§ (1) Subject as provided in this Act there shall be charged, levied and paid on all profits being profits to which this Part of this Act applies and which arise in an accounting period ending after the thirty-first day of December, nineteen hundred and nineteen, a duty (in this Act referred to as "Corporation Profits Tax") of an amount equal to five per cent. of those profits:
§ Provided that—
§ (a)where the profits are profits arising in an accounting period of twelve months, no tax shall be charged on the first five hundred pounds thereof, and where the profits are profits arising in some shorter accounting period, no tax shall be charged on such amount of the profits as bears to five hundred pounds the same proportion as the shorter accounting period bears to twelve months; and
§ (b)the amount of tax payable in respect of the profits of a British company for any accounting period shall in no case exceed the amount represented by ten per cent. of the balance of the profits of that period estimated in accordance with the provisions of this Part of this Act, after deducting from the amount of those profits any interest or dividends actually paid out of those profits at a fixed rate on any debentures, debenture stock, preference shares (being shares which do not confer on the holders thereof any right to participate in profits beyond the right to receive dividends at the fixed rate) or permanent loan issued before the twentieth day of April, nineteen hundred and twenty.
§ (2)The profits to which this Part of this Act applies are, subject as hereinafter provided, the following, that is to say:—
§ (a)the profits of a British company carying, on any trade or business, or any undertaking of a similar character, including the holding of investments:
§ (b)the profits of a foreign company carrying on in the United Kingdom any trade or business, or any undertaking of a similar character, so far as those profits arise in the United Kingdom.
2184§ (3)In this Part of this Act—
§ The expression "company" means any body corporate so constituted that the liability of its members is limited:
§ The expression "British company" means any company incorporated by or under the laws of the United Kingdom:
§ The expression "foreign company" means any company which is not a British company:
§ The expression "permanent loan" means a loan of a permanent character which is secured by mortgage or debentures or otherwise on the assets or income of a company and which, if subject to repayment, is subject to repayment at not less than three months' notice.
§ Mr. WATERSONI desire, Mr. Whitley, to raise a point of Order, of which I have given you intimation, as to your ruling upon the Amendments standing on the Order Paper. I should like to ask whether, if the decision of the Committee be given in favour of or against the Amendment standing in the name of my hon. Friend the Member for Linlithgow (Mr. Kidd), it will rule out three or four other Amendments, and two, in particular, standing in the name of several hon. Members on this side of the Committee, which seek to except societies registered under the Industrial and Industrial Societies Act, 1893? I should be glad of your ruling on this, because it will guide us as to whether it will be possible to take a Debate on the whole subject upon the first Amendment, and thus to save Debate on the Amendments which follow.
§ The CHAIRMANI understand from the hon. Member that the Amendment standing first on the Order Paper does not cover the whole of the points he wishes to submit to the Committee. If that is the case, I would propose that the whole of the discussion should be taken on the first Amendment, and then, if in the course of the Debate it appears that a separate Division is desired on a subsequent Amendment, I would find an opportunity for that subsequent Division. It would be better not to divide the discussion into two parts, and I will see that the hon. Member has an opportunity of putting his case clearly on the first Amendment, which is now going to be moved.
§ Mr. PRETYMANDoes that apply to all the Amendments?
§ The CHAIRMANNo, I am dealing here only with the Amendments affecting co-operative and similar societies.
§ 4.0 P.M.
§ Mr. KIDDI beg to move, in Subsection (1), after the word "that" {"Provided that"], to insert the words
(a)where the profits are profits or surplus arising from the trading with its own members of a society registered under the Industrial and Provident Societies Acts no tax shall be charged.This Amendment is directed against a proposal of the Chancellor of the Exchequer which, since it was last discussed in the House, has been very seriously canvased. We had hoped that the right hon. Gentleman would have been persuaded that his proposition would not result in any financial benefit, and that it was politically unwise. He has not, however, abandoned the proposal, and, therefore, it is necessary for me somewhat critically to examine it from every point of view. I know that such an examination is not a necessity to many hon. Members, but there may be, more particularly on this side of the Committee, those who have not had an opportunity of studying closely the co-operative movement, and who, therefore, might readily mistake the proposition of the right hon. Gentleman for a very plausible one. Those who have not much acquaintance with co-operative societies have no desire, I know, to be otherwise than eminently just to those societies, exactly in the same way as we who support this Amendment have no desire to ask for any particular privilege or any particular exemption for the co-operative movement as against any individual or any other section of the community. The right hon. Gentleman and those who are with me are agreed on one point, namely, that the Corporation Profits Tax, which he is introducing for the first time in this Finance Bill, is a tax the liability to which depends upon whether profit is earned. Profit earning is the test of liability for this new tax. I suggest, and I leave it to the right hon. Gentleman to discover whether there is any disagreement between us, that, on his own showing in the later part of the Finance Bill, he acknowledges that the surplus resulting from the trading of a co-operative society with its individual Members is not a profit in the right sense of the word, but really represents 2186 a surplus of economy. I say that there is comparative agreement between us upon that also, because, later on, the right hon. Gentleman proposes to provide that that portion of the surplus which is paid away as what are called cash dividends—although that is a misnomer—is not to bear the tax, but only that part which is retained. I would ask him, how is it possible to distinguish between these two parts of the same whole in the way. he proposes?It seems to me that the cause of all this trouble is the persistent hanging on to the confusion between the company on the one hand and the co-operative society on the other. I have no desire to traverse the ground over which I went on the Second Reading of the Bill, but it seems to me to be necessary on this occasion to emphasise, not the difference in degree, but the essential and eternal difference in kind, between the functions of a co-operative society, on the one hand, and of a company on the other. On the last occasion I tried to describe it by saying that the co-operative society existed for the avoidance of loss, while the company existed, on the other hand, for the creation of profit. I hope the Chancellor of the Exchequer does not suspect me of attempting anything like an exercise in Scottish metaphysics when I seek to make that distinction, but the more one examines the position the more one realises that the real difference between the society and the company is nothing else than the difference between minus and plus. The history of the co-operative movement is very well understood. In the last discussion an hon. Member opposite used a very happy illustration. He took the case of a wealthy man who did not buy his tea, as many a worker does, in two-ounce or four-ounce packets, but, with his greater means, could go into Mincing Lane and buy a chest of tea. The mere fact that he possessed the control of money gave him an advantage in buying which was expressed in an economy. That man of means, who can so make his purchases, does not, and never did, pay tax on the economy effected. What is sought in the co-operative society is not to gain an advantage for the society qua society, and certainly not to gain an advantage over an individual. The object is simply and solely to secure that the poorer members of the society shall be able to 2187 enjoy, through the power of purchasing as a group before distribution, the same economies which are available to the wealthier man. It is not unnatural, having in view the beginning of the co-operative movement, to find the natural home of co-operation in the friendly society movement. Those of us who have had to do with friendly societies know that on the one hand the friendly society is not an eleemosynary organisation, while on the other hand it is not a profit-earning organisation. Inasmuch as the co-operative society satisfied both these conditions, on the one hand was not a charity and on the other hand was not a profit-earning concern, it was very easy for it to find its home in the friendly societies movement. While they had that common ground one can without undue refinement readily distinguish between the functions of a friendly society and the functions of a co-operative society, and the mere fact that the co-operative society was bound to have a large volume of trade, trading as it did with the bulk of the population, justified Lord Beaconsfield in finding it a home in a separate Act of Parliament by itself. That Act of Parliament is the Act of 1876. I hope that since the last time I spoke in the House on this matter, the right hon. Gentleman has taken the trouble not merely to look at the original Act but to study it, and to follow the extraordinary refinement shown there as to how far you can legally or equitably or justly tax a co-operative society and wherein you could not so tax it. Mr. Disraeli took the heritable property as representing a platform on which the society would conduct its operations. The platform itself was to be subject to Income Tax under Schedule A. When it came to the operations conducted on that platform, inasmuch as those operations only represented, strictly, the mutuality of trading, inasmuch as those operations were only the operations whereby the group, acting as purchasing agents, could effect the economies of the wealthy man, those operations could not admit of a profit, and therefore they escaped all the Income Tax.
Hon. Members may say that dividend is paid. Why is it paid? The co-operative society is not like the Army and Navy Stores, nor like your mutual trading societies dealing with the wealthier portion of the community. The co-operative 2188 societies deal with poorer people, and if these poorer people prefer to adopt a policy of thrift by paying higher prices for their goods now instead of cutting the price to rock bottom and then having a surplus as dividend at the quarter's end, what interest is that of the Treasury's? Those who are wealthy may laugh at the expedient, but it is a very happy expedient to be taken by people who have to count every penny of every shilling and every shilling of every pound. What is more, it is an expedient which has done more to encourage thrift in this country than any other expedient that you or I know. It is an expedient whereby many a landlord has received his rent, which otherwise would have fallen behind; it is an expedient whereby in olden days the doctor's bill was paid; it is an expedient whereby the school fees were often paid. My point is, it is a matter of indifference to the Treasury whether these co-operators cut their prices to rock bottom and take their economy by way of cheaper goods or pay a bigger price for the goods and take their economy by way of the return of a surplus at the end of the quarter.
To test the tenability of the right hon. Gentleman's position, I offer him this illustration: Suppose he presses the imposition of this Corporation Profits Tax upon co-operative societies, whose surplus he himself admits is not a profit. Then the tax can be evaded, as it will be evaded, by the mutual trading societies representing the wealthier portion of the community. The Army and Navy Stores can escape this tax to-morrow. They can cut their goods to the lowest possible price. Their clientele are not attracted by a return of surplus, they are more attracted by instant cheapness of goods, and by pursuing a policy of instant cheapness of goods, the Army and Navy Stores can avoid that so-called profit, that so-called surplus, front which the right hon. Gentleman would recover his tax. The co-operative societies, I grant you, can pursue the same policy. They can cut their prices and thereby defeat the right hon. Gentleman. I put it to this Committee, is it not au absurdity in the way of taxation that a tax is to be imposed which can be avoided and avoided not by some illegal evasion, but by the exercise by the society of its perfectly legitimate rights, and in the way of best realising its mission? After all is said and done, the co-operative society would best realise its mission in that way; 2189 but my objection to it is this, the big clientele of which the co-operative society movement is constituted would suffer a distinct disadvantage by being compelled to pursue this particular policy. The co-operative society movement, which is a movement which ought to be encouraged, would suffer a distinct damage in its prestige if it were compelled to change its present method and to adopt the other methods to which I have referred. I ask this Committee, however, to agree with me that it is a matter of indifference to the Treasury what particular line is followed in a co-operative society movement. The surplus shown is no profit. The tax to be imposed is to be imposed in respect of profit. Therefore you have the simple syllogism that the co-operative society is not liable to tax. I know I have certain difficulties to meet in the way of objection that might be offered against my argument. On the last occasion an argument which appealed somewhat to the right hon. Gentleman—an argument, I think, of the hon. Member for Camlachie (Sir H. Mackinder)—was that it was impossible to distinguish between the reserves of a company trading for profit and the reserves of a co-operative society, and that, therefore, as the right hon. Gentleman only proposed to tax the reserves, his proposal was perfectly legitimate. But I submit that on that occasion a comparison was attempted between things that are actually not comparable. There was a contrast between the reserve surplus of a co-operative society, which is a spending institution, and the reserves which are drawn from profit earned by a profit-earning institution. The real comparison ought to have been made between the surplus of economy of the co-operative society and the surplus of economy of an individual spending or of any other group spending. Let me illustrate my argument by a simple illustration. I will take the case of the right hon. Gentleman's tailor. Making every allowance for the excellent figure he has got to clothe, he must be a very excellent tailor. Now, suppose the right hon. Gentleman has a notion, either from a sense of humour or in a spirit of emulation, to change his tailor to the one who, I believe, is patronised by the Under-Secretary of the Board of Trade. I believe the Chancellor of the Exchequer would then effect a very distinct economy.
