innocent as he looks, in this respect, I mean. There is no doubt it increased their business very considerably also in the matter of meeting Death Duties.
The Budget of 1909 has had the effect of quickening the business of insurance companies very considerably, and I have no doubt at all that the present Budget will have a still greater effect in the same direction, so that I do not think insurance companies have very much claim from the point of view as to the effect on their business which these two taxing Budgets have had. These are general considerations. The only other consideration to which I think the hon. Member referred, is where they are usually bound locally to invest money in some of the States of America, I am not sure whether it applies in Canada—
§ Mr. LLOYD GEORGE
I know it applies, but as against that, although money is invested there, and has to be kept there, as against the liabilities of the company in that country, still the hon. Gentleman knows very well that although it cannot go to the benefit of the policy holders in the United Kingdom—the money invested in these particular countries must be used for the purpose of meeting liabilities in these particular countries—at the same time he knows it must be to the benefit of the general body of the policy holders of the different nationalities. It has an effect upon the 497 general business and position and prosperity of the company to that extent, although it is invested there, and although it has to be kept there, it has its effect upon the profitable capacity of the whole concern. It is not as if you cut it off altogether, and as if it belonged to another country. There is another consideration which I should like to put. My right hon. Friend, when he represented this very powerful and influential deputation, of practically all the great concerns in this country, submitted on their behalf two cases of what I consider to be undoubted grievances at present in the life companies. The first was the grievance they suffered in respect to the expenses and management, which they are not entitled to deduct, and I must say I feel that a case has been made out for allowing these expenses in so far as they are defrayed out of the interest of the company. This case was very substantially made out by the companies, and we think it is no doubt a grievance that ought to be dealt with. The second grievance which the company made out was that there was no differentiation between their position and that of the composite companies. The composite companies are in a much better position in respect to the basis of taxation than the life companies. The most formidable competitors of the life companies are not the foregn companies, but the composite companies, and they are placed at a disadvantage with companies which have other business besides the life business. Therefore, I agree, a serious grievance is inflicted upon companies whose business is confined to life business, and the Government are prepared to deal with these two problems.
§ Mr. LLOYD GEORGE
Not this year. If we did it this year it should be done by means of a charge upon the composite companies. We think the way to deal with it is by placing the composite companies in the same position as the life companies, and not by putting the life companies in the same position as the composite companies. We found we could not do that on the Report stage or the Committee stage; it would not be a fair thing to do under the guillotine, because it would enforce a charge, and it is right that we should give fair notice to the composite companies on that, and that they should know exactly what the position was. We propose, therefore, next year to deal with these two particular propositions, namely, 498 the question of the expenses of management and the question of the unfairness at the present time to the life companies as compared with the composite companies.
§ Sir GEORGE YOUNGER
Is there not a third grievance—namely, while some of these insurance companies have paid their Income Tax all along, others were placing sums in reserve, so that those with a clean slate are prejudiced to the advantage of others who have not paid?
§ Sir G. YOUNGER
In a letter of the 15th of July very important Scottish companies pointed out that grievance.
§ Mr. LLOYD GEORGE
The Scottish companies were represented, and very ably represented, at that deputation, as the hon. Baronet knows, and certainly that was not the complaint made. If there is a case of that kind, I shall be very glad to look into the matter.
§ Mr. LLOYD GEORGE
We are dealing with one particular grievance so far as it benefits insurance companies, whereas at the same time we are leaving the revenue that protection which it ought to receive so far as the other grievance is concerned. We felt it would be unfair to deal with it in a partial way, inasmuch as it would involve very substantial loss to the revenue this year, whereas we would not have the benefit we are otherwise entitled to by remedying the other grievance, which is much greater. I do not know whether there is any other point. I have gone through the general questions put to me, and I think I have dealt with most of them. The hon. Gentleman the Member for Colchester dealt with avoidance. There is no doubt at all if a man sets his mind, and has nothing else to do, he can devise all sorts of schemes for the purposes of avoiding the revenue. But if he is busy it will be otherwise. It is the old story, "Satan finds some mischief for idle hands to do." When the hon. Gentleman, was busy he never thought about these schemes, but now that he is not so busy with his profession he has entered upon another partnership with that gentleman, who always puts mischief into men's minds. He has altered his partnership, 499 and instead of being in partnership with honest solicitors, he has entered into a partnership with another, and he begins to devise all those malignant, mischievous, pernicious, poisonous methods for tempting honest people to defraud the revenue. The hon. Gentleman should occupy his mind with something else.
§ Mr. WORTHINGTON EVANS
I was only attempting to assist the Chancellor of the Exchequer. He seems to pride himself on being my partner.
