HC Deb 06 July 1920 vol 131 cc1344-63

(1) Income Tax for the year 1920–21 shall be charged at the rate of six shillings.

(2) All such enactments relating to Income Tax as were in force with respect to duties of Income Tax granted for the year 1919–20 shall have full force and effect with respect to any duties of Income Tax granted by this Act.

(3) The annual value of any property which has been adopted for the purpose either of Income Tax under Schedules A and B, or of Inhabited House Duty, for the year 1919–20, shall be taken as the annual value of that property for the same purpose for the year 1920–21; provided that this Sub-section—

  1. (a) so far as respects the duty on inhabited houses in Scotland, shall be construed by reference to a year of assessment ending on the twenty-fourth day of May instead of on the fifth day of April; and
  2. (b) shall not apply to lands, tenements, and hereditaments in the administrative County of London with respect to which the valuation list under the Valuation (Metropolis) Act, 1869, is, by that Act, made conclusive for the purposes of Income Tax and Inhabited House Duty.

Sir D. MACLEAN

Before any Amendments are called on this Clause, might I ask whether the Chancellor of the Exchequer intends to proceed with the Bill after 11 o'clock to-night? If he does not, I imagine from what I see on the Paper that to-morrow will be fully occupied with the disposal of the important points regarding Income Tax, and that will leave the Excess Profits Duty on Clause 40 to be dealt with on Monday. Perhaps it will be for the convenience of the Committee for the Chancellor of the Exchequer to tell us what are his ideas on the subject.

Mr. CHAMBERLAIN

I am rather the victim of circumstances. I could not get a full day yesterday, and I do not propose to, and indeed I could not, go beyond 11 o'clock to-night, as the Report on the Financial Resolution and other urgent matters, to enable the House to proceed with other legislation, must be dealt with. If the Excess Profits Duty were reached early to-morrow we might take one of the main issues in good time, but if, as I think very likely, that cannot be done, then I would suggest to the Committee that we should not sit late to-morrow night after 11, but we should finish the Income Tax and Stamps, on which there is very little to be said, and postpone the Excess Profits Duty and the Corporation Profits Tax until Monday, when we shall resume our discussion, but finish up the odds and ends to the end of the Bill which are correlative to other matters, the few Clauses and Schedules which apply to matters already dealt with. I think it would be for the convenience of the Committee not to take time to-morrow on the Excess Profits Duty or Corporation Tax unless it is reached at an early hour. But if it is convenient I hope the Committee will facilitate me—I can only do it with their permission—in the postponement of the Excess Profits Duty and the Corporation Tax Clauses, so that we may proceed with the other minor matters.

Captain W. BENN

The right hon. Gentleman has referred to minor matters, but there is one matter relating to the land duties and the return of the land duties which have been already paid, to which we take the very greatest exception, and which we shall debate at whatever length we think proper.

Mr. CHAMBERLAIN

Quite so. All I am suggesting is that it would be for the convenience of the Committee not to begin the Excess Profits Duty Debate, say at dinner time to-morrow. But I can only do that if the Committee consents to go on with other business in connection with the Budget. If my hon. Friend says that it is the general opinion that we should not interrupt the business at all, but must postpone the Budget altogether, I could not accept that, and would have to go on with the Excess Profits Duty, but I believe that the proposal which I have made—I do not ask for a pledge to-night—will be for the general convenience of the Committee.

Sir R. COOPER

Are we to understand that, so far as possible, it is the intention that the Division on the Excess Profits Duty, the main question, will be taken on Monday night? It is an extremely important Division, and it would be for the convenience of Members if they could be told if it is the intention of the Government to try to get that Division on Monday night.

Mr. CHAMBERLAIN

Certainly it is my wish that it should not be later than Monday night, and I hope that we shall in good time—I should have thought before dinner time rather than the last thing on Monday night—come to a decision on the question of whether there is to be an Excess Profits Duty or not. I cannot deal with the Bill according to my own sweet will; I can only make a proposal which, I believe, will meet with the convenience of the Committee, but if any considerable section objects to it, I cannot persist.

