CLAUSE 15.—(Income Tax for 1916–17.)

HC Deb 21 June 1916 vol 83 cc213-60

(1) Income Tax for the year beginning on the sixth day of April, nineteen hundred and sixteen, shall he charged at the rate of five shillings, and Super-tax shall be charged, levied, and paid for that year at the same rates as those charged for the year beginning on the sixth day of April, nineteen hundred and fifteen.

(2) All such enactments relating to Income Tax, including Super-tax, as were in force with respect to the duties of Income Tax granted for the year beginning on the sixth day of April, nineteen hundred and fifteen, shall (with the exception of Section twenty of the Finance (No. 2) Act, 1915) have full force and effect with respect to any duties of Income Tax hereby granted.

(3) The annual value of any property which has been adopted for the purpose cither of Income Tax under Schedules A and B in the Income Tax Act, 1853, or of Inhabited House Duty, for the year ending on the fifth day of April, nineteen hundred and sixteen, shall be taken as the annual value of such property for the same purpose for the next subsequent year; provided that this Sub-section—

1. (a)so far as respects the duty on inhabited houses in Scotland, shall be construed with the substitution of the twenty-fourth day of May for the fifth day of April; and
2. (b) shall not apply to the Metropolis as defined by the Valuation (Metropolis) Act, 1869.

Mr. FELL

I beg to move, in Subsection (1), to leave out the word "five," and to insert instead thereof the word "four."

We now come to the Income Tax. It is a subject in which I take a very great interest, and is one of enormous importance in the country. It is one to which this House should devote considerable attention. Chancellors of the Exchequer have on many occasions said that it is not only a difficult matter, but that the present Income Tax Statutes are very unsatisfactory, and will have to be put on a better basis more fair to all classes in the country. My Amendment will mean a reduction of about £30,000,000 in the Budget. It is an enormous sum compared with any of the other questions which we have been discussing to-day, but when you remember that it forms part of something like £l,800,0d0,000, or £2,000,000,000, the amount of borrowing and taxation this year, it is a question of the most vital importance whether this is the best way, and the way most likely to be helpful to the country, of raising this £30,000,000, or whether it would be better to leave the money in the pockets of the people, so that they might apply for loans, and the Government receive it in that manner. The question is divided into two parts. There is, first, the question whether this 5s. is necessary, and whether this is the best way of raising the money for the country, and there is next the question whether some better method cannot be devised than taxing the income at the source, and leaving persons who ought not to pay in any form to recover it hereafter from the Government if they can.

It is perfectly clear that we cannot meet all the expenditure of the year by taxation. Three-quarters of our expenses this year must be met by borrowing, so it is a question whether it is better to borrow a little more rather than raise this excessive sum from a certain particular class. Of course, where we used to put on pennies, we now increase the Income Tax in the lightest manner by 1s. or 1s. 6d., or even 2s. The question is whether the trade of the country can be carried on in the same way as it used to be when we put a 1d. or 2d. on the income Tax. I am myself convinced that if Income Tax is levied at the rate of 5s. in the £, the trade of this country cannot be carried on in the City of London. It cannot be done. There are certain things which will happen if the tax is continued at the present rate. It is perfectly clear that many companies in the City of London will transfer their offices to the Colonies—some of them have already done so—and others will either carry on as private individuals, or else it will not be worth their while carrying on at all, and they will gradually wind up. Five shillings in the £ on a company, of course, is a great deal more than 5s. in the £ on the individual shareholder. I am not going to say that the rate could not be levied on private individuals and private fortunes at 5s. in the £. It could. These people would lose one-quarter of their income, it is true, but classes which are above want, above the level of mere subsistence, would be unable to save to such an extent that they could live on three-quarters of their income. But the case of companies is very different. I think it would be utterly impossible for them to continue to exist if a quarter of their income were taken away from them.

The company pays Income Tax on a much larger sum than a private individual. It pays it on an entirely imaginary sum which is supposed to be income and is based on figures contained in the balance sheet of the company. The Income Tax authorities do not allow the company the ordinary deductions which are allowed to a business firm or private individual. The system on which the taxing authorities go is that immediately the Income Tax payer asks for an allowance in respect of a particular item they quote some decision of the Courts and declare on the strength of that decision that the item is not allowable. They quote decisions of the Court of Appeal and of the House of Lords, and almost invariably, of course, the decisions on these questions are in favour of the Government. Manifestly a private individual in appealing against Income Tax is at an enormous disadvantage in fighting on his own behalf against a Government which has unlimited resources at its command and can, if the decision goes against it in the first instance, carry the case to the Court of Appeal and thence to the House of Lords. That being so, I do not think the cases on record represent the law as it would be fairly construed by any body of commercial or other people if the point in dispute were placed before them. Again, very few people when faced with these decisions have an opportunity of looking them up, and they therefore generally give in when told by the surveyor he cannot allow this or that deduction. Therefore, I say the company has to pay Income Tax on a great deal more than the income actually earned by it during the year.

There is another point I would like the Committee to bear in mind. The law allows no capital deduction out of Income Tax. If a company raises a large amount of fresh capital it necessarily incurs expenditure by so doing, but the Courts of Chancery says, "You must never encroach upon your capital." Consequently, when such expenditure has been incurred in raising the additional capital, no allowance is made in respect of it. The Income Tax surveyor tells the Income Tax payer he can do nothing for him although, as a matter of fact, the Inland Revenue authorities do collect the Income Tax later on upon the additional profit which that further capital has produced. I say that is totally unfair, and it is a process which would bring any ordinary commercial business to the ground if it attempted to distribute its profits in such a method. But, of course, such a business does not so distribute its profits. I will not enlarge upon that any further. I am sure the Secretary to the Treasury is well acquainted with the facts, and I only mentioned it as one of the instances in which Income Tax is collected on a larger sum than it should be. It is, of course, a material factor in the conduct of business in the City of London, and the question is whether that business in the City of London will bear an Income Tax of 5s. in the £. The point was not of great importance in the days when the tax stood at the low rate of 8d., as it did for many years. It was at that figure when the Unionist Government went out of power. During the great wars it has never gone above 1s. 3d. That point was reached during the Boer War, but after that the tax went back to 8d. As I have said, in those times this question did not appear of great importance, but now the tax has reached 5s. in the £ it does become important, and I put it to the Treasury whether they do not think they have overstepped the mark, and whether it is wise to put this tax on the saving classes of this country.

These classes are the very backbone of the country. By their savings they provide the capital for our great undertakings; they provided, in fact, the capital out of which was purchased the American stocks and shares which are now being sent back to America to pay for munitions. It is the saving classes who have in the past provided the capital which is now to be taxed at this heavy rate, and, if their income is to be so reduced, will not the effect be that they will be unable to invest any further money in Government Loans? Would it not be a wiser course, instead of taking this heavy taxation from them, to allow them to keep the money and invest it in Exchequer Bonds or any loans that may be brought out? Is it wise to take it from them in this form of excessive Income Tax? I hope the right hon. Gentleman the Chancellor of the Exchequer and the Financial Secretary to the Treasury will consider these points very carefully. On my second point, as to the levying of the tax at its source, I do not think there can be two opinions. This levy of taxation at its source is one of the most skilful, most profitable, and at the same time most unfair engines of taxation that has ever been created by man.

The CHAIRMAN

Although that argument would be quite admissible in its proper place, I must point out to the hon. Gentleman that the Clause under discussion simply fixes the amount of the tax. The methods of assessing and collection are a separate matter, and are not dealt with in a Taxing Clause.

Mr. FELL

But may I not refer to the fact that a 5s. Income Tax levied at the source will inflict serious hardship on the Income Tax payer? Take the case of a man who is in receipt of £100 a year as a result of his saving. The Government propose to take £25 of that from him. It is true they say he may get the money back at some future time. It is, however, a matter which, I should hope, we can discuss, seeing that it affects so many people.

Sir R. FINLAY

May I ask whether the hardship created by the tax is not one of the elements which can be discussed on this Clause?

The CHAIRMAN

Yes, that is a matter for discussion, but there is an Amendment on the Paper to this Clause a little further on, in the name of the hon. Member for Coventry, asking the Committee to actually deal with that point. I shall have to rule that that is out of place on this Clause, as the matter is to be the subject of a new Clause. I do not, however, object to any reference to the point. I hope I was not so premature. When we come to the actual proposals, then the hon. Member will be entitled to discuss these points.

Mr. FELL

Taxation at the source to such an extent as this, in the case I was referring to, must inflict serious hardship. Next door to the man to whom I have referred there may be another man with an income of £100 a year, which he is earning and upon which he pays no taxation. The position of the one man compared with that of the other is therefore most unfair, and I think the Committee might very well devote a little time to discussing this point. If the man whose income is derived from dividends draws it quarterly he may find that from each quarterly payment £6 5s. is deducted for the purpose of this tax. Even if he were untaxed he would have to be very careful in these times how he spent his money. Naturally he arranges his expenditure so that his income may cover it, but if the £25 quarterly is to be reduced to £18 15s. it must be a serious matter for him, and he will have to pinch himself still further or get into debt. As to the suggestion that in time he may get his money back, I may point out that in many cases these people are very poor and may not be able to fill up the necessary forms. Expert assistance would be necessary, and for that expert assistance payment would have to be made. I hope the Chancellor of the Exchequer will arrange to modify this provision and, at any rate, to make the money more easily recoverable. I think it is quite possible for him to find some way out of the difficulty. It is a matter of great urgency, because the tax will be collected from a great number of people who ought not to pay it on the 1st July next, and they may never be able to get the money back.

I want to ask the Chancellor of the Exchequer one or two questions. Does he think it wise to impose a tax such as this, which must materially curtail the powers of the people to invest in further loans, and which at the same time must seriously depreciate the capital value of investments in the country? Does he think he will get as much money from this tax in view of the inevitable fall in the capital value of securities, as he would be able to get in other forms if such a heavy tax were not imposed? I say it will materially hamper the Government in their borrowing powers in days to come. If it were thought for one moment that this was to be a permanent tax of 5s. in the £, I imagine securities throughout the country of every class would depreciate at least 10 per cent. The loss in hundreds of millions which would follow from that would far more than counterbalance any small amount of revenue the Government would get from an Income Tax such as this. There must be a great deal of concern as to whether such a tax is wise or necessary at the present time. I would urge very strongly that at the present time a tax of 4s. would be the more reasonable amount. We are issuing £30,000,000 a week in Treasury and other bills; why should we not issue £30,000,000 more and save the vast amount of hardship and trouble which will be occasioned by this heavy tax?