§ Mr. LLOYD GEORGE
I am the person to be defrauded by these schemes which the hon. Gentleman, in conjunction with his new partner, is devising. Let me refer to another thing which the hon. Gentleman says, but which has really nothing to do with the subject now before us. He said, I am doing the same thing here that I did in connection with insurance. I first legislate, and than go to Germany to inquire. I went to Germany and investigated the question of insurance for two years before I attempted to legislate. That is simply the sort of fact which as a rule is used by hon. Gentlemen opposite outside. I am glad the hon. Gentleman has brought it up here, where I can contradict him.
Now, on the general question of this Clause, I really cannot understand the position of hon. Gentlemen opposite. The Attorney-General has put the point very well, and I do not know that I need repeat it. Hon. Gentlemen opposite say they sympathise with the object. It is the same old sympathy; it is the same old criticism of the method. What is the objection? Are they in favour of putting on a tax in respect of securities. They say "No; because you do not do it in regard to other businesses." Are they in favour of doing it for other business? "No," they say, "We are very glad you have not done it. You must not do it either for rents, because there is nothing that is equivalent to rents abroad." What is their remedy? Nothing but a sort of pious resolution which we can pass here, saying that it is highly desirable that foreign investments should be taxed in general, but not one of them in particular. How does the hon. Gentleman opposite propose to do it with regard to business? You must either include one or you must exclude the other. That is the only way you can produce equality. He says it is unfair to do it in the case of a man interested in a company unless you 500 also do it for a firm. The only way to put that right is either by excluding everybody or including everybody who has got an interest in the business. Which is the hon. Member in favour of? Are hon. Members in favour of including business or excluding companies? If they are, what is there left? It is no use saying you are in favour of an object like this when you vote against every proposal to carry that object into operation. Hon. Members opposite have spoken in favour of people rolling up their money abroad.
§ Mr. LLOYD GEORGE
I never said anything about rich people, and the hon. Member opposite seems to have got rich people on the brain. I am just talking about poor people who roll up their great incomes abroad. These poor men roll up their money in companies, in land, and securities abroad, and they ought not to escape when the rich of this country have to pay. I am for equality in this respect: A great landowner pays in full on his land, and I have some sympathy for him when others are rolling up their money abroad and avoiding taxation. I want equality of treatment. As my right hon. Friend has pointed out, this million has to be found somewhere, and if you do not find it out of these poor people investing their money abroad, you will have to find it out of the rich people who are investing their money honestly at home. The amount is equal to a penny on the Tea Duty, but I am sure hon. Members opposite would not like that. Do not suggest the cutting out of this Clause altogether, and at the same time say that you desire its object to be carried out.
§ Mr. HENRY TERRELL
The right hon. Gentleman has just said that he wants equality and fairness, but he legislates for inequality and unfairness. It has been laid down by previous Chancellors of the Exchequer, and by no one more emphatically than Mr. Gladstone, that the essentials of taxation are, first of all, that it should be fair as between the persons upon whom the taxes are imposed, and that they should stand in substantially the same position; and, secondly, that the taxes should be such that they might be easily and certainly collected. This Section transgresses both those principles. Can it be said that this Section imposes a tax fairly upon all persons who are in substantially the same position? I ask the House to consider a concrete case to show the unfairness of 501 this tax. Take the case of two men residing in England, each carrying on a similar kind of business in Australia. One of these men forms a company to carry on his business although it remains substantially his own business. From that moment he is taxed under this Clause not only on the profits of that business which he brings to this country, but on all the profits derived from that business, whereas the other man in precisely the same position, except that he does not turn his business into a private company, is taxed only upon so much of his profits as he chooses from time to time to bring into this country. They are two men in the same position. One of them is heavily taxed and the other, if he chooses, need not be taxed at all. That is an instance of the unfairness of the injury which is inflicted by this Clause. It is no use the Chancellor of the Exchequer talking about equality and fairness and then proposing to do that which is manifestly unfair.
There is another case in which this Clause will transgress the well-established principles I have just mentioned. The collection of the tax will be most uncertain here. Take the case, which has been discussed, which was provided by the Attorney-General at the end of his speech: A man is not to be taxed under this Section if he is not domiciled in the United Kingdom. How are you to decide whether he is domiciled in the United Kingom or not? Take a man from Australia who comes over here, buys a house, and lives here. Who is to say whether he is domiciled here or not? Questions of domicile are always most difficult to decide, even when the man is dead, and you have to determine the question from his acts during his life. But when you have the man alive and he has only to say, "I intend to retain my domicile of origin," how are you going to prove that he has abandoned that domicile and adopted domicile in the United Kingdom? The Attorney-General gave some estimates—I am always rather sceptical of Government estimates—but does he suggest that those estimates show the amount of tax that will be paid by foreigners and Colonials domiciled in England? How can you determine whether a foreigner or a Colonial is domiciled in the United Kingdom? You cannot decide it, and you will simply enable all Colonials, whether really domiciled here or not, if they say, "I intend to retain my domicile of origin," to defeat your object, because you could not say that their intention is something different.