Lieut.-Colonel J. WARD

May we take it for granted that the proposal of the right hon. Gentleman is not being accepted by the other side, and therefore the best course to pursue is to proceed with the Bill as fast as we can?

Mr. A. Hohler The following Amendment stood on the Order Paper in the name of

at the end of Sub-section (2) to insert the words Provided always that, for the purposes of Schedule D, the tax shall be computed upon the year ending on that day of the year immediately preceding the year of assessment instead of upon a fair and just average of three years as required by the said Schedule.

The DEPUTY-CHAIRMAN (Sir E. Cornwall)

The Amendment in the name of the hon. Member for Gillingham is not in order, as it would impose a new charge. The next Amendment also is out of order.

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

Mr. HOHLER

May I point out that this is not a new charge.

The DEPUTY-CHAIRMAN

I am advised that it would impose a new charge, but, if it did not mean a new charge, it would come in as a new Clause, and that would be the time for the hon. Member to raise his point.

Lieut. - Commander KENWORTHY

This Clause deals with one of our main sources of revenue, the 6s. Income Tax. I know that there are a great many exemptions for which taxpayers are very grateful, and I hope that there will be more, but this 6s. Income Tax shows what imperialism has meant for the taxpayers of this country. We are very proud of ourselves at this moment. We stand facing the world and boast of our great possessions, and the way in which they have increased during the last five or six years, but we have got to pay for it, and I hope that hon. Members will remember, and that it will be pressed upon us from the Treasury bench when we are told we can afford this, that and the other adventure, what this 6s. Income Tax means to the great mass of Income Tax payers in the country. We can paint more of the map red, but our policy or what passes for policy in the Near East, in Mesopotamia in particular, is going to mean another shilling on the Income Tax before we are many months older, and I should not be surprised if, in a new Budget, the Chancellor of the Exchequer has to raise the Income Tax by another 1s. That thought should make even the most imperialistic minded of us pause before urging the Government on to further adventures at the expense of the British taxpayer.

Mr. HOHLER

Why should we not have this Amendment which does not involve any charge at all?

The DEPUTY-CHAIRMAN

The hon. Member can only speak on the question that the Clause stand part of the Bill.

Sir R. COOPER

Might I point out that the proposal of my hon. Friend might have the effect of a reduction.

The DEPUTY-CHAIRMAN

I cannot go back on that. The question is, "that the Clause stand part of the Bill."

Mr. HOHLER

I object entirely to this Clause. It is founded upon the old system of ascertaining the average upon which income tax is to be assessed. That has been reported against by the Royal Commission. Under the present law the averages are ascertained on what the profits were in the years 1917–18, 1918–19 and 1919–20. Everybody knows, and the Chancellor of the Exchequer has admitted it in an answer to a question, that every year the amount of money coming in for review under Income Tax is steadily increasing. If you are really honest in your desire to get money, instead of introducing a new tax like the Corporation Profits Tax, why do you not avail yourselves of this opportunity? The year 1917–18 is about the worst for Income Tax average that you could possibly take. It was a year when the War was in full swing, when, comparatively speaking, no one was doing any trade at all. Why bring that into the average? The same remark is equally true of 1918–19. It was in 1919–20 that people were making the profits, and unless those profits are hit now they will never be hit at all. I have discussed this matter with people well qualified to speak on the subject. Why not make this change? If the Chancellor of the Exchequer omits this opportunity, people who have made the profits have only to retire from business and they cannot be got at at all. We see in the paper every day that so-and-so intends to retire. He will walk away with his profits and they will never be touched by taxes at all. That is what the Chancellor of the Exchequer is doing by failing to introduce such an Amendment as I have on the Paper, which has been ruled out of order. You have this Corporation Profits Tax, which is going to do great injustice to a lot of small people with a very small income, and yet you have at hand the recommendation of a Commission as to which we were told last April that the Chancellor of the Exchequer intended to introduce a Bill making it law. Why is it delayed? We have been told that we are in great financial difficulties, and yet the mere alteration in the method of assessing the tax the Chancellor of the Exchequer will not introduce. A merit of it is that ultimately you will get more money. You will always be able to say to the man, "You have just made this money and you can afford to pay. I am going to assess you only for your income of the preceding year." It is my desire to have such a man subjected to the highest possible tax. Such people have made enormous profits out of the War and are making enormous profits now out of the inflated prices they are charging the public. It sometimes occurs to me that this Finance Bill has been delayed so that the returns which were due on 30th June may have gone in before there was a chance of raising this point. If in order to make the change the Amendment must be moved by the Government I hope there will be something done on Report to deal with the matter. I am told that millions are at stake.