Mr. MONTAGU

We are now really getting to business. My right hon. Friend the Member for Islington (Mr. Lough) only aspired to take away an amount of £7,000,000. My hon. Friend who has just spoken is at last doing something substantial and suggests that we should get rid of £30,000,000. I dissent from the view he and other speakers have expressed today, that the fact that you are borrowing large sums of money makes a large amount of revenue relatively unimportant. The fact is, that the more you borrow the more important is your revenue. The whole credit of this country at the time of borrowing and the sole reason that we are enabled still, in the middle of this great War, to take in vast sums of foreign money on deposit is due to the fact that we have the courage to tax. If my right hon. Friend had given way and had started borrowing £30,000,000 instead of taxing £30,000,000, he would find it necessary to impose taxes in order to pay interest and sinking fund on the new securities we should have to issue. There is no need to say that this sum represents six days' or one and a half day's expenditure on the War. It is part of the fabric by which we demonstrate to the world our ability to pay the charges on the sums we borrow. [An HON. MEMBER: "IS it to be permanent?"] We are not borrowing permanently; we are now imposing only war taxation. We cannot escape from the necessity of imposing this taxation for revenue purposes. If we look at the hon. Gentleman's proposal as it appears on the Paper, namely, to substitute 4s. for 5s., we must remember the powerful argument addressed to the Committee by the right hon. Gentleman the Member for Islington. The Committee by a large majority insisted upon imposing the additional Sugar Duty. It was then represented that as we were putting an increase on the Income Tax we ought at the same time to put an increase on the Sugar Tax; that we must balance direct with indirect taxation, and regard the Budget scheme as a whole when we were considering any individual tax. I should be ashamed of the part I took in the imposition of that Sugar Duty if the Committee were now to decide they would let off one-fifth of the Income Tax.

I imagine that my hon. Friend's real intention in moving the Amendment is only partly to obtain a reduction of the Income Tax, and primarily to draw attention to the difficulties inherent in a graduated scale of Income Tax and the necessity for repaying the people who have paid excess tax the part of the tax that has been overpaid. He, however, cures none of that by his Amendment. The unfortunate individual with £100 of savings who is liable to no Income Tax at all is just as badly off and nearly as much to be pitied if the Amendment is accepted. I would infinitely rather have the scale of Income Tax which is in the Bill, and infinitely rather still have the Income Tax which the Chancellor of the Exchequer proposes to substitute for the one in the Bill according to the terms of the Amendment on the Paper. [An HON. MEMBER: "Which Amendment is that?"] The Amendment to Clause 17, dealing with the new scale. I agree that a 5s. Income Tax as a general rate is admittedly too high. In order to cope with that difficulty the Chancellor of the Exchequer suggests certain modifications in the scale. When the time comes for new Clauses to be taken he proposes to ask the Committee to assent to increase the amount of income that a man may have in order to claim the children's allowance from £500 to £700. In addition to that, he proposes to graduate the scale, maintaining taxation at the source, in the way that is set out upon the Paper. It is a peculiar irony of the situation that if my right hon. Friend had persisted in a uniform 5s. none of the grievances about over-taxation would have appeared. It is the very concession that he has made that has landed him in the position that a man would rather be taxed at a high uniform rate than at a lower rate if it had to be got by taxation. I can see no way of differentiating unearned income between the poor man and the rich man in rate except by administrative alterations.

My hon. Friend the Member for Yarmouth (Mr. Fell) used some very stinging phrases about the system of taxation at the source. I would point out to him that it is part of the fabric as it exists. I do not think I shall be contradicted if I say that if we did not have taxation at the source we should be compelled to have a much higher rate of taxation to produce the same yield. I do not think the House would willingly part with that very valuable instrument of taxation in the middle of a war. We must now take the Income Tax system as it stands. We cannot destroy the whole fabric and devise a new-system without attempting that long promised survey of the Income Tax law which is going to be made as soon as we get to the end of the War. I hear a right hon. Gentleman say that he has heard that promise before. He has heard it before, but the date has not arisen. The names of the Committee and the terms of reference had been selected at the date of the outbreak of the War, and its work was only postponed in consequence of that event. It has been promised that it shall begin as soon as the War is over. We have taken the absolutely essential preliminary step in order that the Committee may do its work. We have taken the step of consolidating the existing law, in order that they may find out quickly what it is, and we shall pass it through the House as a Consolidation Bill within the next few months. Something can be done to mitigate the difficulty of collection at the source, and something will be done. It is something which can be done without setting up new machinery, without altering the whole constitution of our Income Tax law, and something which can be done with our existing or with our obtainable staff, because the difficulty of any fundamental alteration of the law is that you cannot find a staff with which to do it now. With these administrative alterations we have two legislative alterations, namely, the reduction of scale and the increase of the children's allowance limit. The three administrative alterations which will be made in order to meet this point are, first, in the case of a man who has some income upon which to pay tax which is assessed directly and some income which is taxed at the source, the amount paid at the source would be taken into consideration in assessing him for Income Tax on his direct assessment, so that the matter would be adjusted without any repayment at all. Supposing a man has a small income and is in receipt of dividends on which there is the 5s. deduction and he ought only to pay 3s. deduction, when he comes to pay his direct Income Tax on his earned income he will then be told that he ought to pay 3s. in the £, or whatever the rate is, but that as he has overpaid on his unearned income therefore he will only be charged a certain amount. That obviates repayment. Secondly, you come to the rarer case where the whole income of a man does not exceed £500 a year and consists entirely of dividends upon which the tax is deducted at the source. In that case the only way I see of arranging the matter is by repayment. In order to avoid any avoidable hardship an interim repayment will be allowed half-yearly instead of yearly as at present. The Committee will recollect that the Income Tax is paid when the dividends are paid, which is usually quarterly, therefore to keep him out of his refund for half a year only keeps him out of the refund of part of his Income Tax and is not nearly so serious a matter as to keep him: out of it for the whole year. The third case is the case of income derived from property in which the rent is received with a deduction for Income Tax by the tenant. If the taxpayer lodges his claim with full particulars early in the year, showing that he is not legally bound to pay at the full rate, the adjustment will be made on the assessment under Property Tax Schedule A. That can be done locally and quite conveniently with regulations, and will prevent the necessity for a refund. I. submit that my hon. Friend has no case as regards the general taxpayer, that as regards the poorer taxpayer we are doing everything that it is possible to do short of revising the whole system of Income Tax, and that we have made a great concession in that we have for the first time graduated the unearned Income Tax so that it will work without any great hardship to anyone.

Mr. HOBHOUSE

What we have heard from the right hon. Gentleman seems to be a very satisfactory way out of the difficulty which has arisen in connection with the cases mentioned by the hon. Member for Yarmouth (Mr. Fell). I should like to mention to the right hon. Gentleman and the Chancellor of the Exchequer a further difficulty which has occurred to me and which has been brought to my notice from-more than one quarter. The amount which-is taken in tax from income derivable from personalty is payable when the income is received, or in the case of dividends or profits, but in the case of income under Schedule A upon rents receivable for the use of land or from house rents it is payable before half of that income has been received. Let me make the point as clear as I can. The rent is generally payable, in respect of a house held upon a lease or in respect of land, no matter what the extent of the land, twice a year, usually at Michaelmas and at Lady Day. The tax is charged in respect of a year, which lasts from 5th April to 5th April. In Scotland the demand for tax is made, I think, in the early part of November and is claimable some time before Christmas. In. England the demand for the payment of tax is made on 1st January and it is expected to be paid, I think, not later than the end of February. What happens? So long as the tax is one of 6d. or 1s. in the £—one-fortieth or one-twentieth of the income—it was a matter of no hardship and little inconvenience for a person who had nothing to live on but the rent from the property whether the tax was paid before or after he received the rent, but when it comes to a question of paying a fourth of his income, receivable in advance of the payment of the sum upon which that tax is paid, a very distinct hardship arises. Let me give a concrete ease. The agent of a property wrote me the other day and put this case to me. He said, "My employer tells me to expend upon the estate which I manage the whole of the income which I receive from it, but I am not to exceed the actual income received from the property." He goes on to give me figures which I will not quote, but I take an imaginary sum. He received £1,000 a year from the property. The net assessment on that will work out, after deductions, probably at something like £800. The tax upon that amounts to £200, and that is payable on 1st January or shortly afterwards. The source from which the tax is to be paid amounts to two payments of £500 a year each, one in advance and one after the tax has been collected. On 1st January the Income Tax payer would have at his bank a sum which cannot exceed £500, upon which the following demands will be made: A sum for tithe, which you can put at, say, 10 per cent., £50; a sum for repairs, which at 25 per cent., the sum which used to be allowed by the Exchequer in respect of which abatement is made, will come to £125. That is £175 altogether. On 1st January you present a demand for £200. That is £375, and the man is supposed to live on the remainder of that until he gets the next payment of £500, which will not be till six months hence, and meanwhile he has to meet a fresh demand for tithe.

Mr. McKENNA

Two months hence.

Mr. HOBHOUSE

No, because he does not get paid the second instalment of rent, as a matter of practice—

Mr. McKENNA

In March.

Mr. HOBHOUSE

No, it is not paid, as a matter of fact, until sometime in June, and hardly ever earlier than the early part of May. It is always paid a month or two in arrear. Any hon. Member who is an owner of land will bear out what I say. You have imposed an almost intolerable, I will not say hardship, because I will not grumble at the extent of the 5s. tax. I think it is right. The tax ought to be 5s. and not 4s. But you impose an almost intolerable hardship upon the banking account, because he will have nothing to pay it out of. He does not get the second instalment of rent until long after he has paid the whole of the tax upon the whole income. Under Schedule D you are allowed to pay Income Tax in two parts. In the case of Schedule A the whole of the demand is presented at once, and the whole tax has to be paid at once. I suggest that my right hon. Friend should bring up, if necessary, a new Clause on Report stage enabling the person to pay under Schedule A in respect of land or houses, if he is unable to pay in one lump sum, in two lump sums. The practice has been found to work well in respect of Schedule D, and I see no reason why it should not work equally well, and it will really relieve the taxpayer of a hardship which he cannot meet financially. I am afraid it will entail some increased labour on the overworked and admirable staff of the Inland Revenue office, but the cases of hardship which will arise if this concession is not made will be so numerous that it will in the end give him more trouble than if he adopts the suggestion I now offer him. I trust, therefore, he will see his way to accept it.

Mr. RUTHERFORD

The right hon. Gentleman (Mr. Hobhouse) has made a most interesting contribution to the Debate, but it seems to me he has overlooked the fact that the man who really has to pay the tax and the person through whom it is paid are two different people. Income Tax under Schedule A is paid in the first instance by someone who has not ultimately to suffer it. It is paid by the tenant.