502 You are going to tax income arising from securities, stocks and shares. We know that nearly all foreign stocks and shares are not disclosed, and you have to estimate your tax upon whether a man discloses truthfully all stocks and shares he has in foreign countries. If a man is minded not to disclose them, how are you going to make him do it, and ascertain whether he is entitled, for instance, to any number of securities in America? There is no means by which you could find out the truth of the matter or ascertain what a man is entitled to and what he is not. The result would be that you would tax heavily the man who has honestly stated everything he possesses and you would let off the man who does not make a clean breast of what he possesses, and that man would know that you have no possible means of detecting him. That is another illustration of the transgression of the well-established principles of finance which I have mentioned.
By this proposal you are putting a heavy premium on dishonesty. No one will doubt that there is enough temptation to-day to make incorrect returns, and if you are going to make the return the only criterion, without any possible means of detecting whether it is true or not, you are putting a very heavy premium on dishonesty, which will, no doubt, be accepted by a very large number of persons, and the result will be that they will not make true returns. There are other questions involved in this proposal. It is said that you are going to charge Income Tax in respect of income arising from rents. What do you mean by incomes arising from rents? What is that income? And who is going to determine it? That is another illustration of the uncertainty which is involved in carrying this Clause into practice. Criticisms have been passed upon this Clause so freely and of such a character that it is almost impossible for the Chancellor of the Exchequer or the Attorney-General to answer them. Bearing in mind that the whole question is very shortly to be submitted to a Royal Commission, surely it would be better, before you embark upon crude legislation of this sort, which is calculated to do great injustice to certain men and which is not calculated to yield anything large in the way of income, that we should wait until the whole matter has been considered by a Royal Commission, and then we may hope to have some reasonable fair and settled legislation, which will carry out the object 503 stated by the Attorney-General, which we all desire to achieve, namely, to charge those men who have large properties abroad when they roll up their income abroad instead of bringing it into this country.
§ 6.0 P.M.
§ Sir THOMAS WHITTAKER
I desire to thank the Chancellor of the Exchequer for the statement he has made, and the promise he has given as to what he intends to do in the Budget next year. Of course, we would rather have had it this year, and that is always the case, but failing that we are obliged to him for his undertaking to rectify this injustice on the next occasion. In regard to income from foreign investments, personally I am of opinion that it is right that it should be taxed; but so long as it was not taxed you could not blame anybody who had foreign investments for collecting their money in order that it should not be taxed. That was avoiding a tax, but it was not evading it. So long as that was the law the money was collected abroad, but now it will have to pay tax. The hon. and learned Member opposite complained that the money would have to be paid upon the declaration of the individual. There is always a certain amount of the Income Tax that does depend, and must depend, upon the personal declaration of the individual and upon personal honesty. It is true that so far as that is concerned there is a temptation to a man to be dishonest. That exists to-day in a very considerable portion of our tax law. The general complaint is that our Income Tax authorities look after these things pretty closely, and I do not think that there is a great deal that escapes through the net. That, however, is surely no reason why we should have a much wider and further abandonment. The Chancellor of the Exchequer referred to the fact that the insurance offices will feel the pressure of the grievances which they have put before him much more keenly now that this foreign income is to be taxed. The grievances existed before, but the fact that we could avoid a very considerable portion of the tax by collecting our income abroad made the pressure of them less severe. The pressure now is to be very much accentuated, and that is why the point has been so strongly pressed upon the right hon. Gentleman. He has undertaken that next year expenses of management will be allowed in so far as 504 they come out of interest. That is a very substantial and welcome concession. With regard to the difference between life insurance offices only those which are known as composite offices—that is, offices doing life, fire, accident, burglary, and other business—there has been a distinct inequality and grievance. The suggestion of the life offices was that the right hon. Gentleman should put them into the same position as the composite offices. His view rather is that he should put the composite offices into the position of the life offices. We have not asked that. All that we ask is that the grievances should be remedied, and that they should be remedied by putting us into the same position as they are in. The right hon. Gentleman seems to have made up his mind to do it the other way, and it is to be done in the next Budget.