9.0 P.M

Mr. CHAMBERLAIN

I am always sorry when an hon. Member thinks it necessary, not merely to criticise the action of the Government, but to impute disgraceful and discreditable motives to them. I really think my hon Friend, on reflection, would not wish to repeat the imputation he has just cast on the Government. He suggests that the Government or I—I do not know which—had purposely delayed the Budget in order that some people who ought to pay taxes, or who, he thinks, ought to pay taxes, should escape. No one suffers more from delay in proceeding with the Budget than the Chancellor of the Exchequer. That is within the knowledge of us all. If you introduce the Finance Bill and then delay further proceedings on it, everybody who has had any experience knows that for the Minister in charge that means infinite trouble and difficulty. If I have consented to that great sacrifice it has been in the general interests of the business of the Government, and it was, in the first instance, in the particular interest of making serious progress with the Bill for the Government of Ireland, which has occupied so much of the time of the House. My hon. Friend's object is to secure by a change of system from certain people a larger payment than they have been called upon to make hitherto. My hon. Friend has justified amply the ruling of the Chair on a point of Order, for if the object is to get more money from people, then clearly it does impose a charge. That is my difficulty. He says I have had plenty of time to deal with it—almost a year. The Report of the Royal Commission is dated March. I have had none too much time to give to its consideration, even since that date, which is not half a year ago. I have had all too short a time to enable me and my advisers to frame a Bill recasting the whole basis on which Income Tax is levied. I wanted to make the change from the three-years' average to one year, and I was particularly anxious to do it in this Bill and I said, in carrying through a large portion of the changes recommended by the Royal Commission, can I not also get rid of the three-years' average? The first answer I received was that I should require 15 Resolutions on which to found the Clause necessary for that purpose. I hope that nothing like that number will be necessary, but it was not possible in the time which I had at my disposal to take the measures necessary, nor is it possible for the Revenue authorities to bring this great change into effect this year. I really hope that my hon. Friend, seeing that I am anxious to do what he wishes and understanding now the reasons why I have not done it, will not say that we refrained from doing it in order to let people who ought to pay escape.

Mr. HOHLER

I withdraw no imputation. I say advisedly that the Government for months were aware of the fact that this would produce more revenue to the country. I say further that the matter was before the Commission at quite an early stage, and my recollection is when it was referred to we were told that a Bill to deal with these matters referred to in the Report was to be introduced this Session. Of course, I accept anything the Chancellor tells me, and that he is advised that all these Money Resolutions are requisite and that it would be impracticable to do it this year. I put a question to him on the subject some time ago, and on the part of the question which asked him whether or not he had been advised that it was possible and practicable there was no answer. Notwithstanding the suggestions as to that which is creditable or discreditable, I say it is a great shortcoming on the part of the Government that they have not done this thing at a time of great need of money and when it must be apparent that you are allowing men who made large fortunes to escape because they can retire and they can never then be assessed on their profits under Schedule D. I deeply regret that the change has not been made as I think it would have been productive of a very large sum of money. I am at a loss even now to understand why the country should not have the large revenue which could be obtained from those who made large fortunes during the War. If the House had been asked to spend a little further time on the Resolutions I think it would have done so. It is the fact that this Finance Bill is now introduced when it is practically impossible or very difficult to make this alteration as the period for the return of the Income Tax is the 30th of June.

