§ (1) On and after the twentieth day of April, nineteen hundred and twenty, one pound shall be substituted for five shillings—
- (a) as the ad valorem Stamp Duty imposed by Sections One hundred and twelve and One hundred and thirteen of the principal Act, as extended by Section Twelve of the Finance Act, 1896, on statements as regards the capital of the companies referred to in those Sections; and
- (b)as the ad valorem Stamp Duty payable under or by virtue of any private Act on any statements as regards the capital of any company; and
- (c) as the ad valorem Stamp Duty imposed by Section Eleven of the Limited Partnerships Act, 1907, on statements with regard to the amounts contributed by limited partners to limited partnerships.
§ (2) In the case of a company registered or otherwise incorporated, or an increase of capital authorised, on or after the twentieth day of April, nineteen hundred and twenty, and before the passing of this Act, a supplementary statement of the nominal share capital of the company or of the amount of the increase so authorised, as the case may be, shall, within fifteen days after the commencement of this Act be delivered to the Commissioners of Inland Revenue duly 1585 stamped with the additional duty of fifteen shillings for every one hundred pounds and any fraction of one hundred pounds over any multiple of one hundred pounds of the capital, or increase of capital, as the case may be.
§ If any supplementary statement required to be delivered under this Sub-section is not duly delivered in accordance with the requirements thereof, the duty chargeable on the statement, together with interest thereon at the rate of five per centum per annum from the date of the commencement of this Act, shall be recoverable from the company as a debt due to His Majesty.
§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ Sir A. FELL
I cannot allow a Clause of this magnitude to pass without some protest being raised, or at any rate without the matter being mentioned, because it increases fourfold the Stamp Duty on statements as to capital of companies. The tax formerly was 5s. It is now proposed to make it £1 per centum. For a company with a capital of £100,000 the tax will in future amount to £1,000, whereas formerly it was only £250, and for a company of £500,000 the tax will be £5,000 on registration, as against £1,250. At the time of the initiation of companies it is most difficult to arrange for the capital before the company is advertised, and this additional tax will be a very serious incubus upon promotion. I believe the prosperity of this country in the last 50 years has largely arisen from the admirable nature of our company law, and the immense strides which English commerce and enterprise has made in the Colonies and throughout the world have largely depended on these companies. Our enterprises in the Argentine, in our Colonies, and in Canada are all based on companies which were started in London, and most moderate charges in those days were imposed by the Government. Now the Government are proposing to increase those charges fourfold, and the particular point I wish to lay before the Chancellor of the Exchequer is this, that in the initiatory stages before a company is floated as a new company—this does not concern so much companies which propose to increase their capital, as they have a large amount in hand, and can pay with the greatest ease—a new company which is being started to do business in foreign countries will find difficulty in meeting this additional 1586 burden, as, before they can register or advertise the company, the promoters will have to arrange for this tax, and those who find the money, running as they do considerable risks, will naturally require very large return for the cash they put down. It is no use denying that if they are called upon to find, say £5,000, they will probably require a return of £20,000, with the result that the company will be saddled with heavy initiatory expenses before it can get to work. This will impose a great difficulty on that enterprise which has been so characteristic of the City of London in the past. I believe there could be nothing more harmful to the future of a company than that it should have a deadweight like this, which is not represented by any assets, thrown upon it. It means watering the capital, and it will involve a heavy drain on the company, because it is not allowable to deduct from the Income Tax returns the amounts which will have to be put aside to meet these heavy initiatory expenses. A great incubus is being put in this way on the enterprise of the future. I hope the Chancellor of the Exchequer will consider whether it is worth while, in view of the small additional revenue he will get, to enforce this difficulty in registering enterprises of this nature, and whether he will not thereby very largely defeat the progress of business in the City of London.
§ 10.0 P.M.
§ Mr. HAILWO0D
I should like to support the contention of the last speaker. I am afraid the Chancellor of the Exchequer has been led away by the large flotations which have taken place in recent months. I fear he has been led into the belief that there is a big wave of prosperity in the matter of big flotations, and that it is a fit subject for extra taxation. I should like the right hon. Gentleman, if he possibly can, to discriminate between small private limited companies and the larger public companies that are being floated. In the first place it must be obvious to the Treasury that it is an advantage to have more limited liability companies than private concerns. Everyone knows that they are compelled to employ chartered accountants, and there is a great possibility that they pay up Income Tax better than private concerns. Therefore it must be in the best interests of the Treasury to limit the multiplication of 1587 small private businesses. Another reason is that small private businesses are practically owned by the same people after they are converted into limited companies, with the exception that there is an inducement to distribute a few shares among the managers and foremen in the interests of the company or of the firm which does not obtain in private businesses. If we are to set anything against the cry of capitalism on the one side and labour on the other, we should try to get as many capitalists as possible. Limited liability company law enables shares to be spread among workpeople, and it may be hoped that, with the multiplication of limited liability companies, a greater number of workers in this country will own shares in various concerns. That would add to the stability of the country. It is undoubtedly a hardship that a concern with a capital of £10,000 or £15,000 or £25,000 should be asked to a £1 per cent. ad valorem duty because it is being converted into a limited liability company. I beg the Chancellor of the Exchequer to exercise some discrimination in this taxation. I believe it would be in the interests of the Treasury if he could discriminate between small limited liability companies and larger public concerns.