§ The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)I ought to get it free after that.
§ Mr. KIDDI think my illustration was amply justified. The right hon. Gentleman himself realises the possibilities of economies to be effected in that way, and he himself, despite his anxiety to gather in taxes, would be the first man to resent any attempt to tax the economy effected. Suppose he devotes the difference between, let me say, twenty guineas and four guineas, to replenishing his wardrobe, which, with a change of tailor, might be very necessary, then he would be doing with his reserve precisely what the co-operative society does with its reserve. He would still be engaged in a spending operation. By his first operation he would effect an economy as against his previous practice, just as, in the same way, the co-operative society, by its group buying, is effecting an economy against the previous practice of buying by individuals; and inasmuch as the right hon. Gentleman, in devoting his economy to an expansion of his wardrobe, would still be pursuing a spending operation, so it would be with the reserve of the co-operative society devoted to an addition to stock. I only mention that to convince the Committee that there is not a scintilla of justification for distinguishing between the part of the surplus paid away as dividend and the part of the surplus retained as reserve. I am only too sympathetic with the right hon. Gentleman's arduous work at this time—he will have my support nine times out of ten in the course of these Debates—but, sympathetic as I am with him, and admiring as I do the magnificent courage he is showing at this difficult time, I cannot but feel that he is making a mistake, both financially and politically, in struggling to impose this Corporation Tax upon any part of the co-operative surplus. There is one other argument that I may be faced with. It may be said the co-operative societies are not merely distributing, but are manufacturing agencies; but surely you can have a spending operation which is not necessarily in a straight line. Suppose my wife, instead of going to the baker to buy her bread, buys flour and makes her bread at home. The economy effected is not the occasion for imposing on me a tax for that economy. Supposing a co- 2191 operative society buy a farm and raise their own grain to feed their own cattle, which are to be distributed to their own members. All that is simply a spending operation.
§ Mr. KIDDI have a big enough job without undertaking the colossal task of instructing the hon. Member in elementary economics. I have spent the last twenty minutes or so in trying to distinguish between the functions of a spending organisation and of a creating organisation, and I have sought to illustrate it with the mathematical symbols of minus and plus. Let me try one other illustration, and I shall feel happy if I redeem this particular soul. I am dealing with the co-operative society, which is really a workers' organisation. I have shown that it has had its mandate, or its charter, from Mr. Disraeli, and I have tried to show the extraordinary care taken to give no privilege and no particular favour, but the exhaustion of the possibilities of law to secure fairness, not for one section, but for all sections of the community, as having been the policy which guided him—the same statesman who gave the charter to the trade union movement. Supposing the trade union movement ceases to remain any longer in its crude stage and advances to the position of being an investing unit in the creation of wealth, then you will have the definite correlatives in the spending group and the creating group, and the statesman who gave the charter to both intended that to be the final achievement of each. There you have, so to speak, in the domain of economics the equivalent of the negative and the positive in the domain of electricity, and if your organisation is a spending organisation to begin with, if it confines its operations entirely to its own members—and my Amendment is directed simply to such operations—then it is a spending operation to begin with, it is a spending operation throughout, and whatever loops you may find upon the line, you cannot distinguish any action in this proceeding as being otherwise than of a spending nature. 1 know that on this side of the Committee some Members may hesitate to support 2192 me because they see in the co-operative movement a promise of the ultimate realisation of the socialistic state. The man who can discover in the co-operative movement any promise of socialism is the kind of man who thinks he is looking west when he is really looking east. The co-operative movement is diametrically opposed to socialism, and the man who thinks otherwise suffers from the malady of partial vision, and that vision is never so partial as when it is directed to economies, the most elusive of sciences. Therefore I hope no Member of this House will believe for a moment that, somehow or other, in the process of spending, we can discover the socialistic state. You must make the money before you spend it, and the socialistic state cannot come by the spending side.
There is the man who thinks that by exempting the co-operative societies you are doing an injustice to the small trader. I share the admiration held by most people for that class of society, the small tradesmen, and I would not ask for the Amendment if I felt that I was doing any injustice to the small trader. Those who oppose my Amendment are the enemies of the small trader. Let us suppose that, by imposing this tax, you compel the co-perative societies against their will, as you will compel them, not to run their businesses as they do at present, but to under-cut and sell at rock-bottom prices. What then becomes of your small trader? Think of the co-operative society, with its volume of wealth, its cash trade within the ambit of its own members—think of that as against the small trader with his limited means. Why, the small trader would go under, and therefore the man who is out to support the small trader should, if he is consistent, support this Amendment. Some people think that the only reasonable way out of our present difficulties would be a levy on capital. Many of us who I regret to say would not have been affected by that levy were in agreement with the right hon. Gentleman when he refused to adopt it, inasmuch as it would disorganise the industries of the country. If that was to be said of a levy on capital, what is to be said of a levy on the economies affected by the poorer people in our country? I would desire to make reference to the fact that the co-operative societies embody not hundreds or thousands, nor tens of thousands, but millions. I never was 2193 seriously affected by the cry of the crowd for a levy on capital. I do not worry about the crowd, because I find that they are so often wrong, but when I find a volume of people, millions of thrifty people instinctively feeling that in this tax an injustice has been done to them, however inarticulate they may be, they know their instincts are sound, they know that this tax is a tax which ought not to be applied to them, and I should be acting foolishly if I were not influenced by the consideration that only a very extreme case would justify the outraging of those instincts.
We have had a campaign on behalf of thrift. The co-operative society in one day has achieved more in the way of thrift than a thrift campaign conducted for the whole period of this Parliament's existence, and yet at the very time thrift and greater social energy is being preached you come along with a tax based on a profit earned, you admit that the surplus of the co-operative society is not a profit, and yet you propose to take part of that surplus and tax it simply because that part is put into stock in order to effect yet more economies in the spending operation. I want to make a reference to that wretched Minority Report. I see some Gentlemen opposite who are responsible for it. I want to speak kindly about it, but I want to acknowledge that it has proved a great temptation to the Chancellor of the Exchequer. There is a wonderful page in that Report, where the mistake made is that it is stated if a Corporation Tax were introduced into this country similar to that in America, it might be applied to co-operative societies. But in the very next paragraph the writer proceeds to demonstrate that the surplus of a co-operative society is not a profit. The genius who wrote that Report did not know what the Corporation Tax in America was. He was discussing something of which he was ignorant. You will find that he did not think the Corporation Tax was based on a profit, as it is, that he had in view that the Corporation Tax was something in the nature of a licence to enjoy limited liability in trading.
§ Mr. KIDDI shall not give the hon. Member further attention until he takes his seat on the Treasury Bench, and that 2194 will be some time. With reference to that Report, I am going to make this appeal to the Chancellor of the Exchequer. The Report was, I believe, written by a Professor of Political Economy. The right hon. Gentleman may recall the words of his distinguished father, when twelve of these Gentleman opposed his proposals on the Fiscal Question. "Oh," he said, "they must oppose. It would make them rewrite their lectures." I ask him to agree that it would be unfair to accept that Report. We are not concerned with any apprehension or misapprehension of the man or men responsible for that Report. We are simply concerned with the meaning attached to the Corporation Tax by the right hon. Gentleman himself. That meaning is this: that the tax is only to be imposed on profit earned. He agrees that the surplus of the co-operative society is not a profit. I submit that it follows naturally that his position is indefensible when he seeks to attach a Corporation Tax to any part of the surplus of the co-operative society. I beg to express the hope that, for reasons that are sufficiently serious and sufficiently sound, economically and politically, the right hon. Gentleman, even at this last moment, will consider whether he can adopt my proposal, but whether he does or does not, I now beg to move it.
§ Mr. WATERSONThe House has listened to a very excellent speech made with a great amount of enthusiasm and which I believe came from the depths of the hon. Member's heart. I take this opportunity on behalf of those whom I represent to thank him for putting the case so eloquently as he has done, but I submit that the Amendment does not go far enough. If this Corporation Tax is applied to the co-operative movement, it will dispense with the principle of mutality. I am not yet convinced that the Chancellor of the Exchequer is taking the right steps in bringing this Act into operation, as far as those under the Industrial and Provident Societies Acts are concerned. It is an illegal Act, in the first instance, and if it is to be applied it will be necessary to amend the existing laws before this Corporation Tax can be made legal, as far as co-operative societies are concerned. The law as it stands to-day recognises that the principle of mutality profits are not assessable to tax, or, rather, that the surplus is not assess- 2195 able to tax. The right hon. Gentleman is creating a new precedent. Previous Chancellors have stood by this main principle of mutality and have regarded the fact that in the co-operative movement, where this principle exists, there cannot be any profits. It is merely surplus that is handed back to the members through the principle of mutual co-operation. I am not here to defend those companies that would come within the scope of the Companies Act. There are men in this House well able to put their point of view. We had an illustration of those interests in the Debate yesterday. Nevertheless, the societies that form the co-operative movement are registered, not under the Limited Liability Acts, but under the Industrial and Provident Societies Acts. I want to draw attention to the fact that the organisations that work under the Industrial Acts are hampered, that their hands are tied, because they have not the facilities allowed to them which are allowed to any company in this country. I mentioned on the Second Reading that I had previously asked the present Chancellor of the Exchequer on two specific occasions if he was prepared to remove that £200 limit. He has declined to do it. I am not going to say whether his wisdom is just or whether it is false. That is his own business. Nevertheless, the position is this: No individual shareholder who comes under the scope of the Industrial Act is allowed to have more than £200. That is the limit. But in the Companies Acts it is vastly different. If you are going to apply the same law to industrial and co-operative societies, give them the same facilities and the same opportunities that are given to limited liability companies that come under the scope of the Companies Acts. Then our interest on shares is limited. We are compelled to pay only a specific amount of interest, and not to extend beyond it. Under the Companies Acts it is not so. Why should this be imposed upon the co-operative movement if you are anxious that the same tax should be applied to the co-operative movement as you desire to place upon limited companies? These are one or two anomalies which would have to be removed to give us the same opportunities to develop our machinery as companies are allowed with these things that I have mentioned.