Captain W. BENN

I think everyone will agree that the Finance Bill has been deferred too long, and to a time in the Session when Parliament is least effective. The reason given by the Chancellor why it was postponed seems to be the worst of all reasons. He told us that it was in order that we might make progress with another measure for which I have very little respect. This, I think, is the appropriate occasion to ask about the yield of the Income Tax in Ireland. We know that in Ireland some of the fiscal machinery, offices, papers and so on have been destroyed, and under those circumstances I would ask what steps have been taken to secure a full return of the tax. What has been the result of the destruction of those offices and the burning of the returns on the Income Tax, and what has been the falling off for that reason? What other steps does the right hon. Gentle- man propose to make this tax as effective in Ireland as it is in Great Britain?

Colonel WEDGWOOD

I am not quite certain what was the nature of the imputation made by the hon. Member the Member for Gillingham (Mr. Hohler), but I hope I shall not be accused of making any imputation. I should like to know is there any means of getting Income Tax out of bonus shares. Nowadays every well-regulated company does not increase its dividends, but issues either bonus shares or shares on discount, and the happy holder of the shares gets income either by selling those shares or receiving the increased dividend. This practice spread during the War, and has now grown apace. Are the Government taking any steps to meet that form of income through the Income Tax? If the tax is to be, as it has become, the sheet anchor of our finance, it behoves us to make it water-tight. At present it is nothing of the kind, and you have an increasing feeling in the country that the Income Tax is monstrously unfair in that certain people who realise great incomes escape, whereas other people less fortunate or less agile are forced to pay the tax. As long as the tax was a shilling in the pound it did not very much matter whether people escaped or not, but now it is far more important that the tax should be equitable and should fall upon the just and unjust. I have no affection for the Income Tax, but if it is to carry the support of the people you must persuade them that it is not being evaded right and left by wealthy people. The taxes as now evaded by people increasing their capital value in lieu of taking dividends and so increasing their income. There is one part of Clause 13 which I would like to ask a question about. In Sub-section (3) it is specifically stated: The annual value of any property which has been adopted for the purpose either of Income Tax under Schedules A and B, or of Inhabited House Duty, for the year 1919–20, shall be taken as the annual value of that property for the same purpose for the year 1920–21. That is an illustration of what I have been trying to point out. The value of property has risen. That is to say, its value has appreciated in comparison with the nominal value of the £. In that way the value of all real-estate has risen. In these circumstances I want to know why we should make this specific Order about this class of property. Especially, why should that be so, seeing that in the Administrative County of London the same treatment is not meted out? It is treated on its present basis for Income Tax. I should like to have it explained why the value of real-estate in London should be taken at the present value instead of at the old valuation. That is one of the things that leads people, without any attribution of motives, to ask why certain interests are more lightly treated than others. An ordinary employé if he gets a rise of salary has to pay on the increase in his salary, but the owners of real-estate escape to a certain extent because a special proviso is made for them. I want to know, therefore, whether it is not possible to bring into the ambit of the Income Tax the increased capital value of shares issued at a discount, and also why an exception is made in the case of real-estate which is to be taxed on the 1919–20 value instead of, as in London, at the 1920–21 value.

Sir HALFORD MACKINDER

The question of bonus shares occupied the minds of the members of the Royal Commission on the Income Tax, and I think it would be much better to leave this question over to a future Finance Bill, which would deal with all the general recommendations of the Royal Commission, than to attempt to deal with it now in the present Finance Bill. It is an extraordinarily difficult question. When you look into it, you will find that there are cases in which it would be grossly unjust to charge Income Tax on bonus shares. The general principle of the Income Tax is that for one enjoyment there should be one taxation. Often the increase in share value is against a writing down of reserve, that reserve having been accumulated out of profits that have paid Income Tax already.