Mr. HOBHOUSE

I assure the hon. Member it is a matter which can be and is arranged in practice. In many cases the tenant pays it, and in a great many cases the landowner or the householder pays it direct. It is merely a matter of arrangement between the Inland Revenue and the ultimate payer.

Mr. RUTHERFORD

I was only referring to the common and ordinary practice of the law, because the person who is liable at law to pay the tax is the person who occupies the property, and he is entitled to deduct, so far as it consists of Income Tax, and he does deduct it as a rule from his next payment of rent.

Sir F. BANBURY

My hon. Friend is absolutely right in the ordinary practice, but in the case of landed property, where the tenant is a farmer, in nine cases out of ten, in my own case undoubtedly, and I believe it is so in the case of every landlord in the county of Wiltshire, the landlord pays the Income Tax and the tenant has nothing whatever to do with it, never sees it, or knows anything about it.

Mr. RUTHERFORD

I am obliged to my right hon. Friend for pointing out the comparatively few exceptional cases which apply to large landowners, but the ordinary case, where there would be a hardship all over the country, is the case of a man who occupies a house and has to pay rent every quarter and has to pay his landlord's Income Tax once a year and deducts it from the next quarterly payment of rent. I do not know whether arrangements could be made for that tenant to pay the tax either half-yearly or quarterly. I should think it would be very difficult to do anything of the sort. If it could be done he could deduct an equal amount from each of his payments of rent.

The general discussion that we have been having upon this Amendment has touched one or two important points. I do not think any of us who support the Amendment would say that there is any desire not to pay the taxes which are required for the purposes of the War. That is not the object of the Amendment. But I should like to point out one or two important matters connected with an Income Tax of 5s. The first is that other countries engaged in this War have done nothing of the sort. I was very much struck, when I was in Paris with the deputation from the Commercial Committee of this House and met Members of Parliament from Russia, France, Italy, Portugal, Serbia, and Belgium, with the fact that in talking to them it appeared that they have put no taxation at all comparable to our increased taxation upon their subjects. We have seen in the Press that some of these countries have slightly increased various duties during the last two or three weeks. For instance, Russia has slightly increased the taxes on the transfer of land and one or two small items of that description, but none of the countries engaged in the War, on our side at all events, have done anything at all comparable in its magnitude with the increase of taxation that we have made on this one head of Income Tax.

8.0 P.M.

One part of my hon. Friend's speech in moving the Amendment was entirely ignored—I do not say purposely—by the right hon. Gentleman (Mr. Montagu). It was that part that related to an Income Tax of 5s. as imposed on a company carrying on business or having an office in England. Many of us have heard of considerable numbers of important concerns whose activities are not actually in this country, but whose money is, to a large extent, found from this country and in which people in England are interested. We have heard projects of them being removed, as far as regards their actual administration and their ostensible office, to the place where their business activities are carried on—the Colonies in some cases, foreign countries in others. An effort has been made, and is going to be made, to prevent any evasion of the Income Tax imposition by making it very difficult for any company to really move its office in that manner, and in such a course I agree, but I see a very important and difficult thing coming in the future. It is not the moving away of such a large proportion of these companies that I fear, although it is there, and although arrangements are being made to-day in a number of cases for it to be done. I do not think that is anything like comparable in importance with the fact that a 5s. Income Tax imposed on concerns run and managed from London all over the world will inevitably act as a very great deterrent to further concerns being started and run from London. Up to now, for a good many years past, if there was a promising project for the satisfactory employment of capital and for the development of enterprise in any part of the globe, and when it had a chance of finding people who would take it up, carry it out, and make it useful in the interest of the whole community, it was brought to London. There were certain drawbacks to it, and actually for some time Belgium succeeded in getting a large proportion of that business. In fact, for three years Brussels rivalled the City of London in regard to the new concerns which were registered there. I mean concerns of a cosmopolitan character which might be, registered anywhere. Why? Because the Chancellor of the Exchequer at the time put an extra duty upon the registration of companies in London amounting to £2 10s. per thousand of nominal capital. The mere fact of the imposition of that duty, when at the time there was no duty charged in Brussels on the registration of a company in Belgium, and when there was no duty charged upon the registration of a company in Guernsey, in the Channel Islands, was that a whole heap of companies went and got registered in Guernsey, but the really respectable and substantial undertakings, with many millions of capital, became housed in and administered through Brussels. It is almost as easy for a board to meet in Brussels, when there is no war, as it is to meet in London. This extra duty charged upon the registration of companies in London had the effect of centring the administration of companies and the distribution of the profits of those undertakings, together with the connection that was bound up with them, in Belgium.

I am one of those who maintain that anything that is calculated to handicap our country in being the home and the head of the enterprises of the world, from the point of view of administration and distribution of earnings, is a mistake. When one sees a 5s. Income Tax imposed, which every company having its head office in London will be bound to pay upon the whole of its profits, although they are made in South Africa, in Roumania, or anywhere else—and, indeed, will have to pay on a great deal more than its profits—it is a very great hardship and is likely to have the effect of housing these companies and distributing the profits, together with everything that goes with them, in foreign countries, and taking them away from England. That is what I am afraid of with this very high taxation upon the income of all kinds of undertakings. How does that principle affect us, and how does it arise? We arc the only people to make a tax of anything of this sort at the source. It is exceedingly convenient to do that. I suppose it would be almost impracticable to collect Income Tax if we did not collect the bulk of it at the source, but in doing so we tax everybody in the company, whether they are liable to Income Tax or not. We tax all the foreigners in that way. We tax the foreign shareholders, and that has the effect of preventing people from transferring their concerns to English administration and to English companies, because the shares which they continue to hold in those companies become subject to the English Income Tax taxation. Consequently they will not do it. Then it has another very great draw- back. If you are taking a 5s. tax, which is one-fourth of the whole income, and only leaving the people, such as foreign shareholders and other persons who are entitled to an abatement, the right to recover it afterwards, that in itself is quite sufficient, but you are doing something a great deal worse.

I suppose the majority of individuals paying individual Income Tax only really pay on the amount of profit they actually make, but that is not the case with a company. A company is obliged by law to keep its books in a certain manner. Nine companies out of ten who have got enterprises abroad are obliged to hold leasehold land for the purpose of carrying on their business. If they are a mining company their rights are for a certain number of years. In all these cases they are obliged, as a matter of common sense in accountancy, as against their profits to take off every year an integral part of the capital value at which that capital as a capital asset stands. When you come to pay Income Tax there is no allowance for that. If you have only got a twelve years' lease for a mining right and one year has gone, as a matter of common sense and a sense of right between the company and the shareholders you have to take off one-twelfth of the amount at which that capital stands in the books and charge it against profits, but you are not allowed to do that for the purpose of Income Tax. The Income Tax surveyor says, "That is a diminution of loss on your capital. I have nothing to do with that. You are not entitled to debit that for the purpose of Income Tax against your profit." But we all know that in practice we are obliged to do that. I have a case in point. I was at a board meeting this afternoon, and that particular company has paid during the last two years £25,000 in Income Tax without being able to distribute one penny to its shareholders. That Income Tax was paid in London, although the company has not gained one penny of that money in London. All the money has been made abroad. The company has been obliged, however, because it happens to have an office in London, to pay £25,000 in Income Tax during the last two years, although its shareholders have not had one penny of dividend. Why? Because of the unfair manner in which that company and its business is assessed as between itself and other taxpayers.

If this Amendment has done nothing else it has done one good thing, because it has elicited from the Financial Secretary to the Treasury information on a subject that some of us on every Budget for many years past have been urging, namely, a more common sense and more equitable principle should be introduced into the method of levying Income Tax. I think if we are going to have that, together with a codification of Income Tax law, our time in some of these Debates will not have been thrown away. I do not object to a 5s. Income Tax myself. I Relieve there is no taxpayer in the country who, from the point of view of his own pocket, would get up either in the House of Commons or anywhere else and say, "I object to paying my fair share of the costs of this War." There are, however, other considerations of great importance and of future import mixed up with the success and continued prosperity of this country, which, when we try to bring them to the notice of the -Chancellor of the Exchequer, receive the consideration they deserve from the right hon. Gentleman. I hope, therefore, that the Chancellor of the Exchequer, in fixing this amount of 5s. Income Tax to be deducted at the source, and charged upon everybody whether they are liable to the tax or not, charged upon incomes whether they are really earned or not, in the way I have suggested, will give some consideration to the important case of the numberless great enterprises all over the world which are only housed in London, and upon which this very unfair impost is at present being levied, and w7hich will be made very much worse, in fact, oppressive almost to breaking point, when it is raised to 5s. in the £

Mr. J. MASON

The figure to which the Income Tax has now come brings into prominence a considerable number of questions which, in previous days, were not considered of very great importance. I am not one of those who think that the Chancellor of the Exchequer is raising too much by taxation. I entirely agreed with the Financial Secretary to the Treasury when he said that the amount of revenue raised by taxation must advance and keep in proportion to the amount of loan that is raised. I am one of those who have always held that of all the forms of direct taxation the Income Tax is the best, but when that Income Tax arrives at 5s. in the £, I think it is very desirable that this House should keep clearly before its mind the effect that this must necessarily have on the industry of the country. A remark which fell from the hon. Gentleman who leads the Labour party, on the Second Reading of this Bill, to the effect that he regretted that the Income Tax was not 7s. 6d. or 10s. in the £, makes me think that there are a large number of people who look upon the Income Tax solely as a way of extracting a certain amount of Income Tax from individuals, and forget that owing very largely to the mode of assessment, which has just been described by my hon. Friend, the Income Tax in itself is a burden on industry as such. Moreover, it is an addition to the cost of production, and in many cases falls entirely upon the cost of production and upon nothing else. If a trade is entirely confined to this country—that is to say, if it does not have to meet foreign competition, such as the building trade, I think one might say that the Income Tax is not only an addition to the cost of production, but it is capable of being converted immediately into a indirect tax—that is to say, that the burden falls upon the consumer. An hon. Gentleman opposite differs from me on that point. I think it surely cannot be denied that if, owing to Income Tax on the profits of the building industry, the cost of building is increased, as it is by 33 per cent. with a tax of 5s., it is perfectly obvious that that cost will be thrown on the consumer of buildings—that is to say, either on the purchaser of the building or the person who rents it, otherwise the builder will not go on with his trade and pay a tax which he can quite easily throw upon the consumer granted that there is no competition from outside. In these cases, therefore, a very heavy Income Tax which becomes an addition to the cost of production really is in the form of an Excise Duty without a Customs Duty. It certainly must be added to the cost of production, otherwise on whom does it fall? In the case of a company, as my hon. Friend (Mr. Rutherford) described, you are not taxing the individual shareholder, you are not even taxing the indivisible profits, but you are taxing the profits of the company, including the reserve from which their new capital must be built up, and from which the replacing of capital must be effected. It seems to me, therefore, that in the case of those industries which are not suffering from foreign competition the tax is capable, at any rate to a very large extent, of being transformed into an indirect tax. But a more serious point, and a much more common one, arises where a trade has to meet foreign competition. It is here really that there is the danger of high Income Tax, which is unavoidable, I agree, in the present instance. I am not arguing for a moment that we can reduce the Income Tax. Taxation must be raised somewhere, and direct taxation must find its share. But this is a serious point with which we have got to deal, because it is quite obvious that if an industry in this country is subject to a high Income Tax, and has to meet competition coming from countries such as the United States, in which there is no Income Tax, of course the addition of 5s. in the pound to the cost of production will be one which will throw manufacturers in this country into a very serious position in the time to come. I do not know how far we may say that this difficulty is due to the mode of assessment, but I think it is due very largely to the fact that we assess the Income Tax on the gross profits of a company, quite irrespective of the divisible profits. That is to say, we assess the tax on that fund from which alone in most cases the replacement of capital or the addition of new capital can come.