There is another important factor of which I am afraid the Chancellor of the 2196 Exchequer has lost sight. The members who form a company have not control over it like the members of an ordinary co-operative society. We have our members' meetings quarterly or half-yearly, according to the local situation, as the local members desire, and those members are the controlling factors. That is vastly different from those that come under the scope of the Companies' Acts. Then again a company exists for the specific object of making profit out of the community, but co-operative societies do not exist to make profits or even surpluses out of the community. They exist for the principle of mutuality between all who are members of the organisation. The amount of their capital is fixed by their Articles. The door of the co-operative movement is open to every individual in the community, but we do not find that in the case of companies. They are limited; we are not. Our doors are open. The reserve funds of a limited company go to enhance the selling value of their shares, but anyone can procure shares in a co-operative society. A man is as good a member when he only holds £1 share as a man who holds £200—the same opportunities, the same facilities, the same amount of votes at a members' meeting. I notice that the Income Tax Commissioners' Report says:
We recommend in effect that a society shall be treated exactly as a limited liability company trading in similar circumstances and under similar conditions, and if our proposals are acted upon, it will be necessary to amend the existing law in so far as it affects special exemptions of co-operative societies.When I read that I endeavoured, with the small intelligence that I possess, to make the best of it, and my interpretation of it is that the law first of all does not allow us to have facilities as an ordinary trading company; and secondly, how can a limited company by any possible stretch of imagination ever trade in similar circumstances to a cooperative society? As soon as ever a limited liability company trades in similar circumstances to a co-operative society, it has become defunct as a limited liability company, and as soon as ever a co-operative society works on the same lines as a company, it becomes a company and its co-operation is completely extinct. It is impossible for the two to be brought together. We cannot trade under the same conditions and the same circum- 2197 stances. As soon as a limited liability company makes of its traders—those that trade with it—whether it be retail establishments or even wholesale societies, part-owners and part controllers, it loses its identity as a company. As soon as a co-operative society trades on the same basis as a company, it loses its identity with the policy and principles of co-operation. There is a vast difference between the two. They are two distinct ideals, two distinct objects and aims, and two distinct heavens to reach. They cannot be treated in the same way. I fail to see, with the intelligence that I possess, that it is possible even to put that portion of the Report into operation.There has been, in the course of previous Debates, a question as to the relationship between the wholesaler, the productive, and the retail. I submit these three points. The wholesale society of the co-operative movement exists exclusively to serve the retail, the productive produces on the principle of mutuality to make economies in the interest of those members who are affected thereby, and the retail exists for the specific purpose of supplying the goods which are produced, and what the wholesaler has been able to secure in order that the consumers and members may benefit thereby. It has been said that the co-operative movement pays no taxation. That statement is in its entirety a fallacy. Is anyone prepared to suggest that we do not pay taxation under Schedule A and Schedule B? I know we do not come under Schedules C and D. If we did, there would be an opportunity of reclaiming things that we cannot reclaim at present. We should be able to reclaim a certain amount of taxes which have been paid. Therefore, the State has an advantage over us in that respect. People speak of reserves in the co-operative movement as if we had a deep cellar filled with gold or John Bradburys, and all we had to do was to order it and it would come. That is not so. The reserves of the co-operative movement are mostly held in stock. I do not mean altogether stocks in War Loan, but stocks in the various businesses of the society—the various retail societies and the wholesale. That reserve is not the society's; it is the members'. We naturally trade on that by the principle of mutuality, in order that we may benefit thereby, and once by law enact a measure which will be detrimental to the principle of mutual 2198 trade and you will be acting in a manner detrimental to the country as a whole. The hon. Member (Mr. Kidd) mentioned thrift. Would the Chancellor of the Exchequer suggest that members of the co-operative movement are not thrifty? Would he not rather suggest that they have done more for the good of the community than any other society that there is?
I am reminded of this by an interjection that the hon. Member (Mr. Palmer) made. He said, "You do not pay any Income Tax," or words to that effect. "You are competing with the butcher." Income Tax is vastly different from a Corporation Tax in its application. Income Tax is on earnings. If this Corporation Tax, as applied, will be a tax on savings and economy, and if it is to be applied to the savings of every individual, irrespective of whether they trade, all individuals who have, by dint of perseverance, or shall I. say by intelligence, saved anything, would be liable to this tax. I am reminded of this by my own experience. There was a time when I paid rent for a six-roomed cottage to a landlord who fetched it every week. I do not know whether I can call myself in a better financial position today, but I happen to live in a house that is partly my own We will say it is paid for and is my own. What does it amount to? Are you going to tax me on my economy because I have been able to buy. my own house and saved an amount of money which would otherwise have been paid to the landlord? Are you going to apply the Corporation Tax to the individual on the economies that he makes? Let me give another illustration that forces itself on my mind. I see many hon. Members driving through Palace Yard in their cars. There may come a time—I hope it does not—when they will feel the necessity of dispensing with the man who drives the car, and they will drive it themselves. Is it assumed by the Chancellor of the Exchequer that he is going to apply the tax to the economy that such a man has made?
§ Sir OWEN PHILIPPSYou should pay Income Tax on your house now
§ Mr. WATERSONProbably I have not made it quite plain. I will endeavour to explain it again. If I pay rent every week to a landlord, when I have lived in a house 40 or 50 years I have paid 2199 over and over again for the cost of the house, but if I buy the house straight away I effect an economy. I suggest that if this Corporation Tax is to be applied I have a right to have it applied on the economy I have made by purchasing my own residence. That is logical. It is an economy; it is a saving; and if the tax is applied, it is a blow at thrift However, I will not pursue the argument. It is exceedingly plain to me as far as my experience goes. Perhaps the Committee will allow me to give a better illustration, which I take from the evidence put before the Royal Commission. It is in the fifth instalment of the Report. It is the case of a convalescent home run by a co-operative society in the North. The North Western Convalescent Homes Association have two homes, and the shares held by the societies in these homes are almost £24,000. No interest is paid on the shares, by common agreement. In 1916 the accounts showed a surplus of £56, in 1917 a loss of £698, and in 1918 a loss of £169, and in each of these years tax was paid under Schedule A, amounting in 1916 to £93 12s. 6d., in 1917 to £93 12s. 6d., and in 1918 to £112 7s. Here is an organisation that exists for the principle of mutuality which has to pay a tax. If we had come under the Companies Act we should have been able to reclaim.
The surplus of the co-operative movement is at the discretion of members of the co-operative societies. The members decide how that surplus is to be disposed of. They can give it away or they can buy War Loan with it; they could give it to the Chancellor of the Exchequer towards reducing the National Debt or they could devote it to charity, education, or any object that had the consent of the members. I would ask hon. Members to read the fifth instalment of the Royal Commission's Report, which deals with the question of the reserves of the co-operative movement. I do not pretend to say that we have not these reserves, but I do say that the reserves belong to the members. If I lent a co-operative society £50 or £100 I should get 5 per cent. interest. The society might utilise it and turn it into wholesale, and get 6 per cent., so that the retail society only gets the advantage of 1 per cent. By this Corporation Profits Tax you want to impose a 5 per cent. tax on that £1. it is a bad proposition. Would it be too 2200 much to say that it is due to a lack of understanding of the co-operative movement, and a lack of appreciation of that for which the co-operative movement stands? On the Second Reading of the Bill I dealt with the question of this tax so far as America is concerned, and my hon. Friend the Member for Chelmsford (Mr. Pretyman) on the following day failed to see how I could read into this Corporation Profits Tax the meaning of mutuality. I have gone into this matter a little further. The Corporation Profits Tax applies to
associations organised and operated exclusively for the mutual benefit of their members.Section 120 of the American Income Tax Law, paragraph 18, defines as non-taxable organisations the following:Farmers, fruit-growers or like associations or co-operative societies, organised and operated as sales agents for the purpose of marketing the products of members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them, or as purchasing agents for the purpose of supplying merchandise to members at cost, including the necessary expense.Having been able to get that quotation from the law in operation in America, I hope that I have convinced the Committee that the Corporation Profits Tax is not applied to the co-operative movement in America. The Chancellor of the Exchequer rather refuted this argument when the deputation met him some weeks ago, and I feel more encouraged by this production of further evidence, and hope the Chancellor of the Exchequer has gone into the question a little more fully since the deputation met him. The Committee may ask upon what right and upon what basis does a deputation from the co-operative movement meet the Chancellor of the Exchequer? We are not the only deputation that has met the Chancellor of the Exchequer.
§ Mr. CHAMBERLAINHear, hear!