§ Sir WILLIAM BULL
I desire to give the Chancellor of the Exchequer a note of warning on the question whether he will not drive a large number of our companies away from registration in England. I do not know whether he remembers that that occurred in New York some 30 or 40 years ago. Taxation in connection with companies was put on very heavily, and consequently all the business of company registration went to New Jersey. It became the common practice for lawyers in New York to register companies in New Jersey rather than in New York. I do not know whether it would be possible, but it seems to me that the Treasury ought to consider whether lawyers and company promoters in the City of London might not deem it advisable to register companies in the Channel Islands at a lower rate than in London, with the consequent effect of a great loss to the Treasury. The Treasury probably have considered the matter, but I should like to put out that note of warning.
What my right hon. Friend has said is, no doubt, true, that, in every proposal for a new tax or for an increased tax, you must be careful not to put the tax so high as to defeat your object. I confess, however, that I am less doubtful than I ever have been since I have had occasion to think about such things, about the future of the City of London. Experience of recent years makes me feel that the City of London can, and will, hold its own for all the great financial and business purposes for which it is famed. It has always been possible, not merely to avoid our existing taxes, but to avoid the provisions of our company law, by registering, not, indeed, in New Jersey, but in the Channel Island of Guernsey. But my right hon. Friend would not himself be attracted to an investment in a company registered in Guernsey. I think the advantages which are given by the City of London to honest enterprise make it unlikely that, for so small a charge as this, business would be removed from the City. My hon. Friend the Member for Yarmouth (Sir A. Fell) talked gloomily of the duty being raised four times. It is very small at present, namely, five shillings, and we are constantly told that about fifteen shillings is to-day the equivalent of the previous value of five shillings. If that is true every time the Government pays it out, it must be true every time the Government takes it in, and I think my hon. Friend's fears are exaggerated. I put forward these proposals in opening the Budget. They were explained more at length in the White Paper. I have had one representation officially from the Stock Exchange. If they shared the gloomy anticipations of my hon. Friend, I think they would have presented further arguments to me.
The only other point I have to meet is that put by my hon. Friend (Mr. Hail wood), who asked for differentiation between small private limited companies and public companies. I do not think such a limitation is possible or that I can justify it. My hon. Friend has argued that the result of transforming a partnership into a limited company will be that the accounts will be better kept and that the Exchequer will receive more revenue. It is no good struggling against the obvious force of events. I do not altogether 1589 welcome the change of private partnerships into limited companies, which I think is largely inevitable, but does it always insure to the benefit of the Treasury? In a private company the profits are charged not merely to Income Tax but to Super-tax, according to the share of each partner in the profits and the means of the partner, and on whether it is distributed or retained in the business. The moment you make it a company, whatever is retained in the business is not charged, so that it is not such a simple proposition as my hon. Friend suggests. Quite apart from that, I do not think it is my business to encourage a change from partnerships into limited companies, not that it would be possible for me to justify such a distinction as he suggests between companies formed under private partnership below a certain level of capital, and all other partnerships so formed and public companies outside the scope which he particularly has in view. As far as I know, I have dealt with the various points raised according to my ability, whether to the satisfaction of those who put them to me or not I must leave them to say.
§ Major NALL
I do not think the right hon. Gentleman has really quite answered the point put by my hon. Friend (Mr. Hailwood). It is a real obstacle in the way of reconstructing very small concerns on a profit-sharing basis that the Stamp Duty should be increased in this manner. There is a tendency in these days to reconstruct many small concerns on a profit-sharing basis. That, I think, it is generally agreed is a desirable end. It is most unfortunate that this Bill should contain two particular points which are really very much against companies. It would be obviously out of order to discuss one which sets out a new tax on a limited company and leaves a private partnership free from that particular tax, but here is a case where a small limited company will be penalised. It is all very well for a new concern floated in the City to have in mind that these charges will have to be met out of the capital which has been subscribed. It is an entirely different matter when small trading concerns are reconstructed on a profit-sharing basis or for the enlargement of the business or 1590 comparatively small partnerships converted into limited companies. It is entirely against the best interests of that sort of thing if a tax of this sort is to be imposed. I very much regret this tendency to add still further burdens on small corporate bodies which do not affect private partnerships, although they may be liable to certain taxation. If this proposal is to stand I hope we shall not year after year have further increases, because it is a very real burden on many people who probably do not make as much noise about it as the City would if they were really affected, but who nevertheless will feel a burden of this sort to be rather unfair in the present state of business in this country.
§ Sir F. BANBURY
These firms who turn their businesses into private limited companies are stated by the hon. Member to do so in order to have profit-sharing with their employés. Supposing that is the principal reason, what is to prevent a partnership, say, between the hon. Member and myself, deciding that a certain percentage of the profits should go to the employés? That could be done just as well under a private partnership as under a limited liability company. There are many reasons why the statement of the Chancellor of the Exchequer should be supported. I do not think it is at all a good thing that these small people should turn themselves into limited liability companies. One of the chief reasons is that they limit their liabilities in regard to their creditors. I think that is much more the reason than a desire to share profits with their employés. Speaking as a Member of the Treasury Issues Committee, I support what the Chancellor of the Exchequer has said. Moreover, by turning yourself into a limited liability company you lose your vote. I do not think that is a good thing that people who have a stake in the country should consider it to their advantage to deprive themselves of the right of the vote. I trust the Committee will strongly support the Chancellor of the Exchequer.