Colonel WEDGWOOD

It is a revaluation of the property, instead of an increase of the reserves.

Sir H. MACKINDER

I only mentioned that to show the complexity of the question of bonus shares, and I was saying that in some cases it would be grossly unjust to attempt to tax such shares when they represented a reserve which was applied to an increase in the nominal value of the capital. No doubt it would be justifiable in certain circumstances, but it would be unjust to attempt to tax a second time that which had already paid Income Tax. Then another complexity is introduced, owing to the variations in the rate of Income Tax. In past years the Income Tax was low, and in those years reserves were accumulated, but now, when the Income Tax is high, and you are distributing these reserves, they may have to pay upon a higher rate. The tax may fall in the future. If new shares are thus distributed, it may be from a reserve which has originally paid a higher rate of Income Tax. The issue of these shares may be in some cases unjustifiable, where it is simply a case of inflation of capital but again, it must be remembered that if you increase the capital you reduce the dividends which are payable, and if you increase the capital unjustifiably, a lower rate of profit will be made upon the nominally larger capital, and thus there will be lower dividends. It really is part of a much larger question of taxation, and that is the taxation of casual profits which do not occur annually. The whole question is one which the Income Tax Commission, in the year at their disposal, were not able to exhaust, and in their Report, while they indicated certain principles, they did not attempt to deal with the many possible cases, or with the remedies that were suggested, because some of these would have been unjust in their application. I therefore think the whole question should be left over for another Finance Bill, where ample consideration could be given to it, and when we can deal also, not merely with the altered rates of the Income Tax, but also with the many alterations of the law which have been recommended in the Report of the Commission.

Mr. W. GRAHAM

I feel compelled to ask a question which touches on some of the points raised by the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) and the hon. Member for Camlachie (Sir H. Mackinder). A great deal has been said about the question of evasion of Income Tax. I am expressly dissociating myself from the criticism adopted by the hon. and learned Member for Gillingham (Mr. Hohler), because he was asking for a scheme for the reconstruction of the Income Tax, such as should not be attempted within the limits of the present Bill. The labours of the late Royal Commission should be a matter, if not for prolonged, for anxious and careful, inquiry by the House. I think that his contention is quite ill-founded, especially in the light of our experience, but I am bound to ask the Chancellor of the Exchequer, while some of us agree that it is quite impossible now to put forward a scheme, whether he cannot introduce something into the Bill, or at an early date, to deal with the question of evasion. I am aware that some authorities have derided the idea that there is evasion of the Income Tax and the Super-tax on a large scale year by year in this country. I do not think that that idea can be supported in view of what was stated before the Royal Commission on the Income Tax. I know there was one estimate which seemed to be extravagant—that £100,000,000 per annum was lost in that way. I do not think that that can be supported by anyone who is acquainted with the facts, but there was another estimate which was given by the Society of Tax Surveyors, and that was that in recent times in Great Britain there have been a loss of £100,000,000, which might have been collected if there had not been evasion and if better provision to check it had been made in the way of administrative machinery, which ought to have been devised in a country like this for preventing loss of that kind.

That was one estimate, £100,000,000 in a comparatively small number of years, but I think the standard estimate, if I may so call it, which was taken was one which placed the annual loss at anything between £5,000,000 and £10,000,000, and I remember that in another part of our Report we made it plain that possibly another £10,000,000 could be obtained annually by the provision of the machinery which I have just described and by better means being adopted for the checking of evasion. This, I am afraid, applies not merely to Income Tax, but also to Super-tax, and raises large issues of the bonus shares and other forms of fictitious or evasive distribution which are habitually engaged in either for the purpose of evading Income Tax or Super-tax, or, at all events, for the express purpose of reducing the liability under that head. I think my right hon. Friend will agree that, of course, that requires machinery, and it requires the detailed consideration of the Bill which I understand will be forthcoming comparatively soon, but I wish to ask whether on this Income Tax Clause it is not possible to devise something perhaps rather sooner than the rest of the machinery by which the question can be tackled. I am rather afraid that if it is postponed until the definite machinery is established that we have in mind, much of the money will be irrecoverable, and we should like to see it obtained for the State at the present time.