§ Mr. WATERSONI have here a quotation from a speech made by the Chairman of the Manchester Branch of the Federation of British Industries. He says:
We have had two meetings with the Chancellor of the Exchequer. If we do not get our way at this present moment we are going to have it, and we are assured by the Government that we are the people who are going to be called in to advise.2201 The Chancellor of the Exchequer is going to be compelled to have these gentlemen to advise himand that our advice will be most carefully and thoroughly considered.I hope the Chancellor of the Exchequer will remember that. I submit that this tax is a blow to the co-operative movement and is a deep and decisive blow against social development. I honestly believe that it is a denial of the principle of British law. It is abrogating a law as it now stands on the Statute Book which has been in existence ever since the co-operative movement had any recognition. It is the time to say—I believe the Committee will appreciate it more if I say what I am about to say in this House rather than on a public platform—that there are instigators at the back of this movement against co-operative societies, and that this House is being used as their happy hunting-ground. The Commission only had one day in which to deal with the evidence put forward by the co-operative movement, and after that this tax is proposed for the specific purpose of trying to strike a blow at the co-operative movement, The case was put against co-operation by 12 separate trading organisations. If hon. Members would read the evidence, as I have done, they might think from the statement of these people that they are absolutely controlling industry over more than two-thirds of the whole of Europe. From the case as submitted by them they might have represented more than half of Europe.What about the reservation? I am not going to try to defend my hon. Friend the Member for Edinburgh (Mr. W. Graham). The Committee will appreciate his ability to defend himself, but I suggest that that reservation was done between the morning Session and the afternoon Session. [HON. MEMBERS: "At lunch time!"] It may have been done at lunch. Things are done at the luncheon table much to the detriment of this House and the detriment of the country. This reservation to which my hon. Friend attached his name was done between the morning and the afternoon Session, particularly because the Chancellor of the Exchequer was anxious to get the whole business over in order that he might draft his proposals for the Finance Bill. I am not going to minimise the difficulties of the Chancellor of the 2202 Exchequer. No man who has any sense of citizenship and who appreciate his country as he ought to appreciate it can fail to recognise my right hon. Friend's difficulties. Money has to be got, but may I remind him that in this Budget £58,000,000 are going to be got by indirect taxation, and that that £58,000,000 is to come out of these people upon whom you are going to impose this tax. These people, in addition, pay their Income Tax which is due by statutory authority. You are also asking for £11,000,000 for postage and stamp duties, £17,000,000 for Supertax and Excess Profits Duty. Indirect taxation has always been the burden of the working classes of this country, but land is to go free. The land duties are to be taken off. The Government says that taxation of war fortunes is exceedingly unwise, and that it would be impracticable to adopt a capital levy. There is no objection so far as many hon. Members are concerned to taxing the working classes twice over, and to penalising them because of their thrift, because of their desire to study economy and, by their sense of citizenship, to build a nation worthy of the name. You are going to tax the savings of working men and working women—hundreds of thousands of them, and if this tax is applied you will have hundreds of thousands of reclaims to contend with. The right hon. Gentleman says that he will only get £175,000 from this tax, and I ask him to recognise the number of reclaims and the cost of the country in getting the rights of these men and women to their reclaims.
Apparently the Government is prepared to make a rod for its own back. I ask the right hon. Gentleman to reconsider the whole question. I believe that this is a wicked travesty of justice, and when truly understood the people will weigh the Government in the balance and find that they are wanting. May I appeal to the Members of the Treasury Bench to take the Whips off on this question and to give us a free House. There are many Members of the Government who would pledge themselves to support the removal of this tax if they had a free vote. There is nothing vital to the existence of the Government in this Amendment. It would not be regarded in the country as the fall of the Government. Many Members of the Government feel that if the Whips were taken off their hands would 2203 be untied and they could vote as they desired. I ask the Government to deal with this question fairly and squarely, and not only to take the Whips off, but to remove a Clause which is manifestly unjust and against the statute law of the country.
§ 5.0 P.M.
§ Mr. CHAMBERLAINI have listened carefully, with much sympathy, and with a large measure of agreement, to what was said by the hon. Member who moved the Amendment, and with much that was said by my hon. Friend who has just sat down, until he came to his rather lengthy peroration. I do not think that he gains anything, or that any hon. Member gains anything, by adopting a tone of extreme exaggeration, and I am sure they gain nothing by imputing to their opponents motives which they would disavow in themselves, or which are subject to improper inferences. The hon. Member said something about pressure having been put upon Members by those who think that the co-operative societies ought to be subject to this tax or another tax. Have there been no representations from co-operative societies? Has there be no attempt to bring organised pressure to bear upon hon. Members and to persuade them if possible, to intimidate them if persuasion was impossible, into giving a particular vote? Let us leave that outside in the Lobby or, better still, outside the House altogether, and let us confine ourselves to the merits or the question, without exaggeration on the one side or the other, without prejudice and without imputation of motives. I am encouraged to make this appeal, because I believe that the vehement opposition of the two hon. Gentlemen who have spoken arises in part from a misconception of this tax and in part from the misunderstanding which follows directly from that misconception as to the logical consequences of this tax. I do not want to dwell too much upon the signature of the hon. Member for Edinburgh (Mr. Graham) and other Members directly interested in co-operative societies and the reservation contained in the passage which has been the subject of discussion in this House and elsewhere between them and me. When a gentleman, whether a Member of this House or not, tells me that I am im- 2204 puting to his words a sense which he never intended to convey, there is only one course which I can follow. It is to accept his disclaimer, to use the argument, if I think it is a sound one, but not to impute it to him any longer. Therefore, while I do attach importance to the argument of the reservation, I do not want to plead these gentlemen in favour of the particular proposal which I am now making.
Is it too much to say that the members of the co-operative societies, both when dealing with the report of the Commission and again here speaking to us, while they object to the income of their so-called profits or a large part of them being the subject of the Corporation Tax, admit that there may be something which may be properly the subject of some tax? I think not. It was implied in their signature to the reservation, and it was directly admitted by the representatives of the co-operative societies when they came to see me on a deputation. The hon. Member very truly said that that was not the only deputation I received. My life is one long series of deputations. At Budget time they add considerably to my labours. I try as far as I can to disregard that, both for the advantage which I personally receive from the observations or the criticism of the deputation and also out of respect for the great interests which they represent. But I think it is admitted that the operations of co-operative societies might properly be subject to some tax, and a great deal of the opposition aroused by my present proposal is due to the fear that if we adopt it we prejudice a decision upon the Income Tax.
The two decisions are quite separate and must be kept quite separate. The Income Tax is a tax upon individuals. The Corporation Tax is a tax put on a corporation as an entity. It is imposed for various reasons, among others in respect of the privileges which attach to their statutory incorporation. To apply to the tax the arguments which are applicable to Income Tax or to the Income Tax the arguments which are applicable to the Corporation Tax seems to me to apply the same measure to wholly different objects, objects which cannot be measured in the same way. Therefore I say at once for myself that I am very far from drawing the inference which I think both these hon. Gentlemen fear that the 2205 extension of the Corporation Tax to co-operative societies would necessarily or logically be followed by the extension to them of Income Tax on that part of their so-called profits which is not now subject to it. Of course there is a portion of their profits which is liable to Income Tax. They are liable to Income Tax in respect of profits arising from sales to non-members, or income from reserves in stocks and shares or property, or in respect of conventional income calculated on the annual value of property owned and occupied by them, or from the occupation of land, or finally on dividends on purchases from wholesale societies similar to those paid by retailers. I do not think that there is any dispute about that.
§ Mr. A. WILLIAMSI do not think that the co-operative societies ever admitted that they can pay on dividends from wholesale societies.
§ Mr. CHAMBERLAINI do not think that that would be disputed, but at any rate the other items are not disputed. The dispute arises in respect of the surplus of profit arising from the transactions with their members. That part of their surplus or profit which is given back to members as their bonus at the end of their accounting period, whatever it may be, instead as a discount on their purchases, we do not propose to tax. It is exempted from the Corporation Tax. That part which they retain in reserve or apply to the other purposes described by the hon. Gentleman (Mr. Waterson)—
§ Mr. WATERSONDoes the Chancellor understand that these stocks which are continued in reserve are liable to tax?
§ Mr. CHAMBERLAINWhat is put to reserve is taxed however you put the reserve. You may invest your reserve in stock or stocks and shares.
§ Mr. WATERSONThe stocks I referred to on that occasion were the stocks in the shop.
§ Mr. CHAMBERLAINYou may invest your reserve in many ways—in a Government security, in another industrial undertaking, in buildings or machinery or plant or in stock in trade, but the way in which you invest it does not alter its character, and it is the money which is placed in reserve or the money which is expended on the other purchases, not 2206 being a bonus or discount on purchases, which we propose to render liable to tax.
Mr. MacCALLUM SCOTTWhat is it you propose to tax? Is it the actual reserve itself which is capital or is it the income or revenue derived from the reserve?
§ Mr. CHAMBERLAINNeither one nor the other. I am talking of the money which is placed to reserve. That is the surplus of the year. It is not the capital which is already invested.
§ Mr. CHAMBERLAINOne difficulty about making these matters clear is that in the habitual language of co-operative societies everything bears a different meaning from what it does in other commercial or industrial undertakings. I think that the meaning of each of these terms is well known to co-operators themselves. But they are not the same as those we attach in other circles. I have tried to show, first, the limited scope covered by the proposed tax, and, second, the profound difference in its nature between this tax, which is a tax on a corporate entity, and Income Tax, which is a tax upon individuals. It is quite true—I say this to prevent it being thought that I overlook it—that we tax the reserve of an ordinary company the full rate of the tax. That is done because you cannot follow up the interests of each individual shareholder and apportion the reserve according to the individual liability to tax of all the different shareholders who have an interest in the reserve.
I do not know whether it is wise to stray beyond the circumstances immediately under discussion, but I am so profoundly convinced from all I have heard that the real apprehension of the co-operative societies is not in regard to the tax which I am proposing, but in regard to the supposed inference with regard to Income Tax to which the imposition of this tax might give rise; that I think I had better say a word or two about my view on Income Tax. It is almost the only question on which the Royal Commission on Income Tax was divided in not unequal proportions. I have read again and again both that section of the report of the Commission and the three reservations, one of which 2207 agrees with the report of the Commission, but for reasons differing from those of the Commission, and two of which dissent from the report of the Commission, but for reasons differing from one another. As far as I am personally concerned, I cannot convince myself that the main report is right on this subject. I think that the reservation is right. The reservation, in the phrase to which I alluded earlier, said that if there were in this country, as there is in the United States of America, a corporation tax levied especially on corporation shareholders, it would no doubt require that co-operative societies should as a separate legal entity remain liable to that tax.
I do not know that the exact practice in America need detain us very long. My information is different from that of the hon. Gentleman. The Corporation Tax is not called a Corporation Tax in America; its exact name I cannot recall at the moment. But liability to that tax in their case is governed by liability to Income Tax. The liability to Income Tax creates the liability to what I will call their Corporation Tax. Their Income Tax is so broad that it does render liable to Income Tax the surplus of the co-operative societies, and therefore brings them within the scope of the Corporation Tax. I do not rest myself upon the American analogy; I rest really upon our Income Tax. In this reservation, whilst admitting that those who signed it are right, that you cannot bring those profits of the co-operative societies within the scope of the Income Tax now broadened, yet the nature of the operation for carrying on by the co-operative societies makes them liable to another tax framed on different principles and measured, not by the individual liberty, but by the corporate earnings or profits. We propose to tax those corporate bodies in respect of the privileges they enjoy. We find it most convenient to asses that tax in the ordinary way upon profits. In my opinion that which is in dispute is, not the profit within the narrow meaning of the Income Tax Act, but it is that which, in the co-operative society, is most analogous to the profit of the ordinary trading companies, and is therefore the best basis in their case on which we can levy the Corporation Tax. It is not because 2208 it is a profit, but because it is the nearest analogous basis which we can find in the co-operative societies.