The Chancellor of the Exchequer suggests that the increase in taxes benefits life insurance offices by promoting life insurance business. That is true to some extent, but, so far as the mutual life offices go, increasing business is no advantage whatever to the policy holder. It is no advantage whatever to a policy holder in a mutual office that the office is getting a larger amount of extra business. If it has got a sufficiently large business to give a good average for its lives, then it is no advantage to increase its business unless it can do so at a lower rate of cost than it has been able to do previously. Consequently, the increase of business is no advantage to the policy holder. The policy holder is practically the owner in mutual life offices. On the other hand, it is undoubtedly true that an increase of business is an advantage to a proprietory office, because the proprietors take a percentage of the surplus. If the total amount of the surplus is larger, although it may not be more per policy holder, the shareholders benefit. So far as the mutual offices are concerned, the increase of business is no advantage to the policy holder. Therefore, although it is true that the influence of these increased duties is to promote life insurance business, it is no advantage to the policy holder in the mutual life insurance office. My main object was to acknowledge the care and attention which the Chancellor of the Exchequer and his officials have given to this matter, and to thank him for the promise which he has made. We should have liked it this year, but we are very much obliged to him for promising it us next year.
§ Sir J. D. REES
The learned Attorney-General, who poured scorn on my new Clause last night, can hardly, after the announcement to-day that the Government have accepted it, claim the attribute of infallibility as an occupant of the Front Bench. I will not pursue that; it is enough for me that the principle has been accepted for which I contended last night. The Attorney-General and the Chancellor of the Exchequer both characteristically left out of account the poor man whom this Clause will fine. They both assume, as a matter of course, that the Clause is only going to tax the rich man. I ventured to interpolate the remark that there were others than rich men affected, whereupon the Chancellor of the Exchequer said, "Who mentioned rich men?" That was trifling with a serious subject, because right throughout he has been talking solely of rich men who evaded payment, and he has devised this Clause to reach them. He then proceeded in the most dramatic way, and in his best platform manner, to refer to rich men who are rolling up their investments abroad. I submit that there are very poor men who keep, and have to keep, investments and the income from investments abroad. I am going to speak seriously upon a matter with which the Chancellor of the Exchequer trifled. Take the case of the Indian or Ceylon official. That man, while in office, with a view of providing for his family, probably buys a small tea or coffee estate. He comes home to England, but at the same time he has investments in this little estate in the place where he served, and ho has to keep that going in order to provide an opening for one or two sons. He is, in every sense of the word, an extremely poor man—not the monk and make-believe poor man of whom the Chancellor of the Exchequer spoke. He has to leave a part of his income as well as his investments abroad, but it is very far from being the case that he leaves his income abroad rolling up, as the Chancellor of the Exchequer said, for the purpose of evading the tax. There must be an enormous number of cases of that very sort, and there are probably, although I am unacquainted with them, an equally large number of cases of a similar character which are hit by this Clause and in which the men, so far from being individuals rolling up money abroad and escaping the Income Tax, are individuals who are painfully endeavouring to provide for their families in circumstances of difficulty.
506 No man is likely to roll up incomes where the Chancellor of the Exchequer, the inventor of schemes of Socialistic legislation to be payed for by the taxpayer, whether he is to be caught in this country or abroad, can get near to him with his army of inspectors. I am not concerned to defend this Clause. I would have voted against it in Committee. It is an unfair Clause, and I am utterly opposed to this principle of grasping the British subject wherever he is. He should pay taxes where he obtains protection, where he lives, and where his income is received and spent, and he should not be taxed elsewhere. The principle here is an inversion of another principle, a manifestation of the same principle which would bring the Empire down with a run—I mean the claim that every citizen of every component part of the British Empire has equal rights—and which has led to a tragic comedy which is now being played at Vancouver. This grasping of people abroad to pay this tax is a bad principle, and I hope there will be a Division upon the omission of the Clause, when at any rate those who object to the Clause altogether will have an opportunity of coming out into the open and voting against it. My particular object has been to urge that it does not only affect the rich. The hon. Gentleman (Mr. Montagu) shakes his head. He was kind enough to inform me that he always differs from me when I speak. I regard that as a very handsome testimonial to my political integrity and rectitude when I reflect on his latest essay on Indian legislation.
I do not think that sufficient has yet been made of the strong opposition there is in British possessions to this Clause. Reference has been made to the opposition of the self-governing Dominions. They, by their opposition, have wrung from the Government an addition to the Clause as originally drafted which may be presumed more or less to meet their case, but little has been said of the opposition of India. When they appeared before Lord Crewe to urge their case, Lord Crewe in his answer recommended that process which is so dear to the Chancellor of the Exchequer, the process of legislating first, and repealing or amending or altering afterwards. He gave them no satisfaction in regard to that matter. The Attorney-General and the Chancellor of the Exchequer both said that if this money is not found in this manner it will have to be found by other means, and that the burden will be thrown upon other taxpayers. I dispute that altogether. It 507 is an absolutely inaccurate statement. It is not necessary that this money should be found. There should be a saving in the expenditure of the Government by abstaining from expenditure. This money, and more, might be saved for these and other reasons. I submit that there is no occasion for passing this Clause, which will hit the poor as well as the rich, which is in itself based upon an unjust principle and which should be omitted from the Finance Bill.