Mr. PRETYMAN

I wish to say one word in reply to the point raised by the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood). I believe we are discussing Clause 13, which deals with Income Tax, and I cannot help thinking there is some confusion in his mind between Income Tax and Super-tax. It is perfectly clear that the question of bonus shares does not arise upon Income Tax.

Colonel WEDGWOOD

It ought to do so.

Mr. PRETYMAN

No. What is Income Tax charged upon? It is charged upon the full profits made by any company, and when those profits are made they are charged in the year that they are made and irrespective of their subsequent destination. If those profits go into reserve or into any other fund which the company may create, they go after being charged and after having paid at the appropriate rate, and I cannot follow my hon. Friend in saying that it matters that that rate might be different from the rate at which they may subsequently be appropriated to bonus shares. The time at which those profits should be paid is the time at which they are made, and if the company subsequently chooses to turn its reserve fund into bonus shares it is dealing with money which has already paid tax and is therefore quit of any further payment.

Colonel WEDGWOOD

If you take up shares paid for at par when the actual market value is 30 or 40 and sell your rights, surely that is a form of income. Instead of paying out in increased dividend on your shares, all you have to do is to issue fresh shares to your shareholders pro rata and allow those shareholders to sell their rights.

Mr. PRETYMAN

When the shares of the company are sold the market is perfectly aware of all the assets of that company, and the company may juggle with its assets as it likes and distribute them as it likes. The point we have to consider is that whatever profits that company makes should pay Income Tax to the full amount during the year that those profits are made. When that has been done there is nothing more matters from the point of view of Income Tax. The question that the hon. and gallant Member raises does not arise on Income Tax at all, but on Super-tax. That has been discussed before the Income Tax Commission and will no doubt be considered in its yroper place by the Chancellor of the Exchequer and dealt with in a later Bill, but it is really, if I may say so without offence, a mare's nest to raise this question of bonus shares on the Income Tax, because it does not arise.

In respect to what the hon. Member said about the valuation of land, I think he is also under a misapprehension there. The reason we had put before us in evidence why you take the valuation for the last year as the basis of the taxation of land is because it is the latest date available, and you cannot take a valuation for the current year. The London valuation is not taken on this year but on the quin-quennial valuation, because there is a special Act. The London valuation is under a special quin-quennial valuation, and so far from being more up-to-date, it is actually less up-to-date. That, I think, is another mare's nest. I think everybody would agree that we want to deal with evasion as promptly as possible, but there is no royal road by which it can be done. We had a great deal of detailed evidence on innumerable points of evasion before the Royal Commission, and it is all a question of detail, and I do not think it is possible to deal with it by one broad stroke of a brush in a clause of this kind. Bad as it may be to delay for a few months this very important question, it is essential that the matter should be carefully and accurately dealt with, and I think we shall all agree that we do not want to see that the time that the Royal Commission gave in going into this subject shall be wasted by dealing with the question in a haphazard way. We have made definite and detailed proposals on all these points, which I hope will be brought before the House at a later stage. It is very im- portant that all the members of the Royal Commission in this House should, as far as possible, express the same views, as they have signed the same Report, and I hardly think my hon. Friend would wish to press the Chancellor to depart from the considered and definite proposals that we have made in order to deal with this question in a haphazard manner.