Let me say one other thing. The co-operative societies have been exempt from Income Tax by law. That exemption has excited a great prejudice against them. I do not think that is to the good. If I may venture to offer a word of advice, or to express an opinion, and an opinion which, though it comes from an outsider, is not an unfriendly opinion, I would say that I think it would be unwise to seek exemption from that which on a fair construction makes their position invidious, appears to render it privileged, and evokes a persistent opposition to their movements from a great number of small people no better off. Coming to Income Tax, I think I would take a bold course, and would come down myself on the Income Tax and move to repeal their exemption by law. I believe that when you repealed the special exemptions by law, if you took them into the courts they would get the exemption, because Income Tax would not be leviable in terms of the Act without that special exemption. I believe that special exemption does alter the term of the law upon them. I am sure that it would not put anyone to a great deal of trouble if the co-operators had adopted the same view and had the courage to act. In any case I have said nothing to show that in what I am suggesting I am not going on the analogy of the Income Tax. I am going not hereafter to plead that, because we have proposed a Corporation Tax, therefore they ought to be subjcet to Income Tax, or because we have taken this so-called profit as the measure for assessing their liability to Corporation Tax, therefore they are profits within the meaning of Income Tax.
I do not know whether what I have said has achieved my object, but, at any rate, I have tried to bring our difference down to what is its true extent, and I hope if I have succeeded in removing some misapprehension, that the difference will be found not to be so serious as the two hon. Gentlemen thought. In any case, I am certain that the proposition, as I have stated it, cannot be very dangerous to the co-operative societies, and it was about that that the hon. Gentleman opposite waxed eloquent in his perora- 2209 tion. It cannot be equitably described as a hostile blow, or as injurious to their activity or interests. I cannot reverse this tax and at the last moment substitute an alternative form, but if this method of assessing and collecting the tax is unfair or inconvenient, I am always ready to consider an alternative. So far, the gentlemen who, by signing the reservation, contemplated the possibility of an alternative, have not suggested what that alternative should be. Under the circumstances I propose to adhere to the proposal in the Corporation Tax, but not from that to draw any inference as to the proper treatment of co-operative societies in relation to Income Tax.
§ Mr. W. GRAHAMI must acknowledge first of all the conspicuous fairness with which the Chancellor of the Exchequer has approached this problem throughout. I feel compelled to make special reference to that fairness because of the fact that, with others, I had the opportunity of serving on the Royal Commission and of signing the reservation which has been the subject of such widespread discussion. Let me make it perfectly plain that the proposal which is under discussion is a proposal, as the right hon. Gentleman indicated, covering a very narrow field of co-operative enterprise, at least as far as the fiscal instruments of this country are concerned. Probably most hon. Members will agree that, whatever their views for or against the imposition of a Corporation Tax on any part of the surplus of co-operative societies, this discussion might never have arisen in this country but for one or two facts. The first fact, to which reference was made, I think, by all the Members of the Royal Commission, was that the co-operative movement in Great Britain had made tremendous progress during the last twenty-five, thirty, or fifty years, and that the very progress of that movement, the great ramifications of its trade, the fear that at no distant date it would wipe out all private enterprise, had directed a certain amount of attention to it and had led many of the smaller traders to think that it was gaining an unfair advantage in regard to taxation from year to year, and that they were being penalised to that extent. While these things are true, while the co-operative movement in Great Britain has made tremendous progress, I think the overwhelming 2210 majority of hon. Members will agree that the mere fact of that progress and the growth of the movement does not touch, or should not touch, the principle upon which it proceeds, and that no progress in co-operation can affect to any appreciable extent this narrow question as to whether a Corporation Tax or any other tax should be applied to what is the result, the surplus resulting from what we describe as mutual trading. No doubt the tremendous progress of any movement in any country may give rise to the thought that from the point of view of social and other considerations, of taxation, we must readjust our scheme, we must alter the processes we have adopted so far. I am confining my attention to the bare principle, and I appeal to hon. Members on all sides not to confuse the progress and the development of this movement with the comparatively narrow and restricted principles which we are now discussing.
There is another point, and I want to put it plainly and candidly to the Committee. I daresay all hon. Members are familiar with the ideals of the pioneers. The first ideal was that they were to supply a commodity of the highest possible quality they could produce or obtain for their members. In the second place, they were to supply that commodity at the bedrock price for the benefit of the great mass of the working class population, though the co-operative movement has extended its appeal far beyond that class within the past 20 or 30 years. I am willing to admit, and I have said so here as a warm friend of co-operation, that the co-operative movement has to some extent brought this discussion on its own head by departure from those early ideals. They could have escaped this discussion, I think, if they had paid far less attention to an artificially inflated dividend and more attention to the supply of an article of the highest quality at the bedrock price. That is a criticism not only of opponents of the movement, but a criticism of its idealists and friends as well. These are two of the grounds which are very powerful in this Debate. They were represented in due course before the Royal Commission. They have occasioned a good deal of public discussion of this problem, and undeniably they have influenced the minds of the small traders in the community. They have been the cause of the agitation 2211 and the campaign in recent times to apply Income Tax, or some form of tax, to the surpluses resulting from the mutual trading of co-operative societies. Let me try to make it plain at the same time that I do not believe that private traders will be assisted to any appreciable extent either by a device of this kind or by any action they may adopt, as they think rightly, to penalise the co-operative cause, or at all events to place it in a position which they think it should occupy in the trade and commerce of our land.
In my own constituency—and all hon. Members have this experience—we have a very large number of small traders. I am willing to admit that along with many others I should never have been elected to this House without their support, and I say that for the express purpose of making it plain that we can have no cause whatever for driving these men out of the businesses or the industries which they carry on, but I have discussed this question of the application of the Corporation Profits Tax to any portion of the surplus of a co-operative society and of the application of Income Tax and of other taxes, and I have been greatly impressed by the views to which these men and women have given expression. Their expression of opinion is in part a criticism of the co-operative movement and its methods in Great Britain. There is no doubt that many of the co-operative societies have charged a range of prices which were calculated to bring a certain dividend. They have actually legislated in terms of artificially high prices, in many cases to produce 3s. 6d., or 3s. 8d., or 4s., in one case that I happen to be familiar with in Scotland, 4s. 4d. in the £. I think that is bad business for the great body of consumers, and I think it is economically unjust and wrong. That is my personal view, but I am only describing the system which these societies have adopted, and they have adopted it in many cases to bring that return mainly from the view of attracting to their membership the people who were still outside, using the dividend as a propaganda element in the campaign which they were carrying on. I do not think any critic of co-operation will seek to deny these hard facts, but how have these facts affected the mass of small traders in this country?
The small traders of Great Britain are exposed not merely to the danger or diffi- 2212 culty of the competition of the co-operative movement, but they are exposed to the growing competition of the great multiple shops. I see these small traders tending to perish between two great forces—the multiple shops on the one side, underselling them by the enormous quantities many of them sell, producing these articles and selling them at rates with which the individual man cannot compete; on the other side, the co-operative societies with their enormous membership, in the City of Edinburgh, with a population of 320,000, covering probably not less than 200,000 to 250,000 directly and indirectly. These are striking facts which confront every Member of this Committee. The question is, can these small traders—and they use this argument to a great extent in the discussion of this tax—survive? I do not want to say anything against them, because along with other hon. Members, I have the greatest respect for all their efforts, but I believe they will tend to be crushed out more and more between these two great forces. I think they are going to fall either as a result of the trusts or as a result of co-operation, but let us take their position at the moment. The co-operative societies are practically regulating prices for a considerable number of commodities and consumers in large parts of this country. The private traders say to me, "If we are going to compete, we must get a certain return on the trade we are carrying on, and if you do anything which is going to drive the co-operative movements by a curious paradox, back upon its initial ideals, cut its prices, sell the articles at bed-rock rates, and hand out next to no dividends at all, the propaganda element having gone, then you are not going merely to confer a great benefit on the consumers, but you are going to drive us out of all competition in the ordinary market places in Great Britain." They have told me time and again that they depend, curious as it may appear, on the somewhat artificially high prices which in many districts are charged in the co-operative movement. If you take them away, the private trader perishes, and they have said to me quite candidly that they are not parties to any scheme which is going to penalise co-operation. I think these are very striking facts which deserve being borne carefully in mind, in our analysis of the problem which is now before the Committee.
I want to turn now to the minority statement of the Royal Commission on the 2213 application of the Corporation Profits Tax to the surpluses of co-operative societies. My experience of signing that melancholy reservation has been so difficult and so trying that, as a young and inexperienced Member of this House, I have practically made up my mind never again to serve upon a Royal Commission, not because the work is not interesting and very valuable indeed, but because it is quite impossible to get two people to agree upon the reservations which you present for their consideration. What was the discussion as it appeared to us, the minority of the Royal Commission? Let us be perfectly clear in our minds as to the proposal of the Chancellor of the Exchequer. He himself has indicated this afternoon that he agrees with the minority that you cannot properly and equitably apply Income Tax at least to the surplus of co-operative societies. He has given that indication of his opinion, and I and others are very grateful for it, but in this reservation there was no suggestion at all of applying Income Tax as such to any portion of the results of the trading of the co-operative movement. That was discarded. It was held that the results of that trading were to flow from what we call the principle of mutuality—I do not like the phrase in many ways, but it is one which is generally adopted—and that in no case could that surplus be regarded as a profit in the ordinary sense of the term. Then let us rule out Income Tax.
As regards the co-operative societies, there is a surplus arising from their method of trading from year to year, and they divide that surplus into two sections, and it is really on the division of the surplus that probably the whole of this controversy this afternoon has arisen. A very large part of the surplus—I think I am correct in saying by far the greater part of the surplus—is returned to the members as a dividend on purchases at the end of the quarter, or whatever other accounting period the societies may adopt. Let me say, in passing, that there is a great deal to be borne in mind regarding that dividend, the discussion of which is really irrelevant at the moment, and I will not pursue it beyond stating that in Scotland —and I am told also in many parts of England—it really amounts to nothing more than the saving of the quarterly or half-yearly rent. I know that in many parts of Scotland, at all events, the divi- 2214 dend is lifted from the co-operative societies and transferred bodily to the house factors and house proprietors as payment of the half yearly or quarterly rent—I think, for the most part, a half-yearly transaction— and let me add that the house factors and house proprietors are among the warmest supporters of that method of co-operative trading. They have never concealed their admiration for the co-operative movement. They have said that, great as is the power of thrift in Scotland, they believe it is safeguarded by the co-operative practice, and that they get their rents in a way that otherwise they would not get them.