Mr. D. MASON

Mr. Maclean, I understand from Mr. Whitley that the Amendment which comes next but one is not quite in its proper place with reference to this discussion, and I hope to bring it up in the form of a new Clause. I hope to offer a few remarks, as your predecessor allowed was in order in this Debate, with reference to this particular point. It was touched on by the hon. Member for Yarmouth in moving this Amendment to reduce the tax from 5s. to 4s. I need hardly say that I agree entirely with the hon. Gentleman the Secretary to the Treasury in opposing the Amendment to reduce the tax from 5s. to 4s. I congratulate the Chancellor of the Exchequer on his courage in meeting this enormous war charge by a very considerable amount of taxation. I have not always been able to agree with the right hon. Gentleman's taxes, but I congratulate him on his courage and his general principles. In reference to the speech to which we have just listened we all agree that this taxa- tion is a high charge, and must, of course, penalise industry more or less. At the same time it is preferable to raise as much of the expense of the War as we can by taxation rather than by loan. In the first place it improves our credit. In the second place it is much fairer that the present generation should bear as much of the charge an possible, as we are bound in any event to leave an enormous charge on posterity. But I would like to make a few observations with regard to what the hon. Member for Yarmouth, in moving this Amendment, said with reference to this charge of 5s. falling on the receivers of small incomes, the widows and others who of course, should not be penalised to this extent, where the charge will be deducted from the source on an unearned income.

We all agree that a deduction of 25 per cent, is a very serious drop in an income. The proposal of the right hon. Gentleman does not meet the very grave injustice of losing one-fourth of your income for something like nine months, which, of course, falls very heavily on persons with small incomes. The Amendment, which I had hoped to move and which I still hope to have the opportunity of moving as a Clause, would, I think, meet that by reducing the actual amount which is to be deducted at the source. I put in an amount of 3s. 6d. Of course, if the Chancellor of the Exchequer accepts the principle, it is quite open to him to make it even 1s., so that you would catch then all incomes from which deductions are made at the source, and then get the balance by the ordinary assessment, and thus a great number of widows and others with small incomes—

The DEPUTY-CHAIRMAN (Mr. Maclean)

Is the hon. Member now discussing the Amendment before the Committee?

Mr. MASON

I am availing of the opportunity of your predecessor's ruling to allow a certain amount of elasticity.

The DEPUTY-CHAIRMAN

My predecessor having ruled that this Amendment comes somewhere else, the hon. Member cannot discuss it now.

Mr. MASON

Excuse me, your predecessor allowed it to be discussed on this Amendment, but I shall say nothing further on that.

The DEPUTY-CHAIRMAN

Surely he did not say that. He said that it could be discussed as a new Clause.

Mr. MASON

No, he allowed the hon. Member for Yarmouth to refer to this particular point. But I shall not say anything further on that point at the moment. With regard to the general argument which was raised by the hon. Member for Yarmouth the main point is that while we all object to heavy taxation, still, as the right hon. Gentleman has suggested, the fact that in putting so much upon the Income Tax it should fall heaviest on those who are best able to bear it constitutes what is just and right.

Mr. J. SAMUEL

There is one point with regard to the deduction of this very large tax at the source which I raised on the Second Reading Debate, and the reform which the Secretary to the Treasury suggested was rather complicated, and certain members of the Committee who are present do not quite understand the full purport of what he suggested. I would like to make one suggestion to the Chancellor of the Exchequer which I think will mitigate the hardship which was dwelt on so strongly by the hon. Member for Yarmouth, with which I agree. This is really a Super-tax now of 5s., and to people with small incomes it is going to be a very serious matter, people who have now a great struggle to live, people who have had stationary incomes and who are not able to pay this large tax. I have worked a case out with regard to an income, say, of £500. That case is a very striking example of how this tax will work. Take it at £500, there is £120 allowed to be deducted, which brings the net income down to £380. If that income is paid in the form of dividends, say, from one company or from two companies, the amount that would be deducted would be £95, though that person is only entitled to pay 3s. in the £. The result is that on that income the State is taking no less than £38 excess. That is a very serious matter. It is all right for men who have very large incomes, but for men or women with large families, who have this very large amount deducted from them, it is a very serious matter.

Mr. WALSH

Is it unearned income?

Mr. SAMUEL

Yes, unearned income; but if the hon. Member knew the great struggle of a very large number of these people in receipt of an income of this nature who have to pay very large rents and so on, he would see the force of the argument. I am working it out for £500, but the same principle applies to £200, or £300, as the case may be. What I suggest is this: I understand from the Secretary to the Treasury that the reform proposed to be made is that the man or woman can claim a rebate at the end of six months. A very large number of these people really do not know how to proceed in these matters, and that is really a very serious circumstance. What I suggest is that the proper method is that the man or woman should have the right in every locality to approach the Inland Revenue officer to obtain a rebate of 2s. They may not make a return of their income to him, but he knows exactly what their income is, and if he ascertains that they are paying 5s., the amount of Income Tax deducted in the £, and that they are only entitled to pay 3s. in the £, and, if that be made clear to this local officer, I cannot see why the Government could not allow the money to be repaid at once instead of retaining that large sum of £38 for a period of six months. It applies to every income whether unearned or whether it is deducted from the source. These people will have to pay this large Income Tax, and I think it will be a very cruel hardship upon them. I have very great sympathy with them, and I trust that the Chancellor of the Exchequer will make this reform. If he cannot see his way to doing it now, perhaps he will promise to have the whole matter thought out, and allow these people to make their claim to the local Revenue officers and thereby mitigate this very great hardship.

Mr. McKENNA

I appreciate very much indeed the force of the case put by my hon. Friend who has just spoken, but I am bound to say that I do not think he has the facts quite clearly in his mind. Let us take the figure he has given and assume that the £500 a year is derived purely from dividends, which are paid twice a year, once in January and once in July. The first dividend in January is only on £250, less Income Tax According to my hon. Friend, in the whole year £38 is taken from the £500. On £250, £19 is taken from him in January, and he is lying-out of the £19 from January onwards until he gets repayment. Consider the position of this matter. It is quite true that he is £19 short in January. I am very sorry that it has to be so; I wish it could be paid in full, and that our machinery admitted of it. I am only considering the actual hardship. He is kept out of £19 of money due to him in January, but at the close of the financial year in April he will be entitled to receive the full amount that was due to him on last year's dividends, which would be more than £19. He has got the whole of the year's arrears made up to him, and although the Income Tax was lower last year than this, he will still get more than £19 repaid to him in April; so that between January and April he will not be anything out of pocket, On the £250 in July another £19 will be held back. We are now at the middle of the year, and we propose to make repayment twice a year, and in September he would be able to get payment of the £19, so that, in the second half year, he will have his full £250. I am extremely sorry that he should be kept out of his money at all, but is it a case of the overwhelming hardship of the kind which my hon. Friend represented to us. I really do not think it is. I am sorry it should happen at all, and we are doing, our utmost to relieve it. But it is not a case of such immense hardship that I think we need be very greatly concerned about it. My hon. Friend asks why they could not make application to the local Inland Revenue officer, to whom, he pointed out, the Income Tax payer has already to make a return. If in a case of this kind the Income Tax payer has to make a return it must mean that he has some other income besides the income on which he pays the tax by deduction. He must be earning some income for which to make a return or an assessment, and on an assessment of that kind of income we propose, on that very assessment, that he shall be allowed the full deduction to which he is entitled.

Mr. SAMUEL

Has he not to make a return if he has no direct income. Supposing he has an income solely derived from dividends, is he still compelled to make a return?

Mr. McKENNA

He has to make an assessment every year, and then we do have an opportunity for the local Inland Revenue officer to go into the question of the man's total income, and then repayments could be made at once.

Mr. SAMUEL

Am I to understand that you will give the right to make application in these circumstances?

Mr. McKENNA

Where he makes a return in respect of earned income, not where he makes a return marked "nil." Where he makes only one assessment, on that assessment relief will be given him. The other question raised, one of great importance, is as to the amount of the tax. I hope the Committee will accept it from me when I say that I appreciate as strongly as any critics of this tax the harm that is done to the general trade of the country by long continuance of Income Tax at an excessively high rate. So long as personal pecuniary gain is the main incentive to industry, we cannot afford, in ordinary circumstances, to deprive the man who earns income of the benefit of it. I am quite sure, I will not say quite sure, but in my judgment there is very good ground for believing that in the long run the effect of an excessively high Income Tax would be to injure the energy and industry of the most progressive part of the people. We have got to realise, we have got to remember, that in ordinary circumstances—I am speaking now of ordinary circumstances as distinguished from the special circumstances of a time of war —much of the income of one year becomes the capital of industry in the next year, and it is exactly that income which is earned by the most progressive and energetic brains in the country. It is the man who is developing his business, who has the power to develop it, because he is a good business man, who is making the most money and is most rapidly putting his money back into his business. That is the ordinary experience of every trade in the country. Trade is developed by men who put their money back into their business, because they are the men who know best how to make use of it. If you take a large proportion of the excess earnings each year from the men who earn the money, you will, in the long run, seriously impair the energy and efficiency of our capital industries. I believe that is a general proposition which will be readily accepted by those who are familiar with the ordinary tendency of the development of our trade.

Mr. WALSH

Captains of industry will accept it.