§ Mr. HUNT
I want to know whether this Clause will not operate very unfairly where investments have been made in one of our Dominions. I believe that there is an Income Tax in India, Australia, and New Zealand. A person owning securities in those countries will have to pay, as I understand it, Income Tax in India, Australia, or New Zealand, and will also have to pay Income Tax in this country. It also appears that, although an Income Tax has just been imposed in America, it is remitted in some if not in all cases if a person can prove that he is a British subject. I am not sure whether I am right, but that is how I understand it. If you take the money and invest it in a country where there is no Income Tax imposed, then the Income Tax has to be paid but once. I cannot help thinking this particular policy on the part of the Government will have a very bad effect in the direction of discouraging people from investing their money within the British Empire. They will prefer to invest it in countries where there is no Income Tax imposed. I hope the Solicitor-General will give me a plain answer to my question. I want to know exactly how we stand in this matter. It strikes me that if you go on double-taxing incomes, you will drive people to take up their domicile in Canada or elsewhere, and then you will not only lose the Income Tax, but you will lose all the money which they would have expended had they resided in this country, as they would have done if you had not doubly taxed them.
Mr. F. HALL (Dulwich)
I was rather surprised at the speeches we had from the Chancellor of the Exchequer and the Attorney-General, and with the way in which they dealt with this question, so far as it concerns insurance companies. The Chancellor of the Exchequer, referring to the particular company which had been in communication with him, stated that, as far as that company was concerned, it was a case that stood by itself. I should like 508 to draw the attention of the Government to a fact of which apparently they are not aware, that when an insurance company proposes to do business in other countries, either in the Colonies or in foreign lands, it has, first of all, to deposit a considerable amount of capital, and then, for the protection of the policy holders, it has to deposit the whole of the premiums in that country. The money is consequently invested in those countries, and according to the conditions of the country the premiums have to bear their proportion of taxation. In the case of a British insurance company doing business abroad, the interest on the premiums has to be calculated as profit, irrespective of the amount disbursed on the policies that have been met, or whether or not there is any surplus. They are all treated as profits, and then, in this country, they are to be called upon to bear the additional Income Tax which this Bill proposes to impose, but of which, up to the present, we have been free.
The Chancellor of the Exchequer, in the course of his speech, said he would like to have brought to his attention cases in which people have had to pay the Income Tax twice over. I would point out that not only do the insurance companies so pay, but their contributors also do so, and a man who has shown thrift, and has put his money into insurance, bears this burden equally with the insurance companies. Remember that, in order to secure a fair proportion of the business, the insurance companies divide the bulk of their profits amongst their contributors, and then you will appreciate the fact that this double tax is borne not merely by the wealthy insurance companies, but also by the policy-holders, whose average interest is considerably less than £300. Surely the Government and the House will recognise the fact that by the imposition of this tax, irrespective of whether any profit is made, another burden is being put upon the poor man who is desirous of providing for his wife and children hereafter, because by this tax you are taking away from the profits which he might reasonably expect to go to increase the value of his policy. To my mind, it is both inequitable and unfair that this tax should be levied in the manner proposed. My hon. Friend the Member for Wandsworth (Mr. Samuel Samuel) had the courage of his convictions when he told this House plainly that, as far as he was concerned, he was adverse to this tax. I can quite understand the Chancellor of the Exchequer having to 509 look round and see how he can raise revenue, and yet not having the pluck to say that, having gone into the question as regards protective measures, he is not prepared to seek to raise the revenue from other sources. I should have thought that it would have been quite reasonable for him to have done so, seeing that we are told that the amount to be eventually obtained from this source, is only £470,000. I should have thought that taking into consideration its dangerous bearing with regard to particular insurance companies, the Chancellor of the Exchequer might have considered whether, under the circumstances, it was not possible for him to raise the revenue in some other way.
But I suppose there is no hope for that. All we can expect is that in perhaps two or three years' time the Chancellor of the Exchequer will fulfil his promise to provide redress for the grievances which we say are likely to be created, and then probably he will press hardly again on the composite insurance companies, and they will be subjected to further forms of competition as if they had not sufficient at the present time to cope with. It means driving more of our business into the hands of the foreigner. The Chancellor of the Exchequer says, "Because I happen to have a grievance drawn to my notice—and I admit it is a grievance—I have looked round to see on whose backs I can place the burden, and I think the easiest thing for me to do will be to say that the insurance companies, who are doing business abroad, shall bear it," irrespective of the fact that foreign insurance companies are allowed to come here and do all classes of business without making any deposit, and without contributing to the upkeep of the country, the only exception being that a deposit is necessary in the case of life insurance. I hope the suggestions which have been thrown out to the Chancellor of the Exchequer this afternoon will cause him to reflect before he takes the step which he has indicated. It is hard enough for insurance companies, in many cases, to get a reasonable return for their money, and if this new plan is adopted it will only be one more instance in which the Radical party and Government are doing all they can to crush out British industries.