That is irrelevant and by the way, but we come to the other section of this surplus arising from the mutual trading, and that section is held by the societies for the time being for various purposes. The Chancellor of the Exchequer does not propose to apply Income Tax at the moment to that undistributed portion of the surplus, but he has selected, under perhaps the general tenor of feeling, as he regards it, in the Report of the Royal Commission, the undistributed portion of the surplus arising from the mutual trading, and he has said: "While at the moment to that I shall not apply Income Tax, I intend to apply the Corporation Profits Tax to it, and I do so for the reasons which I have just given to the House." I venture to say with very great respect that I am utterly unable to follow the logic of this proposition. Most hon. Members will agree—I do not think for a single moment it can be seriously disputed—that the two sides of that surplus, distributed as a dividend on purchases, undistributed and held over for certain temporary and other ends, are the result of one course of mutual trading and form one fund, and that if we are going to apply any tax to it at all, it is really an irrelevant consideration to take into account the destination of any portion of that fund. I cannot understand why a portion which is merely held temporarily, as to a large ext nt it is held temporarily, is selected for differential treatment as far as the application of the Corporation Profits Tax is concerned. Let me make it perfectly plain again in passing that I entirely agree with the Chancellor of the Exchequer when he indicated in his speech that far too great importance had been attached to this problem as a whole I agree with the authorities of the Inland 2215 Revenue and with other people who have said that from the point of view of revenue there is very little in those propositions. I am speaking entirely for myself, but I do not think it is wise to push that side of the argument; it is far better policy and it is far greater wisdom, it seems to me, to concentrate on the principle and to ask ourselves why we should seek to divide artificially a fund which is one fund, resulting from one course of trading, apply the Corporation Profits Tax to the undistributed portion of that surplus, and allow all the rest to go free because it is handed over as a dividend on purchases to the Members. That is the great objection, and it seems to me the lasting objection, to the proposal which the Chancellor of the Exchequer has adopted.
It has been repeatedly said, not only by the right hon. Gentleman, but by many hon. Members of this House, "Did you not say as the minority in the Royal Commission that if ever a Corporation Profits Tax were applied in Great Britain you would regard co-operative societies as a legitimate target for that imposition?" It is perfectly true that if you read five or seven lines of the reservation that would be the conclusion at which any ordinary mind would arrive, but we of the minority have repeatedly asked our friends and opponents to read the rest of the reservation, which goes on to point out that this surplus which arises from the trading of the co-operative societies is not a taxable profit in the ordinary or in the accepted sense of that term, and that you can never apply to that surplus any tax which is admittedly a tax on profits. That is the whole of the rest of our argument in that reservation, but while we can get people to read the first few lines of the reservation, we seem to be utterly unable to get anyone to read the rest of it, which is, a defence of the principle of mutuality and which goes entirely, in my view, to prove the strength and wisdom of the case which we submitted in our minority recommendations to the public. Hon. Members, both behind me and on the other side of the Committee, have indicated that we who signed that reservation have something for which to apologise, something to withdraw, something to regret. I, as one of the parties who signed it, have nothing to withdraw, 2216 nothing to alter at all, except perhaps to make the phraseology a little clearer than it is. The paragraph, to my mind, requires to be read as a whole, and a statement on the question of mutuality. On the question of the surpluses arising from the trading of the co-operative societies, look at the position to which we are committed if we accept the arguments of the Chancellor of the Exchequer. He has said that he intends to apply the Corporation Profits Tax to the undistributed portion of the surplus. The Royal Commission unanimously—there was no division of opinion at all on this point—said that that surplus is not a profit in the ordinary sense of the term. Now the Corporation Tax is, beyond all question, a tax upon profits. That is the beginning and end of our case. The Corporation Tax, being a tax upon profits, is to apply to something which the Royal Corn-mission said was not profits, and if 1 argued it, for a week I could not make it clearer than I have made it now.
May I respectfully draw the attention of hon. Members to what I regard as the social effect of this imposition? It may be said that, if it is only a small sum of money involved, it is negligible, but we attach the very greatest importance to the introduction of the principle at all. We have been reminded time and again in the Debate that co-operators, as such, enjoy no special privilege or exemption in the matter of Income Tax. They pay like other individuals. They have to pay on the non-mutual trading. They have to pay on five out of six heads of their enterprise. But this head is a question of surplus. They enjoy no special exemption. I always avoid that word in these discussions, because it is not exemption they enjoy at all. They have no privilege apart from other members of the community. They are entitled, if anything, to have regard paid to the thrift, to the enterprise which they have shown, and to the undoubted part which that movement has played in stabilising social and economic conditions in this country; but I do not press that argument upon the attention of the Committee. I invite hon. Members to look at what is done with the undistributed portion of the surplus. I know that the practice of co-operative societies varies. In many parts of the country one method is adopted: in other parts, other methods. 2217 But I am going to quote from the experience of one of the largest societies in Scotland, and tell hon. Members that the undistributed portion is used for four or five purposes, of which these are the chief. They have a contingency fund which, I admit, is different from the others. The other purposes are benevolent, including charity, which may be local or national. They provide for unemployment among their members. They devote a portion of the money to educational and other schemes, and, in short, they engage in various forms of public and social enterprise, which I have no hesitation in saying, would have to be undertaken by the State, at least to some extent, if it were not covered by the co-operative societies.
Now it is really upon that form of enterprise that you are going to lay your hands by the imposition of this tax. We cannot consider any Finance Bill we cannot consider any scheme of taxation in Great Britain without having very clearly in our minds what the effect will be. How will it affect thrift? How will it affect stability which we all desire in the social and economic structure? Are you going to do anything to penalise a section of people who have built up a great and legitimate organisation? I admit that the sum involved to-day is small, but the principle involved is of the very highest importance. I urge strongly that we hesitate before we embark upon this scheme. We should realise that we have here a cause which we are touching in very small part, but which, notwithstanding, is regarded as very important; which has done so much to safeguard the economic and social conditions of a large section of the 44,000,000 of our population; which claims no special right or exemptior today, but merely asks to be allowed to carry on its business, to pay its legit mate share of taxation, but not to be exposed to a penalty upon its enterprise and energy, which, it thinks with perfect justice, with no wrong to other sections of the community, could be avoided by the Finance Bill now under debate.
§ 6.0 P.M.
§ Mr. PRETYMANI think the Committee will agree that this particular question is one of the most thorny and difficult which could possibly be brought before us, and, if anybody can realise that to the full, it is those of us who heard the evidence for and against the 2218 application of Income Tax to the co-operative societies before the Royal Commission on Income Tax, the report and reservations on which have been a good deal referred to in this Debate. I listened with very great interest to the speeches which have been made on behalf of the co-operative societies, and, if I may venture to say so, able as those speeches were, they seemed to me to take rather too narrow a ground for a very wide question. The speeches so far have been mainly based on the question of the definition of profits, and whether a particular form of profit is or is not liable under existing law, or ought to be made liable under future law, to taxation either in Income Tax or in this Corporation Tax. I think we must take a wider view than that. In the first instance, I cannot agree with the remark made by my hon. Friend who spoke last, when he said he did not think that because of the growth of the co-operative society movement, and the very great extension of their trading operations—admitting entirely that these trading operations are mutual, still they are trading operations, and they cover an enormous area—any change in principle in the matter of taxation arose on that account. I differ from him there. I do think that when an organisation, however beneficent—and I do believe that the co-operative movement has been productive of enormous good—has not only grown enormously as a trading community, but has ambitions to monopolise trade—I do not think anybody regards those ambitions as illegitimate, and nobody desires to find fault with them for having them—but surely when they arrive at such a point as that, they must take some responsibility for bearing their share of the burdens which have to be borne by the whole community to maintain, to protect and to secure the structure of trade as a whole.
I, at any rate, listened most carefully to the speeches, but it was only in the last speech that I found an echo of the thoughts in my mind, although I think the hon. Member said it a little perfunctorily in the last phrase or two of his peroration, that the co-operative societies were perfectly willing to bear their fair share of taxation as a whole. If they start with that I am prepared to go a long way with them, but I have not seen much evidence of that in the speeches which 2219 have been made, and I do feel the ground would be very much cleared if that point could be settled. I heard with great interest the speech of the Chancellor of the Exchequer on that point, that it may be that this particular part of the surplus which it is proposed to tax may not be the most suitable subject to which this or any other tax should be applied. I quite agree with him. I do not think it is a suitable subject, for reasons which I will mention directly. He invited cooperative societies to confer with him as to finding some other and better way, and I, for one, made that very suggestion in a reservation which I and my hon. Friend behind me signed, and which is in the Report of the Royal Commission. Trading profit is so distinct under the Income Tax law, and this tax is so near Income Tax, that I cannot really see the practical difference. The Chancellor of the Exchequer was very strong in his argument that this was a totally different kind of tax from an Income Tax. I cannot agree with that. It may appear to be so. It is levied on a corporation instead of an individual, but who pays it? The individual shareholders pay it, and nobody else, and it is an Income Tax, and nothing else but an Income Tax. I hope when we come to the question of the tax itself we shall have something to say on what was brought before the Income Tax Commission.