Mr. McKENNA

I think those who are developing our industries and those who are dependent upon them will accept it. If you could imagine that human nature would give the same amount of energy and industry and ability to business without the incentive of personal gain, merely with the incentive of the benefit of the State, then I admit that the whole of this argument falls to the ground at once. In a higher state of society I am sure one day humanity will reach the position that men will work as readily for the State as they will for themselves. At this moment it is my firm conviction that the great majority of our countrymen are willing to work as hard for the State as in their own business. Therefore I am convinced that the great majority of our countrymen, not only can afford to pay the 5s., but that the payment of the 5s. will not withdraw one iota from their energy or determination to carry on their business as successfully as possible. I am sure, moreover, that in the case of the great majority of our countrymen not one will be tempted to remove his business from this country where it is taxed to another country where it may be free of tax. That is true under the impulse of this War, but I would not be sure that it is equally true at all times. Therefore, when you look to the future, I am bound to say that in my judgment it would be a great mistake to contemplate anything like a tax of 5s. in the £ as possibly permanent if we are to maintain our full degree of energy and development in our trade. While I hope that my hon. Friend will not press his Amendment in war to reduce this tax, I hope also that he will accept the doctrine that to-day the whole of our countrymen are prepared to pay this tax and that they will not remove their business abroad, and that they will not seek to evade the tax, but that they will carry on their business with as much energy and industry as if they were earning 20s. in the £ for themselves instead of 15s. If he will accept that, as I am sure he will, I for my part am perfectly ready to agree with critics of the tax on the general principle, that no country could afford to continue indefinitely such a high rate of Income Tax as we are willing to bear in the course of the War.

Mr. WALSH

I think every Member of the House must have listened with considerable interest and a great deal of appreciation to the very forceful statement which the Chancellor has just made. Nearly all our tears are being wasted upon a 5s. tax. I have never known two men to run better in harness than the present Chancellor of the Exchequer and the Financial Secretary. Indeed, I think it is doubtful whether two men have ever better performed their functions than those two men. I say that in perfect sincerity. I remember a few months ago, some time last year, I think, the cheers of the House being given to the Financial Secretary when he suggested that so keen and deep- seated is our enthusiasm, and so solid our determination to win the War, that we must be prepared for a 10s. in the £ Income Tax. I am wondering a little new what has come over us that to-day we should be deprecating a 5s. tax, a very great deal, and suggesting that it should be made 4s., and talking about the woes of the dividend receiver who has an income of £500 per year on dividends alone, and who, by implication, has also a certain amount of earned income upon which he is to receive credit for all over-payments. I wonder, after all, whether the statement just made by the Chancellor of the Exchequer was not because of the very strong appeal being made by the working classes of the country and by a great many more than the working classes for the conscription of wealth. When we see the millions that are being made in profits on shipping and on coal and everything else, I cannot imagine that the incentive which has been spoken of could be lessened, when after paying all the excess Income Tax and the Excess Profits Duty, there are in shipping and in coal, and in all branches of trade, millions upon millions being made, more than ever was made before.

Everybody must admit with the Chancellor that you ought not to stifle incentive to industry, but is there to be no incentive unless you can amass your profits by millions? Personally, I think, after a decent figure had been reached to preserve the incentive and keep it alive, both for captains of industry and for the workers, that the State has the right, in circumstances such as exist at present, to take the whole lot after that, not merely 5s. in the £, but 20s. in the £. If ever confiscation was justifiable the case has arisen now, when the State in its great need has the right to say, "After allowing you a reasonable profit, we will fix a figure beyond which the whole of the residue becomes the property of the State." I think that is the really proper line to go upon. I say no more upon it now, but it is a matter for wonder that the possibility of a 10s. tax should have been cheered to the echo last year when promulgated by the right hon. Gentleman's own colleague—

Mr. McKENNA

What my right hon. Friend said was 10s. in the £, half tax and half loan.

Mr. WALSH

I suppose we should have to pay the interest on the loan, or do loans grow upon trees? Anyway, I am glad to know that neither the right hon. Gentleman nor his colleague has shrunk in courage, and that they are not likely to give way to the tears of the people who are pressing for a reduction in the tax. Our clear duty is to maintain the credit of the nation at the very highest point. After all, if there is any responsibility for the War, it is our responsibility; and if there is any responsibility for the prosecution of the War to success, that is ours also, and we ought to see to it that we do not burden succeeding generations with any debt that we ought honourably to discharge. I am quite sure that the working classes of the nation and the middle classes, and every lover of his country, are prepared to bear a great deal more taxation than has yet been reached.

Mr. NIELD

The hon. Member for the Ince Division (Mr. Walsh), who is always listened to with great attention and respect, has, I think, made a peculiarly ungenerous speech. He has forgotten entirely that there are a great many persons who derive their income from dividends, but whose income cannot be held to justify the observations he has made. Those observations can only apply to those persons who are building up huge fortunes out of the necessities of the present moment. Reference has been made to coal and shipping. I agree. But you have the Excess Profits Tax, and if the matter can be properly investigated and the true profit ascertained by the various officials of the revenue, I think you will get the profits which those persons are making reduced to such an extent as will render totally unnecessary the observations to which we have just listened. But it is not right to talk about persons with fixed incomes in that way. Take the case of dependants of a man who might possibly be regarded as fairly well off at the time of his death. The income, which is derived from shares, may have been fixed for years, and it is divided amongst the various dependants. Various families have been in the enjoyment of a definite income and living up to a definite standard. Suddenly the Income Tax, instead of being 1s. 4d. becomes 3s., and ultimately 5s., any yet the hon. Member for the Ince Division advocates 10s. Where is the justice of it? Because these people happen to be perhaps the daughters of someone who before his death carefully invested the products of his labour, the hon. Member for Stockton would have them taxed.

Mr. SAMUEL

I did not suggest that, I wanted to have the rebate paid as soon as possible.

Mr. NIELD

I agree, but the rebate in the cases I have mentioned would probably not be a rebate at all, because they would be in excess of the limit. I judged the hon. Member from general utterances which he and I have exchanged across the floor of the House, and I apologise if I have misrepresented him. But take the case which I have suggested—that of an income divisible amongst a series of families, coming from the estate of a man who honestly and fairly earned it. He has put it aside and accumulated a fairly large sum of money. Each of these families is dependent upon this income, and possibly has no other means at all. There may be members of a family who have married, knowing perfectly well that there was so much and no more to spend. Are these incomes to be denuded not merely by the War Tax of 5s., but, in order to benefit posterity, by a tax of 7s. 6d. or 10s. 1 Oh, no ! I think the hon. Member for the Ince Division, in his enthusiasm for an Income Tax so easy to collect, has rather overstepped the mark. By all means and by any means levy your Excess Profits Tax upon enormous profits, whether they are made upon the price of food—which I hope will be inquired into very vigorously before long—or whether from some monopoly or from coal, and take care that it is paid to the utmost farthing, but do no go further with the Income Tax in such cases as those to which I have referred. The hon. Member for the Ince Division thinks that this tax is the best way of raising revenue. He forgets that it percolates to every grade of society. It adds to the cost of living. Every person seeks to evade it and passes it on, until it ultimately has to be paid by the person with the fixed income and the working classes who consume the products of the country. No wonder the prices of food are increased. I should like to know from experts to what extent heavy direct taxation is responsible for the increase. Do not let us dream about persecuting a large section of the community in the belief that they are getting profits to which they are not entitled, when as a matter of fact a short, impartial, judicial inquiry will show that they are suffering very large reductions. Nothing but an overhauling of the whole system of our taxation will ever bring this question properly before the minds of the people of this country, and let them all see that they are not being exploited by one class, but that everybody is paying his fair share.

Mr. FELL

The Financial Secretary has told us that the Treasury are doing their best to meet the difficulties which we have pointed out in connection with taxing incomes at the source. The Chancellor of the Exchequer has expressed the most satisfactory views that I have heard for a long time. He has shown us that he entirely appreciates the difficulties which such high taxation has caused, and I am sure that his remarks will be received with infinite satisfaction in many business quarters. There is a further point to which I would call his attention, and that is the way in which surveyors refuse to allow deductions. That is a matter to which he might well devote his attention. I had not the slightest idea of suggesting that anyone wanted to shirk taxation. In fact, I have heard people who are entitled to deductions say, "I shall not claim anything now." I have pleasure in asking leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. POLLOCK

This Clause includes the time-honoured Sub-section that, All such enactments relating to Income Tax, including Super-tax, as were in force with respect to the duties of Income Tax granted for the year beginning on the sixth day of April, nineteen hundred and fifteen, shall (with the exception of Section twenty of the Finance (No. 2) Act, 1915), have full force and effect with respect to any duties of Income Tax hereby granted. The speeches of the Chancellor of the Exchequer and of the Financial Secretary have indicated a desire and a determination on their part to deal as fairly as possible with all sections of the community. The Chancellor of the Exchequer took pains to make it clear that he was not unmindful of the importance of leaving an incentive to the working part of the community, and of not withdrawing that incentive from those whom he called the captains of industry, or, we may add, from persons who are dependent upon industry. There is one question which has begun to assume very considerable proportions, and in the minds of many people it has undoubtedly reached a point at which they feel they are being unfairly discriminated against. I am referring to the question of immunity from Income Tax, which is enjoyed under Section 24 of the Industrial and Provident Societies Act, and the other Acts are incorporated with it. The reason why I select this opportunity of bringing the matter to the attention of the Chancellor of the Exchequer is that it is impossible to raise the point by any Clause which could ever be framed by a private Member. Under the ruling which has been given from the Chair, and which is acted upon in this House, any Clause which has the ultimate result of imposing further taxation upon any members or classes of the community is out of order. Although I think that ruling is sometimes pressed to an unfortunate extent—because, I think, it rather prevents debates on very important subjects— still, one has to accept it. It is one of our rules. Therefore, the Clause which, in association with the hon. Member for Devizes, I have put down to deal with this question is, I believe, out of order, and I shall have no opportunity of bringing the matter forward. More than that, I have ascertained by going to the direct authority that no private Member under any circumstances will ever be able to frame a Clause which shall deal with the question of which I am speaking, because it can only be dealt with by the Government themselves, after having procured the authority of this House to do so, and by a proper Resolution for that purpose which has been moved in Committee of Ways and Means. Under these circumstances I make no apology to the Chancellor of the Exchequer for raising this point at the present time, because what I want to call attention to is this: We have at the present time a very large and very important movement which has the good wishes, I think, of Members of this House, but it has got to a point at which new questions arise, and which must be dealt with if you are going to look at the rights of the community as a whole.