The Chancellor of the Exchequer also told my right hon. Friend the Member for Fulham (Mr. Hayes Fisher) he would like to be informed of cases in which people domiciled here had been asked to pay two Income Taxes. I can quite see the elasticity of the word "domicile," and I 510 can foresee it again fought out in the Courts of Law, as so many points have had to be fought out as a result of recent legislation by the Government. The Government have stated their ideas as to the meaning of certain terms, but when cases have had to be fought out in the Law Courts, in a great majority of the actions the Government have been proved to be entirely in the wrong, so far as their theory is concerned. Therefore I can quite foresee, in regard to this word "domicile," that notwithstanding the statements which have been made by the Chancellor of the Exchequer, many people will eventually be asked to pay Income Tax on their investments abroad, and when they get their dividends in this country will also be called upon to pay Income Tax upon them here, notwithstanding that they may have no direct control over the business in the Colony. The hon. and learned Member for West St. Pancras (Mr. Cassel) dealt particularly with the hardships which would be created with regard to private companies. This is a very important point, and we cannot too often bring it to the knowledge of the Government.
Some time back I suggested an Amendment to the Government which would enable people doing business as private companies to get over the difficulty, and which would place private traders in exactly the same position as those carrying on business in partnership—because in many cases you have two, three, or four men binding themselves together for the purposes of necessary and reasonable protection, and it may be in some cases for the protection of one partner against another. If private businesses are excluded from this Income Tax I cannot see any reasonable excuse why private companies should not be treated in a like manner. I asked the Government simply to insert the word "public" in order to effect that object, and I think it was a proposal they might reasonably have accepted. I am sorry, notwithstanding all the cases that have been brought to their notice, the Government have met us with the usual non possumus, and apparently they intend to pay little or no attention to the complaints of those for whom they have, in the past, stated their sympathy. I hope it will be plainly and straightforwardly proved to the great majority of the poorer classes in this country that there is a necessity for some alteration in regard to our legislation.
§ Mr. BIGLAND
I desire to support this Amendment. The Attorney-General rather gibed at us because we had no principle in regard to this Amendment. Although some of my hon. Friends do not seem very clear on that point, so far as I am concerned I say that the whole principle of this Clause is bad. It is a vicious principle that large corporations with British capital finding employment in the United States, and taking many hundred of thousands of risks there, should not only be liable for those risks, but should have to pay a heavy Income Tax in this country on the dividends received from that money. It is a principle which ought not to be adopted in the Budget of any Chancellor of the Exchequer in this country. Another vicious principle of the Clause is that you are setting yourselves to induce Englishmen to get out of the responsibility of living in England. You will find that, where very large sums are involved, men will take legal advice to see how they can rule themselves out of being domiciled in this country, in order to escape this tax. You have only to give a measure of this kind some ten or fifteen years, and you will find hundreds of men so arranging their business, their domiciles and their lives, that they will get out of this tax.
We have seen that happen in the United States. Objectionable taxes were put on by certain States, and immediately they ceased to be the centres of finance. New companies registered themselves in States where the objectionable taxes did not exist. The same kind of thing will happen with regard to this Clause and the domicile of an individual. We are talking about the Income Tax in this country, but if no money comes into this country it cannot be an Income Tax. You are endeavouring to obtain money from an income which remains abroad. I could mention cases in the City of London where the business is a private firm so far as England is concerned, but is a limited liability company in every other country in the world where the same business is carried on. That is done for the simple reason that the heads of the firm in England limits its liability in every country in which it has branches by forming those branches into limited companies. I would remind the Solicitor-General that in the cases of persons who leave the income from their investments to accumulate abroad, they have to settle with the Chancellor of the Exchequer in regard to Death Duty. Those accumulations are then taxed. In that way the Chancellor of 512 the Exchequer gets a great revenue from the Death Duties on the estate of an individual who has shares abroad and leaves the money to accumulate there at compound interest. I sincerely trust my hon. Friend will press this matter to a Division.
§ Mr. CASSEL
In view of certain Amendments which the Government have promised to make in this Clause limiting its effect, and in view of the fact that I said I was not opposed to it in principle, I ask leave to withdraw the Amendment, although I still think the Government are not wise in not referring this matter to the Royal Commission.
§ Question, "That the Amendment be, by leave, withdrawn," put, and negatived.