I only mention that, because I do think that those who have been arguing in favour of co-operative societies have very strong ground when they say that the particular profit it is proposed to tax here is so near the same kind of profit on which they are not taxed that they really cannot distinguish any difference between them. Then again, as mentioned in our reservation, I agree entirely with what my hon. Friend opposite said, that when you are taxing a profit as a profit surely the question of whether it is a profit or not does not depend upon its definition but upon its origin. I was rather interested in listening to the hon. Member for Linlithgow (Mr. Kidd), who made such an able speech at the opening of this Debate. The whole burden of his speech was that this was only spending, and therefore could not be taxed. The hon. Member who supported him, and spoke after him, used the argument 2220 throughout his speech that this was nothing but saving, and therefore could not be taxed. I cannot see that saving and spending are identical, and, therefore, I think the argument of my hon. Friend the Member for Linlithgow was a good deal stronger than the argument about saving. But this is a profit, and also this seems to me to be such a weak point in this tax, or any tax, on the part of the surplus, that it is entirely within the discretion of the societies how much they allocate to bonuses and dividends, and how much to their reserve or any form of spending, and, therefore, if they choose to avoid this tax they can do so. But in avoiding the tax they may do a very serious injury to the work of their societies, because it is clearly desirable, in carrying on any trading association or society, that there should be proper reserves and that those reserves should be available to build up trade. When you put on a tax which discourages the creation of reserve and the accumulation of money for trading purposes, I think you are doing an unnecessary injury to a society, and out of proportion to any revenue which you are likely to have. This matter was argued at great length before the Royal Commission, and the conclusion to which I came quite definitely was that co-operative societies ought to pay their fair share of the general taxation of the country—quite clearly I came to that conclusion—in proportion to their ability to pay. That is as far as the hon. Member who purported to place a plan before the House went in his suggestion. The broad view was taken that Income Tax is not a suitable instrument for taxing mutual co-operative profits. Therefore, this Corporation Profits Tax, in my opinion, is not suitable. Therefore I do suggest again, with my reservation, that the proper method of dealing with the subject is that this Clause should be passed as the Chancellor of the Exchequer suggested, and between now and the Report stage that the right hon. Gentleman should confer with the representatives of co-operative societies on this matter, and, assuming that what my hon. Friend opposite said is a fact—and I am sure nobody contradicts it—that the co-operative societies are willing to pay their fair share, then they know their own business better than anyone else, and the conference should be fruitful. I 2221 agree with what was said yesterday. It is not for the taxpayer as a rule to suggest an alternative to the proposals of the Chancellor of the Exchequer. That is the business of the Chancellor. But in this case I do think that the business of the co-operative societies, being so peculiar in its character, and being managed so ably and on such particular lines, that it is rather more up to them than it would be to any ordinary part of the community, and they are so well organised that they can speak with one voice—up to them, I say, to try to suggest to the Chancellor some method by which either this tax or some analogous tax could be levied so that they may not be faced with the feeling which is throughout the country, that they are taking up a very large share of trade, and that they are not paying their fair share of taxation upon it.
Take what happened the other day. There was a large cake mill in the Midlands which was in private hands, and so paying a large share—that is an ordinary share—according to its profits, of Income Tax. That cake mill was purchased by the Wholesale Co-operative Society. It does the same work, the same business, receives just the same protection and privileges from the State, but it has ceased to contribute because it has been acquired by the co-operative societies.
§ Mr. A. M. SAMUELThat is the point!
§ Mr. PRETYMANThat surely cannot be right? The whole of this trouble really arises from the feeling, which must be recognised, it seems to me, by those who run the co-operative societies—and I hope they will recognise it—and the feeling is even amongst those who are well-wishers of friendly and co-operative societies—that they are not really paying their fair share of the national burden in proportion to the increase in their wealth and their operations. I do not believe the community for a moment wishes to dictate what tax they should pay. This particular tax may be unsuitable. I do not think the House of Commons—I certainly do not wish to force this or any other tax upon them against their will provided they will not say to us: "No, we simply will not pay this tax, but some time later we will pay some other tax." I always have a sort of feeling at the back of my mind that whenever tax is proposed after they will have an equal objection to it. I do 2222 earnestly beg of them to try and consider this matter from a wider standpoint. If this particular tax will not suit them let them between now and Report try to put forward something which will satisfy the community that they are fair dealing men and desire to pay their fair share. If they will do that I am quite sure the Chancellor of the Exchequer and hon. Members from all parts of the Committee will endeavour to meet their wishes in regard to this particular tax in consideration of their fair attitude on the general subject of taxation.
§ Mr. HAILWOODI rise to support the Chancellor of the Exchequer in the financial proposal of the Corporation Profits Tax. I have listened with a great deal of interest to the Mover and Seconder of the Amendment which seeks to eliminate the co-operative societies from the operations of this tax. It has been forced upon me by hon. Members who have recently spoken that they may know a good deal about the co-operative societies, but I think they know very little about the Amendments which stand in their name on the Paper. They have taken us over the whole field of Income Tax and applied it to ordinary trading from which co-operative societies are exempt, and have said very little really about the actual Corporation Profits Tax which the Chancellor of the Exchequer proposes. We have heard a good many phrases about the immutability of trading profits—that when made by co-operative societies they are not profit, but surplus. One thinks that it is about time that there was published a key to this phrasing in order to show how they differ from the person who dares to speak in his ordinary language about ordinary things.
It was said by the hon. Member for Linlithgow that the Members of co-operative societies were poor people, and that it was a great shame to tax the poor people. In a sentence or two later he said that it was a tax on thrift, and it was very wicked to tax thrifty people. I have yet to learn that thrifty people, and poor people are synonymous terms. One would have thought they were either poor or thrifty, but not the two together. To my mind co-operative society members are not poor people. They do not form the poorest part of the community. They may have started the co-operative movement from the thrift point of view, but to talk of them as poor people is 2223 quite erroneous. This tax is not a question of taxing income—which is another thing altogether. It is a tax that would fall on all traders whether they are or not limited liability companies, and who may be supplying goods to the poorest people in the community. The co-operative societies may be supplying goods to classes of people of the thrifty working-class people. The Mover and Seconder of this Amendment suggested that other people are better able than they to meet this tax. That seems to me to be totally unjust. The right hon. Gentleman (Mr. Pretyman) gave an instance to the House, and a very good one, a concrete example, of the operations of this tax and the injustice which accrues to the State by exempting any business that is under the control of co-operative societies. I could confirm the cake mill example from the city which I have the honour to represent—Manchester.
We have there a modern flour mill which was built, a matter of 12 or 14 years ago, with modern machinery. It was built by a firm of millers from Liverpool. It ran successfully for a few years; then it was sold to the Wholesale Cooperative Society. It has been run since by that society. I take it that the mill is turning out pretty much the same quantity of stuff as before, that it is receiving wheat from all parts of the globe, and that that wheat, coming across the ocean, requires the protection of the British Navy in order that it may safely arrive here. I fail, therefore, to comprehend why in the first few years of this mill's existence it should be subjected to a tax in order that. its raw material might have the protection of the British Navy, and why during the last few years, because it belonged to a co-operative society, it is exempt from this taxation. Under the Corporation Profits Tax, which the Chancellor proposes, there would, at any rate, be some attempt to deal fairly between the two classes of trading. It is quite a misnomer, and quite wrong, for the Mover and Seconder of the Amendment to argue as though this were intended to be a blow at co-operation. It is not so intended in any way, or to be a punitive tax, or to be a tax to restrict the progress of co-operation. It is simply a tax on all trading organisations, whether they be co-operative societies or limited liability 2224 companies. The Chancellor does not make any distinction in any shape or form, and I think that in the future there is a chance of this tax being accounted a much fairer form of tax than the Income Tax is at the present day. I hope to see it increased, and the Income Tax reduced.
§ Sir D. MACLEANThe subject, as many hon. Members have already stated, is one of very considerable difficulty. Variants of examples have been given by two or three recent speakers, and the last speaker said: "Look on the one hand and see private concerns paying Income Tax, and on the other hand the co-operative societies paying none." That is really the whole question—as to whether the one is trading with the general public, and the other is engaged in mutual trading under which, if they so desire, there may be no surplus at all. Illustrations of that kind are very attractive, but really do not get to the root of the matter which are we attempting to handle this afternoon. I followed with very great interest the speech of the Chancellor of the Exchequer. We all agree it was a very fair and frank statement of the case, and one such as we would expect from him. He made this perfectly clear—he had no desire to tax the surplus of the societies which hitherto had escaped or were exempt from Income Tax. "This," said he, "is an entirely new proposal by which I levy 5 per cent. on the entity and not on the individual." I think that is the way in which he expressed it.
See to what it leads us? How does the right hon. Gentleman find out the basis of this tax? He ascertains it only in one way, that is he gets at what the Bill calls the profits. The Bill does not talk about the surplus, but quite frankly talks about profits. Once that gets on the Statute Book as the basis on which you are going to levy a tax on co-operative societies, all wise men know what will follow. You are going to levy a tax on quite a different thing to what co-operative societies have been taxed in the past. An interesting fact was disclosed by the Chancellor of the Exchequer when he was asked whether the reserves in which these surpluses were to be invested included stock in trade and he said, "Yes, of course." I ask anybody who knows anything about co-operative societies what the effect of that must be. It is not as if the surplus had been invested in Government securities when the income 2225 bears the tax, but you are going to bring into the assessment the stock-in-trade.
See what is going to happen in co-operative societies. When they take stock they are going to take it with the knowledge that they are taking part of their stock-in-trade for the levy of a tax upon it. This has never happened before. One part of the surplus you are going to exempt, in fact you shrink with considerable indignation from the idea of it, and another part you are going to tax. In this matter of taxing, who are you going to deal with? What body of subjects are you going to irritate by your tax? You are going to set up an immense confusion and irritation and suspicion amongst 4,000,000 people in this country.
My next point is having gone to all this trouble, how much are you going to get of it? The Chancellor of the Exchequer does not expect to get more than £180,000 a year out of it, and no doubt these societies will adopt various legal methods and ways of avoiding the tax, and my opinion is that it is not likely to yield more than £100,000. Those are two practical points to which every Chancellor of the Exchequer always addresses himself when he levies a tax. He asks, in the first place, "What bother am I going to raise about it?" and in the second place, " When I have raised the bother, how much, am I going to get?" On both those grounds, in the financial result, this proposal is not worth imposing, and it will be a very disturbing factor amongst a large and important section of the subjects of this country. I have dealt with the proposal of the Government as I see it in this Bill, and as I know it from my own observations. I suggest to the Government that it is not worth while, because you will set up an agitation which you will not quell by the explanation of the Chancellor of the Exchequer. Every society will be reading this Clause when it passes into law, and they will say that the whole of this claim is a proposal to tax our profits.
The Clause uses the word "profits." Suppose I go down to my constituents or on to any other platform, and I say, "The Chancellor of the Exchequer says he does not propose to tax your profits," and then I start reading the Clause. Under those circumstances, I defy any hon. Member of this Committee, when addressing his constituents, to carry any 2226 single one of his audience with him in the explanation he will have to give as to the arguments used by the right hon. Gentleman in regard to this Clause, notwithstanding the fact that the Clause states that there is no taxation of co-operative surpluses. I come back to the point which I am urging upon the Chancellor, which is that it has not been made clear to my mind in regard to the differentiation which he set up, and if it can be made clear it is so fine a technical point that you will not get co-operators to understand it, and you will be setting up in the minds of a very large and important body of citizens, who are good citizens and who pay their taxes, a doubt and suspicion in regard to what they consider is the sheet anchor of their existence. You will be creating suspicion and distrust among them, and what do you expect to get at the end of it? After all the deductions and allowances, it will amount to a beggarly £100,000 for all this trouble. I suggest that if the right hon. Gentleman is going to levy a Corporation Tax, he had better devise some other way of dealing with it, because this is not the right way. Let him take it to avizandum, as they say in Scotland. The right hon. Gentleman said he was not bound by the method, and he stated that if you can suggest any other way whereby he could levy a Corporation Tax, he would like to be shown the method At any rate, I am sure this is the wrong way, and as far as my opinion is worth anything, I think this proposal might very well be withdrawn, and if it is not, I shall be compelled to vote for the Amendment.