9.0 P.M.

The industrial and provident societies have done, and are doing, extraordinary good work. They are a valuable system in our cosmos. They are entrusted with important powers, and they fill a very considerable need in many spheres of life. You can find them in all parts of the country; whether you are dealing with the urban population or whether you are dealing with the agricultural population, there they are, doing their good work. I should be quite false to myself if I did not say at once that I agree in the good work they are doing and in the good work they have done. One remembers that, as constituted, large powers were given as far back as 1852, and one could not therefore pretend, or desire, to put back the hands of the clock or to try to arrest a movement which has been found so useful, so beneficial, and so progressive in its results. In the year 1893, however, another Act was passed, and I have taken the trouble to see how that Act came to be passed. It is rather a curious story, and may have some relation to the system of those days. The Act was never discussed at all in this House. The immunity thus given under Section 24 never received even a passing observation from any Member in this House. The whole matter was dealt with by a small Select Committee. A tribute was paid to one hon. Member who had taken an interest in the matter. It was a case of sic volo, sic jubeo,and the matter passed through without any scrutiny. The effect of the Act was this, that where a society was dealing with its members it should be immune from Income Tax, for this very sensible reason, that where persons came together and dealt amongst themselves, distributed no real profit, and took steps to see that there was no profit, then from the point of view of the Chancellor of the Exchequer there was nothing to tax, because there were no profits or gains. Therefore the Chancellor accepted the position that he should not have the burden laid upon him to endeavour to get from a person that to which he was not entitled. To put the matter in its simplest form, "there was no money in it "The immunity was given on two conditions. The first was that the trading should be amongst the members of the society itself, and the other was that the number of shares should be unlimited. It has been held in the Courts, as I understand, that both of those conditions must be broken or the exemption remains. The effect of that is that inasmuch as one condition is very easy to fulfil, namely, by passing a rule that the number of shares should be unlimited, it is quite impossible to lose the exemption at all, because every society is able to fortify itself by its rules and entrench itself within the exemption. So far as the actual trading amongst the members themselves is concerned, perhaps we may leave it there. At any rate I desire to make as little of the thing as possible. I certainly desire to say nothing which should in any way, I will not say tend, but in any way criticise the strongest co-operator in this House who may desire to see the movement as successful as possible. I share his views, and I therefore do not want to trench upon any ground which might be distasteful either to him or to me. Still, one must look at the facts as they stand at the present time. One must remember that if you hand over to these co-operative societies a number of industries, by just so much as you hand them over by just so much do you remove from the possible area of taxation a large number of persons. I am quite sure that in these days particularly the Chancellor of the Exchequer is anxious to extend the area within which he may collect his taxes. I may point out what is almost a platitude, or certainly a truism, that in regard to various industries, whether they be distributive or whether they be productive, that so far as you place them in the hands of persons who are not liable to pay Income Tax so you remove from the area from which taxes can be taken by the Chancellor of the Exchequer an important area, and you prevent taxation which might go to relieve the other members of the community.

What are the facts? I think I can show in a very short time, by quoting a very few figures, that a sort of imperium in imperio has been created. Let me take the figures of 1893. In that year the number of members of co-operative societies was very little over 1,000,000. To be quite precise, I think it was 1,057,000. The share capital was £12,500,000. The loan capital was then £2,110,000. How do the figures stand to-day? Let me take first of all the figures of 1914. I take the test of sales, profits, and reserve fund. In 1914 the sales amounted to £138,473,000. The net profit was £15,200,000—I leave out some odd figures—and the reserve fund then held was £6,498,000. I dwell for a moment on the 1914 figures for this reason: When one is making a comment or criticising a movement of this sort, one wants to be sure that one is perfectly fair. The figures of 1915 are more remarkable. The sales were over £165,000,000, the net profit over £17,000,000, and the reserve fund held was over £7,000,000. The reason why I give the 1914 figures as well as the 1915 figures is that it would be unfair to take the figures of 1915 without some observation being made as to the rising prices which are due to the War, and without giving a sort of correction, which ought to be made in respect of the circumstances of the War, which in one sense have tended to increase those figures, and yet it would not be a proper thing to treat them as a perfect guide. Therefore I think one ought to take the figures somewhere between those of 1914 and 1915, if one is to draw a real and valid inference from them. Those figures must also have one more comment made upon them. I am giving the sales which belong not only to the distributing, and what I may call the retail societies, but they include also the figures of the wholesale societies, and that must be properly borne in mind.

What is the outstanding fact that emerges from those huge figures? It means this, that so far as these sales take place—and let me take a mean figure, therefore, of £138,000,000 for 1914, and £165,000,000 for 1915 and call it £150,000,000 —you find sales to the extent of £150,000,000 which are withdrawn from the area of taxation by Income Tax. I speak on behalf of smaller people in the community, persons who ought not to have their incentive taken away, persons who, with a small capital, are endeavouring very honestly, very helpfully, and very usefully to the community at large, to earn a livelihood for themselves and for their families by retail trade. I am going to trouble the Committee, if I may, with just one figure which was given me with regard to a populous Midland town. Fifteen years ago there were in that town 121 grocers. Owing to the co-operative movement, that has been reduced in the fifteen years to twenty-three. What does that mea? From the point of view of the Chancellor of the Exchequer, whereas fifteen years ago he had 121 persons who would have to make their return for Income Tax, and be more or less liable for some portion of Income Tax, he has now got only twenty-three. You cannot regard those figures without some misgiving as to whether or not we have allowed this movement to grow up to such an extent that it is becoming something of a danger to the Chancellor of the Exchequer himself. Let me contrast those figures with the position in 1893. When this immunity was given under Section 24 in 1893, the trade that was done was £52,000,000. I have given the figure now at £150,000,000, which is an inside figure. It has, therefore, trebled. I could develop that by giving some other figures, but let me only call attention to the fact that the membership now stands at over 3,300,000 persons. The effect of all this is that you have got, as I have already said, an imperium in imperio, a number of persons who are immune from taxation, and who have happily demonstrated by their vigorous progress, and by what I may call their fertile increase, that they are by no means dependent upon any artificial assistance from the State itself.

Let me deal next with the position in which they stand from the point of view of other traders. I think every Member of the House will have had his attention called to the fact that of late years cooperative societies have undertaken more and more outside trade. Many of us could give from our own experience and knowledge the fact that they have been enabled to compete, and successfully obtain, as against other, what I may call, retail traders, very large contracts, and in particular in the course of this War they have succeeded in getting large contracts with public bodies. One winders how they get them. Do they get any advantage, such as the retail traders say they do, which puts them in a better position to tender on more easy terms to a public body? One cannot overlook a speech that was made by a chairman of a company, and which was reported in the "Times" of 7th June last. He was dealing in particular with the case of the wholesale co-operative societies, which, as we all know, engage in very large operations, and the figures which I am going to mention are by no means irrelevant to their position nor excessive. He put the point which, I think, we shall all realise at once. He said: Take a privileged trading firm making a profit of £100,000 per annum, which pays, say, £10,000 in dividends and carries £60,000 to reserve. On this £60,000 no tax is levied, which, at the new rate of Income Tax would amount to £15,000, and which in 10 years would amount to £150.000. On the other hand, a private or public trading company, earning the same profit, paying the same amount of dividend, and carrying the same sum to reserve, will have to pay on the £00,000 carried to reserve Income Tax amounting to £15,000. I consider this is one of the points of the greatest importance in connection with this controversy. Any business man can easily understand the benefit to be derived by having £15,000 added to the working capital of his business, as against £15,000 taken out of it. In 10 years he pays away £150,000, and the privileged trader nothing. I have given this extract from the speech as printed in the "Times" The point of it is this: When I am dealing with those enormous figures, you might at once say to me that those can have no relevance to something that was started in a small "way, and which was given a special privilege by the State in order that it might be encouraged and fostered. The answer is, that that was a perfectly true observation to make years ago, but when we find the enormous power and the great resources of the wholesale co-operative societies, then the figures that are quoted are by no means under the mark, and, by giving those figures I am comparing them with other companies or trading bodies which ought to be their match, but which find themselves left behind in consequence of the privilege enjoyed. I think I am right when I say that in one of the papers a day or two ago there appeared an account of a still further operation which is made possible by reason of the very large reserves and funds which are placed at the disposal of a particular buyer in the matter of a concern in Mincing Lane, and if I am right in that it is only by reason of these enormous reserves that such operations are possible, and those reserves are helped to be created by reason of immunity from the attentions of the Chancellor of the Exchequer. I put down a Clause which was stillborn because of the ruling which would not allow it to be brought to the attention of the House, and I endeavoured to cut the knot in this way: It seemed to me that while one wanted to preserve all the powers and give every facility to the cooperative movement to continue—that is to say, in a matter of its sales amongst its members—it was obvious from the terms of Section 24, and was supposed by those who drafted and passed that Clause, that trading outside its members would not be a common incident because they would lose that immunity if they traded outside their own body. I suggested that we might put upon them the burden of suffering an assessment in respect of the profits they made in trading with persons who were not members. I am aware that there are a good many difficulties about that matter. With reference to the ordinary capital issued by co-operative societies, attention has been called to the fact that a case was decided in the House of Lords, and it has been decided that in the case of an insurance society immunity was given in respect of profits which are made entirely by the members themselves and which are not distributed as profits, but which are given back in the form of a bonus, or whatever you please to call it, to the members. I know that has been referred to more than once, and the only observation I desire to make upon it is that those who quote that case never quote it fully enough. The first portion of the decision is: It being admitted that the income derived from the company from investments and from all transactions with persons not members was assessable, then it was held that the profits of mutual insurance between members were not liable. Although this is freely quoted for the last proposition, it is never quoted for the first, although the first is very germane to my argument to-night, because if you admit that all profits derived from transactions with persons not members was assessable, it justifies the efforts that I made in the proposal that I put down in the new Clause, and it carries me a long way in justifications of that. This question of mutual trading and profits which are made with persons not members is not a new one to the Income Tax authorities, and they have had to deal with it on many occasions. They have had to deal with it in cases of insurance, and there are a number of cases in which this question has been brought up for decision before the Courts. Without troubling the Committee with legal cases, let me say that the result is that where you have a body of members trading with persons who are not members, and insuring persons who are not members, and making profits partly by the insurance of their own members and partly by the insurance of persons who are not members, in those cases it has been held that all the profits which are made must first pay Income Tax before there can be a return made by way of profit or bonus, or whatever you like to call it, to those persons who are members. That stands as a factor in Income Tax law, and inasmuch as this difficulty has had to be considered and dealt with in the case of insurance societies, I conceive that there would be no difficulty from the Income Tax point of view in making those societies assessable and allowing the Income Tax authorities, who understand their business very well, to assess them in the same way and on the same principles on which they assess mutual insurance companies at the present time.