§ Mr. BOOTH
The whole substance of this Debate disappeared long ago. There is no life in it. There being only this day for the Report stage, I am utterly astounded that hon. Members should have occupied hour after hour on a subject like this without intending to divide the House. It has been with the utmost difficulty that we could get from any speaker on the other side a statement as to whether he was opposed to the Clause or not, or whether he was going to vote or not. The last speaker said he was against the Clause on principle, but immediately he sat down up got the Proposer of the Amendment and asked leave to withdraw it. That is not treating the House with respect, and I decline to allow the Amendment to be withdrawn.
§ The SOLICITOR-GENERAL (Sir Stanley Buckmaster)
I shall be glad to answer the hon. Member. The answer is quite simple. If a man pays Income Tax on a foreign investment abroad, he will still pay Income Tax on the income that he receives over here. The Amendment that the Chancellor of the Exchequer has put down will prevent the Income Tax that is paid in this country being assessed on the total income, and it will only be assessed on the net income. Nevertheless, it is quite true to say that the total income will bear two Income Taxes. I would point out to the hon. Member that it does so at the present moment if the income is received over here. All that this Clause does is to make the income bear just the same burden if it be retained in some foreign country.
§ Sir S. BUCKMASTER
I am very sorry I did not make the matter clear. Let me restate it. If a man has invested his money in a country, whether one of our own Colonies or a foreign country, where no Income Tax is paid, he will only pay one Income Tax. If he has invested his money in any place, whether it be a foreign country or one of our own Colonies, where the Income Tax is paid, he will pay two Income Taxes. I am pointing out to the hon. Member that that is exactly what he does at the present moment.
§ Sir S. BUCKMASTER
It is absolutely what he pays at the present moment if he receives the income over here. The only thing Clause 5 docs is to make him bear just the same burden if, instead of receiving it over here, he keeps it in the country where the investment is.
§ Question, "That the words of the Clause to the word 'income' ["be computed on the full amount of the income"] stand part of the Bill," put, and agreed to.
§ Mr. HICKS BEACH
I beg to move, after the word "and" ["allowances as if it had been so received and"], to insert the words "to the deduction (where such a deduction cannot be made under any other provision of the Income Tax Acts) of any sum which shall have been paid in respect of Income Tax in the place where the income shall have arisen and."
The object of the Amendment is to prevent the Income Tax charged here being paid on the total income actually received in a foreign country. We had a considerable Debate over this question last night, and I am glad to see that the Government have now come to a different conclusion from that at which they arrived yesterday evening. I am moving the words they have suggested. As to the word "paid," I am not sure whether it would not be better to use the word "charged," because I understand that in certain Colonies the Income Tax is not always collected in one lump sum, but that the proprietor of the income is either entitled or forced to pay his Income Tax in portions, either once a 514 quarter or once every half-year. Therefore it is possible that at the time of making a return he might not possibly have paid the total amount of the Income Tax, and it may be better to use the word "charged." I do not know which word the Government prefer.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. Montagu)
As the hon. Member has said, he has moved this Amendment in this form because it is the form in which the Government were prepared to ask the House to accept it. It is not necessary for me to add anything to what he has said. When my right hon. Friend the Attorney-General was addressing the House, he explained and read the words of the Amendment with a view of showing what our intention was. In regard to the word "paid" and the word "charged," the matter was carefully considered by the Law Officers and our advisers, and we believe that the Amendment is watertight, and that the word "paid" is better than the word "charged."
§ Question, "That the words 'to the deduction (where such a deduction cannot be made under any other provision of the Income Tax Acts) of any sum which shall have been paid in respect of Income Tax in the place where the income shall have arisen and,' be inserted in the Bill," put, and agreed to.
§ Mr. MONTAGU
I beg to move, to leave out the words,and in particular for the purpose of computing Income Tax in respect of securities, stocks, shares, or rents to which this Section applies in pursuance of the rules under the fourth and fifth cases in Section one hundred of the Income Tax Act, 1842, the income arising from the securities, stocks, shares, or rents shall be substituted for the sums, profits, or gains, as the case requires, received therefrom in the United Kingdom,and to insert instead thereof the words,and nothing in those provisions as to the receipt of sums in the United Kingdom shall be construed so as to render liable under these rules to Income Tax for the current or any subsequent year any sums which represent—I will deal in a very few words with the Amendment which stands in the name of my right hon. Friend the Chancellor of the Exchequer. The House will remember that in Committee on this Clause a controversy arose between the Attorney-General on one hand and some hon. Members on both sides of the House as to whether it was quite clear what the Clause meant. It is not the intention to take advantage of the fact that when Clause 5 is passed the interest on securities which has been accumulating abroad will come into this country. It is desirable that it should not be taxed twice, both under Clause 5 in the year 1914–15, and under Sections 4 and 5 of the old Income Tax Act in 1915–16. As, therefore, it is only desired to tax the income of the year, and as that intention was made plain and debated during the Committee stage, in accordance with the promise then made, we suggest that these words should be added to make the meaning quite clear.