Mr. CHAMBERLAIN

The hon. and gallant Member for Leith (Captain W. Benn) asked me for an estimate of the loss that might accrue in Ireland owing to the unlawful and disorderly acts which have occurred there. I cannot venture on any estimate of value at the present time, but I have myself put a new Clause down in order to make more efficient or to make possible the collection of Income Tax in cases where otherwise, owing to what has happened, it might escape. As regards the valuation, that is one of the many questions that were considered by the Royal Commission. I speak in the presence of at least three members of that Commission, and I am sure that they will confirm me when I say it would be madness for me to attempt to carry out, and impossible for any Chancellor of the Exchequer effectively. to secure, in a Finance Bill, which necessarily has to deal with a great many other matters, all the Amendments which are suggested by the Royal Commission. On this particular matter of valuation they make proposals for augmenting the staff and for spreading the work of revaluation over a period of years, thus avoiding, to use their own words, "an unjustifiable strain on the Department." With the staff and accommodation at disposal, and with the work to do in the current year, it would have been quite impossible to attempt anything in the nature of a general revaluation in the current year. It could only have resulted in disastrous failure.

Colonel WEDGWOOD

Is there any chance of getting a revaluation?

Mr. CHAMBERLAIN

Yes, I hope so. With patience and perseverance a great deal may be done. It is a platitude, but it is a platitude which I have to state, because some people forget it. You cannot do everything in a moment. You can destroy anything in a moment, but you cannot build and construct in haste, if your building is to stand the stress of time. That is really the answer to the appeal which has been made. Evasion of tax or avoidance of tax takes many forms, some reprehensible, others not reprehensible, so long as the law protects them. I use the word "evasion" for not paying taxes you ought to pay; I use the word "avoidance" for adopting measures which Parliament permits you to adopt and which render you not liable. If, for instance, Parliament taxes beer, and you wish not to pay the tax, you avoid it by not drinking beer. If, on the other hand, a brewer on anyone smuggled beer without paying the tax, if such a thing were possible, that would be evading the tax, and would be illegal, immoral, and reprehensible. But there is every degree between the two, only from the point of view of law, remember the law construes a taxing statute strictly, and always in favour of the subject. It is not a simple matter to pick up all these possible methods of avoidance or evasion. It is most complicated. It requires an infinite series of expedients to meet them, and some require a great deal of consideration before you adopt them. The particular method which has been under discussion, that the tax should be levied according to an appreciation of the motive for which action is taken by the taxpayer, is a very difficult thing to judge. To say that if a man does so and so he shall be taxed is one thing, but to say whenever he does it with some motive is a proposition which, before you adopt or can put into a statute, needs a great deal of consideration.

No one would dispute that it would not be possible in a Finance Bill to deal with so many propositions as we have heard, unless the House were prepared to pass all the rest of the proposals sub silentio. Under those circumstances, and there having been no time either for the Board of Revenue or myself to produce the reform, I have been obliged to postpone that to a later date. I had hoped to introduce it before now, but circumstances have made that impossible. The Inland Revenue and the others who will have to co-operate with me will try to prepare a Bill carrying out, or submitting to the House, the general recommendations of the Income Tax Commission, in so far as the Government find it possible to adopt them, at the earliest moment we can; but I do beg the House, in a matter so complicated, so intricate, and fraught with such serious consequences, to give us time to make, if we can, a reasonable, ship-shape, and watertight measure. If they hurry us too much they will have bad workmanship.