This question is one that needs the attention of the Government, for they alone can deal with and satisfy the community at large. It certainly would be an unfortunate thing if the misgivings that have been raised, and to my mind justly raised, in the mind of the retail trading community, were allowed to pass without any effort being made by the Government to consider the matter anew in the light of subsequent events, and the very large figures which show the proportion to which this movement has grown and which obviously merit the attention of the Government. The question is not a new one. In 1905 there was a Departmental Committee on the Income Tax, and they discussed a great number of questions, amongst them the question of the co-operative society, and they came to the conclusion that it was fair to allow this immunity, because cooperative societies were composed of persons who would be entitled to recover back the tax if it had been deducted at the source. That is the usual ground upon which this continued immunity is allowed to prevail. I see hon. Friends opposite, who on one or two occasions when this matter has been mentioned, have always thrown that argument at me, and have put great force into it. May I point out, however, that that argument becomes gradually of less and less importance when you find that the number of persons who are within range of the Income Tax is happily growing larger and larger. I do not mean by that that I have any particular desire that persons should be brought within the Income Tax law simply to suffer its pains and penalties. I am glad to find men earning larger wages, and when I find a man the fortunate possessor of a larger income I congratulate him, even though it should bring him within the range of the Income Tax law. The Financial Secretary to the Treasury can tell us how many have now been brought above the limit of £130 to which exemption from Income Tax has now been lowered. The argument that used to be made that co-operators would be entitled to receive back the Income Tax if it were collected from them has been very much weakened by the fact that the limit of exemption has been lowered and also by reason of the very high wages which are prevailing at the present day. I referred to this Report of the Committee on the Income Tax. They devote almost a couple of pages to this question, and carry it no further than pursuing the argument which I have presented to the House. But their final clause is as follows: The question whether societies registered under the Provident and Industrial Societies Act ought to be subject to any limitations with regard to their dealing with non-members was not referred to us, and we express no opinion upon it, but it has been brought to our notice that very large and varied enterprises, in the way of manufacture, shipping, insurance, and banking enterprises, which in some cases involve considerable and regular dealings with the outside public, are now carried on under the Industrial Provident Societies Act, and it may be worth consideration, whether further inquiry should be made into the conditions under which the privilege of registration under that Act is conferred. That is now eleven years old. The members who formed that Committee, members who are all honoured in this House—the late Lord Ritchie, Sir Henry Primrose, Lord Buxton, Mr. Cosmo Bonsor, Mr. Murray, and Mr. Gayler— had before them arguments and weighty considerations which justified that paragraph that it had already been brought to their attention, and that by reason of the industries now carried on under this Act with non-members it was a matter for consideration whether this privilege should not be reconsidered. I wonder if the-Government have thought of it. All that has happened in the eleven years that have passed since that Clause was drafted has reinforced the arguments on which it is based, and the huge figures of this trading, not merely with the members themselves but with non-members, justifies that paragraph in a still further degree, and I trust now that it has been brought to their attention the Government will endeavour to deal with it in the sense of removing what appears to many to be an injustice, and what appears perhaps to a much larger number of persons to be a matter which deserves inquiry and attention in the interests of equality for all persons among whom we ought to preserve the incentive to industry.

Mr. BARNES

As a co-operator, I welcome the very temperate and generous treatment in some respects of this question by the hon. and learned Gentleman. I appreciate greatly the generous terms in which he has spoken of the great industrial co-operative movement and of the good work that it has done. I know of that good work because I have been an active member of the co-operative movement almost since I came out of my teens, and I have been associated with them in all parts of the country. I know that they have done a very great deal towards raising the standard of life amongst the poorer members of the community and that they have also done a very great deal towards giving a larger view of the social responsibility of the ordinary man and woman. They have also done a great deal towards shunting industry and commerce on to a better system than that on which they found it based when they started. They have done something towards getting the results of industry into the hands of a large and ever-growing community of consumers.

The DEPUTY-CHAIRMAN

I am sorry to interrupt the right hon. Gentleman, but I hope the discussion on the Question, "That the Clause stand part of the Bill," will not develop into a Second Heading Debate on co-operative societies. It might easily do so. I am not complaining of the way in which the hon. and learned Member (Mr. Pollock) opened the discussion, but it might easily develop into a first-class Debate on the whole subject. I only suggest to the right hon. Gentleman that he might confine himself as strictly as possible to the point raised.

Mr. BARNES

I willingly accept the suggestion. I was simply making one or two general observations by way of a start. The hon. and learned Member paid a generous tribute to the co-operative movement, and I thought it was only due that it should be acknowledged. The hon. and learned Gentleman made some observations upon the limited powers or rights of the Members of the House of Commons, and, recognising that fact, I gathered that he appealed to the Chancellor of the Exchequer himself to do what the ordinary Member could not even propose in the House. I shall give an argument or two to show why, from my point of view, the Chancellor of the Exchequer would be welt advised to let sleeping dogs lie. I gather that the hon. and learned Gentleman, in spite of his tribute to the good character of the work of co-operators, brings against them two charges: One, that they squeeze out of industry the ordinary small capitalist, and the other, that they enjoy an immunity from payment of Income Tax that they ought not to enjoy. The hon. and learned Gentleman gave only one instance of the first crime, shall I call it. In some particular place which he has in his mind, but which I do not think he mentioned, there had been at one time 126 private traders, and, owing to the growth of the co-operative movement in that district, they had been reduced to twenty-four. The inference is that the co-operative movement had deprived about 100 small capitalists of the means of getting an honest living, and had also closed up so much possible revenue to the Chancellor of the Exchequer. I wondered at the time that the hon. and learned Gentleman did not extend his view a little of the ordinary economic development under which we arc living, and that he did not see in addition to the expansion of the co-operative movement from 1,000,000 to 3,000,000 and from £15,000,000 to £150,000,000, and so on, that there are other co-operations growing in like manner, and in some cases to a greater degree.

I remember, for instance, a man who, when he started in Glasgow, used to sleep under the counter, opening his second shop in Dundee. That man now has shops in every centre from John o'Groats to the other end of the Kingdom. He has squeezed twenty times more small traders out of getting their living than the co-operative movement. Therefore if the charge against the co-operators is that they have squeezed out the small trader it is one which can equally be laid against the big companies, such as the Home and Colonial, Lipton's, and many others which might be mentioned. All these have done exactly the same thing as the co-operators have been charged with having done. I do not blame them at all. They are doing the best they can in the circumstances in which they find themselves. Is this not the case with ordinary capitalist enterprise all over the world? Are we not living in a period of production and distribution on a large scale, and, therefore even if the co-operative societies did not exist, the small trader would still be squeezed out of existence. I would suggest that my hon. and learned Friend might well drop that particular part of his indictment, as the squeezing out of the small trader is inevitable. He has to go because he is in the way of industry if it is to be carried on in the most efficient and economical manner.

Then my hon. and learned Friend says that while the capitalist trader pays Income Tax the co-operative society does not. What, however, is the reason for the difference? My hon. and learned Friend says the co-operative societies have certain rights or privileges. They are summed up in the twenty-fourth clause of the Industrial and Co-operative Societies Act which has been mentioned. One of them is that their share lists are to be open to all and sundry, and I suggest to my hon. and learned Friend that that is a fundamental thing which entitles them to the right which they now enjoy. It amounts to this: So long as the share list is open they can never become a monopoly; other companies can do so. The ordinary capitalist trading company can close its share list when it likes, with the result that it gets a much larger return on its capital than does the cooperative society. The market price of its shares goes up rapidly, whereas the co-operative share never goes beyond par. That is the first reason why they arc given this immunity. There is a second reason, and it is that they trade only with their own members, and, therefore, the co-operative society is in an outside category as compared with the ordinary private trading concern. Even if it were proposed to impose an Income Tax on cooperative profits it could easily be avoided, because they might decrease the prices to the vanishing point of profit, and then where will you be? If you are going to tax the profits of co-operative societies and at the same time leave the co-operators in the position of reducing their prices to the vanishing point of profit the failure of your tax is assured, and consequently you might just as well leave them alone. The hon. and learned Gentleman quoted from the Report of a a Commission which sat in the year 1905. He gave the Committee the names of a number of honoured Members of this House. He might have given the name of another, our old friend and colleague, Keir Hardie.

Mr. POLLOCK

I read out the whole list of members.

Mr. BARNES

The hon. Member for Merthyr did sit on a Committee dealing with this question.

Mr. POLLOCK

The Committee on which Mr. Keir Hardie sat did not deal with this subject. I think the right hon. Gentleman must be referring to the Income Tax Committee which sat upon the question whether or not there could be differentiation on graduated incomes.

Mr. BARNES

That may be so. At all events, the hon. and learned Gentleman read out a paragraph from the Report of the Committee which pointed out why co-operators enjoyed immunity from Income Tax, one of the salient factors being that if you taxed them they would still be liable to immunity because their incomes are below the taxable limit. That condition remains to-day, modified to some extent, of course, by the reduction of the taxable limit from £160 to £130. I had some figures a year or two ago as to the number of members of co-operative societies liable to Income Tax. By the by, I may point out that the majority of members of these societies are women. A year or two ago I went into this matter, and I was told by those in possession of the facts that 1½ per cent, only of the members of the co-operative societies had incomes above the £160 limit. I dare say the number is more now owing to the limit having been reduced to £130, and also owing to the fact that we are living in what is said to be an abnormal period of prosperity—prosperity in a sense that lots of people are making lots of money, although it is not prosperity in the large sense at all. It is prosperity in the sense that there are a large number of people making more money than they ever did before. But the shopkeeper, when he gets money handed to him over the counter, does not ask whether it is borrowed or how it is obtained. I admit there are a larger number of people making higher incomes than ever before, and therefore, instead of l½ per cent., it may be that 5, 6, or even 10 per cent, of the members of these societies are now taxable.