- (a) income from any such securities, stocks, shares, or rents, on which Income Tax has been paid under this Section; or
- (b) income from any such securities, stocks, shares, or rents which was paid or became due before the sixth day of April, nineteen hundred and fourteen."
§ Question, "That the words proposed to be left out stand part of the Clause," put, and negatived.
§ Words proposed there inserted in the Bill.
§ Mr. CASSEL
I beg to move to leave out the words "satisfies the Commissioners of Inland Revenue that he."
The object of the Amendment is to give an appeal from the decision of the Commissioners. The question whether a person is domiciled in the United Kingdom is a very difficult question of law and fact, and one on which there ought to be an appeal from the Commissioners. I understand the Government are prepared to concede some form of appeal, which is one of the questions to which I attach very great importance, but I understand they do not quite accept the form of words which my Amendment suggests, and wish to put in some other words in their place. So far as the exact form of giving the appeal is concerned, I am quite prepared to accede to the suggestion of the Government, provided I have an assurance that words will be moved which will give the subject a right of appeal on this very important question.
§ Mr. HICKS BEACH
I beg to second the Amendment. It is most important that there should be some right of appeal from the Commissioners on this matter. The unfortunate individual ought to have some right of appeal to some higher Court of justice.
§ Sir S. BUCKMASTER
I am not sure that I agree entirely with the suggested difficulties which have been put forward in the course of this Debate as those which will arise in determining what is a man's domicile. It is not an infrequent dispute in our own Courts, and it is capable of determination. I feel, and the Government feel, the force of the suggestion that the determination of this question may involve very important consequences to certain people, and that it is therefore only right that they should have recourse to the Courts, and not be precluded by a decision arrived at by any body of people, however trustworthy and responsible they may be. It is therefore proposed to move an Amendment to this effect: "Any person aggrieved by any decision of the Commissioners of Inland Revenue on a question of domicile or residence, under this provision shall have the same right to require the Commissioners to state a case on the question as an appellant has to require a general or special Commissioner to state a case on a point of law, and Section 59 of the Taxes Management Act, 1880, and any rules made for the purpose of that Section shall apply accordingly." As the hon. and learned Gentleman knows, that makes a consistent right of appeal in regard to all questions arising under the Income Tax Act. I think he will also agree that the appeal is in the most convenient possible form and the one least burdensome to the subject, and the one in which it will be most readily possible to have the matter effectively, quickly and, I think, as cheaply as possible determined. I shall therefore be prepared to move that, if this satisfies the hon. and learned Gentleman.
§ Mr. CASSEL
In view of the statement of the right hon. Gentleman, which meets the point of granting the appeal, I ask leave to withdraw my Amendment.
§ Amendment, by leave, withdrawn.
§ Amendment made: At the end of the Clause, add the words,
§ "or that being a British subject he is not ordinarily resident in the United Kingdom."—[Sir. S. Buckmaster.]517
§ Sir S. BUCKMASTER
I beg to move, after the words last inserted, to add the words,Any person aggrieved by any decision of the Commissioners of Inland Revenue on a question of domicile or of residence under this provision shall have the same right to require the Commissioners to state a case on the question as an appellant has to require a general or special Commissioner to state a case on a point of law, and Section 59 of the Taxes Management Act, 1880, and any rules made for the purpose of that Section shall apply accordingly.
§ Mr. HICKS BEACH
Is not this an extraordinarily lengthy Amendment to provide for a very simple object?
§ Sir S. BUCKMASTER
I can assure the hon. Member that we have done our best to prepare the Amendment in such a form as to make it complete and comprehensive, and it is not possible, in our view, to make it any shorter.
§ Mr. H. TERRELL
Would it not be possible to frame the Amendment in such a way that the Commissioners should not be the sole and final judges of the fact? The difficulty is this. When you come to a question of domicile the only question is one of fact. You cannot state a case as to whether a man is a liar. The question is whether you believe the man or not when he says, "I intend to retain my domicile." But there is no question of law on which you can state a case. I should have thought that on such an important question as that it should not be left to the decision of the Commissioners, but there ought to be some kind of means of bringing a question of fact before an Appellate Court.
§ Question put, and agreed to.
§ Mr. DEPUTY-SPEAKER (Mr. Whitley)
The next Amendment is in the name of the hon. Member (Mr. G. Locker-Lampson).
§ Mr. WORTHINGTON EVANS
You have passed over an Amendment which stands in my name. Am I to understand that by reason of the kangaroo we are prevented from moving it in the interests of insurance companies and policy holders?