Sir F. BANBURY

I should like to support my right hon. Friend the Member for Chelmsford (Mr. Pretyman) in the very clear statement he has made, correcting, if I may say so, the mistake into which my hon. and gallant Friend opposite has fallen. Let me point out that bonus shares, as he calls them, are merely the capitalising of the reserve, and issuing that reserve which has been capitalised in the form of such shares, and that reserve when issued has paid Income Tax on every possible occasion. Therefore there is no evasion of any sort or kind. I have seen in some financial papers the statement that railway companies ought to issue bonus shares—what for, I never could see, because their reserves have not been large enough to enable them to part with them and capitalise them. But on every shilling of reserve they have already paid Income Tax, and therefore instead of distributing the reserve at the time it was earned in the form of dividends, they have been prudent enough to put it by for a bad day—a practice which ought to be encouraged, and not discouraged. The tendency, so far as I know, of all public companies is that they are too apt to declare large dividends and are disinclined to put money to reserve. The hon. Member opposite said something about revaluation. I did not quite follow what that meant. If the hon. and gallant Gentleman means that a company's plant and freehold buildings and land have increased in value, and that they divided what they thought was the then value between what they gave for it and the then value, it could never be liable to Income Tax. It is an increase of capital value. Those cases, so far as I know, are very, very rare. There may have been one or two cases, but, if so, it merely means that their capital value has increased and therefore never was liable. I also agree with my right hon. Friend that there might be something in private companies—not public companies—where three or four people have formed themselves into a company and in that way evaded the Super-tax. That is done, as I happen to know. I do not mean to say I have done it myself. That is what I think my hon. Friend has got into his head. But that does not arise on this particular proposal. With regard to the other question about the evasion of income tax; well, I am an Income Tax Commissioner, and whether or not I have in my district very excellent surveyors and very honest people, I do not know, but the cases that come before me as an Income Tax Commissioner show that the surveyors, under the guidance of my right hon. Friend and my hon. Friend on the Treasury Bench, are very acute. They do not leave any stone unturned so far as I can see. Generally the cases that come before us are where the surveyors are putting on a higher rate of profit than actually has been made. I do not say we have never found a case the other way; but as a rule it is that the surveyors are only too anxious to obtain money for the State. I have a case of the kind in hand at the present time. Therefore I think the idea that there is all this evasion is away from the point; though, of course, there is evasion, and always will be, with heavy taxation.

Mr. RAFFAN

I desire to put two very short points. The Chancellor of the Exchequer pleaded that he should be given time for very full consideration and investigation before he brings in a measure to carry out the recommendations of the Royal Commission on Income Tax. In that I have no doubt he carries the assent of the whole Committee with him, but it has hitherto been understood that a measure of the character indicated would be brought in during the present Session, that is during the Autumn Session, that legislation would be enacted this year. I gathered from what he said in his speech this afternoon that he rather departed from the promise which he is considered to have given, and I should like, if possible, if he could conveniently do so, to say whether the Government adhere to the intention of dealing with this matter this year or whether it is now understood it may be necessary to take such time for consideration that it will be necessary to hold the matter over till next year. Information on this point will be acceptable to many, I believe, besides myself.

The other point I desire to raise is this. Various suggestions have been made to the right hon. Gentleman for the purpost of securing additional revenue. These he has promised to take into consideration. Some of these proposals, it has been suggested, are either unfair to the potential taxpayer, or would have no good results. I desire to make a suggestion which I should like the right hon. Gentleman to take into consideration. This suggestion, if adopted, would, in my view, bring him a very considerable amount of revenue. Certainly it would not be unfair to the taxpayer, and so far from having evil social results, the social results would be of the best character. The suggestion I make is to raise Schedule A and B of the Income Tax upon an annual basis instead of upon the capital basis. I do not propose to enter into the controversy which has just been debated as to the payment of Income Tax upon bonus shares. What ever may be the case of bonus shares, there can be no question of what happens in the case of people who are holding up land where the capital value has increased, and who are keeping it out of the market until it ripens, and they are able to acquire the highest price for it. There can be no doubt about it that the person who holds up year by year land in this way pays far less Income Tax than he would do upon the real annual value of the land; and at the end of the period he places it upon the market and is able to secure, very often, a huge sum for it upon which he pays no Income Tax whatever. That is altogether inequitable. I suggest that the right hon. Gentleman, therefore, might consider the propriety of raising the schedule in the way I have suggested. No one can suggest that it is in the public interest that land should be held out of use when there are willing purchasers who desire to have it for purposes of industry and other similar purposes. The result of such a substitution as I have proposed would be that probably the land would be put into the market earlier than otherwise, and there is no doubt the community would benefit, because there would be better scope for commercial enterprise. I trust the right hon. Gentleman will give this suggestion favourable consideration.