But is it worth while to disturb a system which has been so long in operation, which may almost be said to be traditional—is it worth while to disturb that system, especially at a time like the present, when we are supposed to be living under a political truce? Is it wise to disturb a principle which has been so long in operation in order to do something which would bring down upon you the opposition of three millions of the most intelligent men and women in this country? It would bring down upon you the opposition of all these people, who feel very keenly upon this matter. Is it wise to disturb the system which has gone on so long when you have in front of you the fact that, even if you taxed these co-operative societies at their source, you would have to return about 90 per cent, in respect of the shareholders who' are below the taxable limit? Is it wise to do this when, in order to get the remaining 10 per cent., you would have to employ great numbers of men and women filling in forms, and doing all sorts of work in connection with book-keeping, when they could be better employed in furthering the course of the great War in which we are engaged? The hon. and learned Gentleman says that if you are not going to tax co-operators generally on what they are doing, at all events tax them on that part of their operations which has to do, not with their own members, but with outsiders. I should like to know if the hon. and learned Gentleman has any figures to give us as to the extent to which that would affect co-operative societies? I quite admit that I have no information on that point worth anything, but I should like to know, before any case is made for any change, to what extent that would affect co-operative societies? If you take distributive societies, I know that the extent to which it would affect them is pracically infinitesimal.

I am now a member of three co-operative societies, and I know that in respect of those three societies the trade which is done with outsiders is a mere bagatelle. It cannot be otherwise. What sense would there be in it? Take the Woolwich society, of which I am a member. They pay Is. 3d. in the £, or something like that. To illustrate my point much stronger, I would go to the North, and take the St. Cuthbert's Society of Edinburgh, which has 47,000 or 48,000 members, and which returns to them 4s. 4d. for every £1 they spend over the counter. By the way, that is a very silly thing to do, because it enables the Chancellor of the Exchequer to put his hands into their pockets by means of the Excess Profits Duty, and serve them right, too. One of the best functions of a co-operative society is to keep prices down, because in doing so they are not only benefiting a great mass of consumers in the country and affording a check upon the ordinary capitalist trader, who keeps them as high as possible in order to get as much profit as possible, but they are doing something which ought to attract the poorest members of the community into their ranks. Therefore, with regard to the St. Cuthbert's Society, I say they are doing something very foolish from their own point of view, and something which is not tactful at the present time in consequence of the Excess Profits Duty. My point is, how can there be, in any possible circumstances, a large amount of trade done by co-operative societies with outside people? Every person who gets inside the society receives 4s. 4d. for every £1 he or she spends. It is not so very difficult to get inside. You have not to pay anything except 6d. or 1s. for a book of rules. People eat themselves in. Having got a book of rules, they proceed to buy goods at the stores. Being members of the stores, the first £5 they spend there makes them full members, and they go on drawing the 4s. 4d. The ordinary man or woman of the working class has common sense, and naturally desires to get inside. Small blame to them!

In ordinary circumstances it is impossible for co-operative societies to do much trade with persons outside; therefore the proposal foreshadowed by the hon. and, learned Gentleman, and the new Clause he has put down, which I suppose is out of order, if it is intended to reach the trade done with outside, members, will have only an infinitesimal effect. It would not only involve the setting up of a great deal of machinery by the co-operative societies themselves, but it would also involve a great deal of machines being set up by the Chancellor of the Exchequer on the other side. I suggest that the game is not worth the candle. We had far better leave the thing alone. It may be that at some time or other there will have to be a reconsideration of the whole question of the Income Tax, and, when that time comes, it may be that some of the productive societies will have to submit their cases for examination. To raise the question now in the middle, or shall I say near the end, of the War, when all the energies of the country are necessary to win that War, when we want to keep ourselves together instead of raising these controversial questions, is unwise, and I hope the hon. and learned Gentleman will not pursue that course.

Mr. MONTAGU

The Committee has been so generous in the support it has given to the Bill that I now feel compelled to make an appeal to hon. Members. Let us consider where we are. We are on the Committee stage of the Finance Bill, and primarily that Committee stage ought, I submit with great respect, to be devoted to improving the Bill and to directing our attention to the suggestions offered which will become part and parcel of the Statute and improve it. The hon. and learned Gentleman (Mr. Pollock) has introduced this matter on a Clause which simply says that the rate of Income Tax shall be 5s in the £. He does it because he is much interested in the subject. He has made speeches about it before, and finds that he is precluded by the Rules of Order from introducing it as a substantive proposal. I would appeal to the Committee to let the matter rest where it now is. Could it be possible to improve upon the statement which my hon. and learned Friend made as one who would like to see these co-operative societies pay Income Tax at the source? Could there be a clearer, a more persuasive, more convincing and a more closely reasoned argument than he has stated? Those of us who take the opposite view might be content to leave it in the hands of our protagonist the right hon. Gentleman who has just sat down. Can any practical effect come out of this discussion on this Budget? We are only starting the Committee stage. We have to deal with a long Bill. We are at the end of June. There is much other work to be done in the House, and I believe that by Statute the Bill has to become law at the commencement of next month.

May I appeal to the hon. and learned Gentleman on one other ground I think it has been an understood convention between all parties in all quarters of this House that we should leave every controversy that we could undisturbed during the War. This is no new matter. He rests his case on the growth of the co-operative movement since 1893. He points out that conditions are very different now from what they were when these exceptions and immunities were first granted by Parliament. Therefore this is not a war matter and is not the result of anything we have had to deal with during the War. It is an old grievance, like the grievance of wasted assets, or the double Income Tax, or taxation at the source, or like any of the other disputed points with which our Income Tax law bristles. Is it not better to draw attention to it and leave it until happier times? That inquiry into the Income Tax law has got to come. Every time we come to discuss Income Tax it becomes more certain that it has to come. Everyone connected with the administration of the Income Tax law wants it to come. Definite pledges have been given to the House of Commons, and, so far as I am concerned, I will gladly give my hon. and learned Friend one other promise. I hope the Committee when it is appointed will deal with all questions. So far as I have any influence on its appointment I will give him an undertaking that this question is specifically referred to in the terms of reference, and I would suggest that to deal with the grievance now in this year is in- viting unnecessary trouble, and in so far as the discussion is not directly relevant to the Clause we have under discussion it can produce no practical results to-night and we should leave it where it is left by the two hon. and learned Gentlemen who have spoken.

Mr. DUKE

I dare say the right hon. Gentleman could give us some indication of the time at which it is probable that the inquiry into the Income Tax system is likely to begin—before the War is over?

Mr. MONTAGU

The promise which the Prime Minister has made and which the Chancellor of the Exchequer has repeated is that it shall be appointed immediately the War ends.

Mr. DUKE

Taking that to be so, I do not think there is anyone who desires for a moment that there should be a controversy initiated with regard to this very difficult question, but there is, I am sure, among the retail traders of the country a great deal of uneasiness that one class of industry, and a competitive industry, has a premium put upon it, not by reason of matters which arise with regard to divisible profits but in regard to matters which arise with regard to trading profits, because the ordinary trader, either by individual enterprise or the trader in a joint stock company has to deal with the Income Tax collector upon the basis that it is not a divisible profit which is to be made the subject of taxation but an amount of profit which never conies to a division at all. That seems to be a fair matter for inquiry. I cannot conceive that there is anyone in the House who would wish at this time, when we want to avoid matters of Debate, to embark on a general Debate on this subject. On the other hand, we are very much indebted to my hon. and learned Friend, as well as the right hon. Gentleman opposite, for the fair, candid, and pleasant way in which this matter has been raised. I am glad to hear from the right hon. Gentleman that the uneasiness which exists and the apprehensions there are will be brought to an end as soon as this question of the incidence of Income Tax can be fairly raised as a matter of inquiry.

10.0 P.M.

Mr. CURRIE

After what the Financial Secretary has said, so far as I am concerned—one of the Clauses seeking to deal with this matter stood in my name—I am prepared to accept the undertaking that immediately the War comes to an end he will see to it that the whole question which we sought to raise to-night will be thoroughly thrashed out. I think the undertaking is thoroughly satisfactory in the circumstances.

Mr. J. M. HENDERSON

I should like to ask what is the object of Sub-section (2)?: So far as respects the duty on inhabited houses in Scotland, shall be construed with the substitution of the twenty-fourth day of May for the fifth day of April. I understand there is an idea that the Scotch Quarter Day, or Half Yearly Term as they call it, being in May and November, they should extend the time, and the tax should run from that time. That is not so in Scotland. It is only in Glasgow, and only in part of Glasgow. It is a great pity there should be two different dates for any tax as between Scotland and England. I should like my right hon. Friend to consider that before the Report stage.

Mr. PETO

I am anxious to comply with what is evidently the view of the Committee, that it is unnecessary further to go into this question of the immunity from payment of Income Tax on the whole profits of co-operative trading societies, but I must point out when the right hon. Gentleman is dealing with the Income Tax which is by this Clause raised to 5s. in the £, it is very important to secure its acceptance as being a fair and equitable measure as between all sections of the community. As long as he allows £165,000,000 turnover to escape from all taxation and listens for a moment to arguments which are based upon the difficulty of collecting the tax at the source, because it all has to be returned, he is undoubtedly giving very just cause for dissatisfaction in a tax of this kind. Therefore I am bound to register this protest. Although we have been by some system of self-abnegation, and not by any rules of the House, deprived at present of any further Debate on the subject, I wish to say I feel perfectly satisfied that this immunity has nothing whatever to do with the welfare of the cooperative movement in this country. On the other hand, it creates a sense of hostility and injustice on the part of the whole of the rest of the community, which, I believe, is the most ill-advised thing those who are in favour of co-operation, as I am myself, could possibly wish to see perpetuated. Therefore, the sooner this question is gone into the better, and I am only sorry to hear that because we are in a state of war and have taxation at a war level, and therefore every injustice is quadrupled compared with what it was before the War, it is not considered a proper occasion to make the taxes fair to all the different sections of the community and leave a privileged section enjoying an immunity which no other part of the trading community enjoys.

Mr. A. WILLIAMS

I should not have taken part in the Debate but for the speech we have just heard, in which the hon. Member spoke of co-operators as enjoying a privilege and of its being an injustice to the other part of the trading community. On behalf of the co-operators, I am perfectly sure we shall welcome the fullest inquiry in this matter. No co-operator is in the enjoyment of any privilege in this matter. Every co-operator who has an income above the level which makes a man liable to pay Income Tax has to pay Income Tax upon his co-operative profits, so far as they are real profits, as well as upon any other profits or income that he has. The only question is whether it is the most convenient plan for the State to levy Income Tax upon the societies and have to make repayments to 2,500,000, or even more than that, out of the 3,500,000 co-operators, or whether it is better to leave the small minority of co-operators who are legally obliged to pay Income Tax to pay it direct to the State.

Mr. SAMUEL SAMUEL

In consequence of the Woolwich Co-operative Society having a very large branch in my Constituency I raised this question on the Budget last year. The right hon. Gentleman (Mr. Barnes) made a statement which I am sure my Constituents will be pleased to hear, and that is that when this society open their premises anybody who pays 6d. can become a member for life and get 4s. in the £ dividend.

Mr. BARNES

I did not say anything of the sort.