§ Mr. CHAMBERLAINI do not rise for the purpose of continuing the arguments which I put before the Committee earlier in this Debate, but simply to make an appeal to the Committee. I think the case for and against has been very fairly and fully stated in the different speeches which have been made. The Committee is aware that, under some difficulty, the Government so arranged the discussion of the Budget business as to meet the convenience and wishes of different sections of the Committee. We have still a great number of very important questions, and in the general interests of business and in the interests of hon. Members who want to debate other subjects, I hope we shall now come to a 2227 decision on what is a very important, but, at the bottom, a simple issue.
§ Mr. MYERSI had a fairly good innings upon this matter during the Second Reading Debate, and a very definite conclusion has been arrived at for some time in my own mind as to what there is at the back of this proposal. I believe the House thoroughly understands what is proposed and what is intended when the tax is applied. In the first instance, it was a tax upon co-operative societies, and it afterwards became a question of a Corporation Tax being levied upon the whole of the surpluses of our co-operative societies, and now it has dwindled down to the Corporation Tax being applied to a very insignificant part of those particular surpluses. I have no doubt that as soon as this proposal finds its way on to the Statute Book, the agitation will continue until a further burden is put upon co-operative societies. This is the culminating point of a long and persistent agitation by those interests who feel that the co-operative movement is hostile to their development and progress. After all, what a contradiction this imposition upon the co-operative movement is upon all the pronouncements about thrift, self-reliance, and the other qualities that working-class movements should practice! The working-class population have been preached at by all sections of the community, and they have been told that they had their own salvation in their own hands and that they could work out their own destiny. They have been told that they had their economic emancipation in their own charge, and that if they only applied all those virtues, that could be very easily achieved.
The co-operative movement is the expression of the practice of many of those virtues which, in days gone by, it was urged the working-class movement of the country should exercise. There are many sections of people in the country who held that the working-class movement was incapable of working out its own emancipation to the extent it has been able to do through the co-operative movement. That movement has brought together the productive capacity of large sections of the population with consuming needs. It has harnessed its produc- 2228 tive energy with its productive and distributive capacity, and in that way has solved for itself a great problem, which one element in the community, at any rate, at one time thought it would not be able to do. Much has been said in respect of the mutuality of our co-operative societies. I do not propose to refer to that point. I want to deal with a matter which the Chancellor of the Ex-chequer gave expression to this afternoon. The right hon. Gentleman admitted that the co-operative societies of the country pay Income Tax under Schedule B on property and investments, and in various other directions. Roughly speaking, 90 per cent. of the members of the co-operative movement do not pay Income Tax at all as individuals. So obviously, if any Income Tax be put on the co-operative societies of the country, 90 per cent. of the members who are not entitled to pay at all are called upon to bear the burden. Instead of being subjected to a further imposition, the co-operative movement has a claim for the return of the Income Tax which these 90 per cent. pay indirectly. Again, the remaining 10 per cent. who do pay Income Tax as individuals, also pay it as co-operators. One section of the co-operative membership pay twice, while another section, which should not pay at all under the law, is called upon to pay once.
There is a difference between the cooperative societies and the trading organisations of the country which, I think, the Chancellor of the Exchequer has failed to realise. He ought to make a distinction between them, which he does not do. By no stretch of imagination can the co-operative movement be brought within the same category as the many trusts, syndicates and companies which exist. The trust, syndicate or company, with its thousand or more shareholders, goes into trade and trades with the community for the purpose of raising a certain amount of profit, which is to be dispersed and distributed among its shareholders—a small handful drawn from the community. The co-operative surplus, with its profit made in a well-defined circumscribed area, is drawn from the members of the co-operative society themselves. It is not drawn from any outside source, and every penny of the profit so realised finds its way eventually back in the channel from which it 2229 was drawn, whereas the profit of the trust, or syndicate, or company, is drawn from the community, and finds its way into the pockets of a very limited number of individuals. This proposal also breaks down when it makes the declaration that one section of the cooperative surplus should come under this imposition, and the other section should be permitted to go free.
I have said that this tax is the culminating point of a long and persistent agitation on behalf of certain trading interests in the country. I do not think that the objection to it comes from the small traders in the community, because they have benefited by the unsound policy of our co-operative movement. When the co-operative movement is out for dividends, it rushes up prices to an artificial standard, and it is generally these high prices which enable the small trader who lives in close proximity to a co-operative store to make better prices and profits for himself. To the extent to which our co-operative movement is beginning to discover what an unsound and uneconomic policy is pursued on these lines, it is bringing, and will continue to bring, the hostility of the small trader. I think the main hostility to our co-operative movement in these days comes from another element of society altogether. The co-operative movement was all right while it was going in for dividends and for distributing profits. It then bought its flour and its coal from the trusts and syndicates, and thereby helped to make their profits. It did that so long as it specialised chiefly in the distributing trade, and made its profits, and the field of private enterprise was quite willing to leave the co-operative movement alone, and look upon it as a good customer which paid the taxes of the community out of the profits it levied. But the co-operative movement has been learning the lesson of experience, and instead of purchasing from trusts and syndicates, it is beginning to produce for itself. There it cuts across the private trader on the one side and interferes with the trusts and syndicates on the other. If any evidence be required in support of that position, I will read two lines only from a Report of the Royal Commission—
By the great and rapid growth of the co-operative movement in recent years, a number of individual trading competitors are adversely affected by its progress.2230 There is the real hostility to our co-operative movement. I am not complaining about the attitude of the Chancellor of the Exchequer, nor am I complaining about this particular tax upon the co-operative societies. I believe it is a step in our ordinary economic development. If this tax did not fall on co-operative societies something else which would hamper their progress would be put in its place. I conscientiously believe that the economic development of trusts and syndicates in this country has reached such a stage that it has to challenge anything which comes up against it. While the small private trader grumbles at the co-operative movement, the multiple shop owner and the trust and the syndicate come to Parliament and ask that steps shall be taken to hamper the development and retard the progress of our co-operative movement. That, I believe, to be behind this proposal. I hold the opinion that if this proposal had not come something of a similar character would have been put in its place. Sixty-six thousand joint stock companies with a paid-up capital of £2,700,000,000 existed in this country before the War. These are the people who are up against the co-operative movement. I would ask any hon. Member what is the next stage of the economic development of the trusts and syndicates which have hold of the community by the throat on the one side and hold the Government on the other. They have exploited the necessities of the people. They have exploited the requirements of the State. Even the discussion which we had yesterday in regard to the Excess Profits Duty is evidence that the trusts and syndicates in this country were not prepared to accept ordinary profits. If they had not made excessive profits the tax would not have been necessary. On the other hand, the co-operative movement has protected the community. It has mad & considerably less profit on its turnover during the War and since than it did in pre-War days. The average dividend in pre-War days was 3s. in the pound. At the present time it is nearer 1s. 6d. in the pound. The co-operative movement of the country has nearly 4,000,000 members. They represent nearly one-third of the entire population who pay a duty of a shilling in the pound on tea, a 2¾d. duty on sugar, and taxes on tobacco, and so on.
§ The CHAIRMANThese remarks are rather too general, and I would suggest to the hon. Member that he should keep more to the particular Amendment which is under consideration.
§ Mr. MYERSThe co-operative movement in this country will demand as soon as this tax is imposed upon it, as undoubtedly it will be—and it will be one of the best lessons it could get—it will demand that those avenues of taxation
§ which are not working-class savings but are the accumulated wealth of the country shall be the field for taxation in the future.
§ Mr. CHAMBERLAINrose in his place, and claimed to move, "That the Question be now put."
§ Question put, "That the Question be now put."
§ The Committee divided: Ayes, 289: Noes, 73.
2233| Division No. 204.] | AYES. | [6.45 p.m. |
| Adair, Rear-Admiral Thomas B. S. | Davies, Thomas (Cirencester) | Jackson, Lieut.-Colonel Hon. F. S. |
| Ainsworth, Captain Charles | Davies, Sir William H. (Bristol, S.) | James, Lieut.-Colonel Hon. Cuthbert |
| Armitage, Robert | Davison, Sir W. H. (Kensington, S.) | Jephcott, A. R. |
| Ashley, Colonel Wilfrid W. | Dewhurst, Lieut.-Commander Harry | Jesson, C. |
| Astor, Viscountess | Donald, Thompson | Jodrell, Neville Paul |
| Atkey, A. R. | Duncannon, Viscount | Johnson, Sir Stanley |
| Baldwin, Rt. Hon. Stanley | Edwards, Major J. (Aberavon) | Johnstone, Joseph |
| Balfour, George (Hampstead) | Elliot, Capt. Walter E. (Lanark) | Jones, G. W. H. (Stoke Newington) |
| Balfour, Sir R. (Glasgow, Partick) | Elveden, Viscount | Jones, Henry Haydn (Merioneth) |
| Banbury, Rt. Hon. Sir Frederick G. | Eyres-Monsell, Commander B. M. | Jones, William Kennedy (Hornsey) |
| Banner, Sir John S. Harmood- | Falle, Major Sir Bertram G. | Kellaway, Rt. Hon. Fredk. George |
| Barker, Major Robert H. | Fell, Sir Arthur | Kidd, James |
| Barnes, Rt. Hon. G. (Glas., Gorbals) | Fildes, Henry | Kiley, James D. |
| Barrand, A. R. | Fisher, Rt. Hon. Herbert A. L. | King, Commander Henry Douglas |
| Barrie, Rt. Hon. H. T. (Lon'derry, N.) | FitzRoy, Captain Hon. E. A. | Kinloch-Cooke, Sir Clement |
| Barton, Sir William (Oldham) | Ford, Patrick Johnston | Knight, Major E. A. (Kidderminster) |
| Beckett, Hon. Gervase | Foreman, Henry | Knights, Capt. H. N. (C'berwell, N.) |
| Bell, Lieut.-Col. W. C. H. (Devizes) | Forrest, Walter | Lane-Fox, G. R. |
| Bellairs, Commander Carlyon W. | Foxcroft, Captain Charles Talbot | Law, Rt. Hon. A. B. (Glasgow, C.) |
| Benn, Sir A. S. (Plymouth, Drake) | Gange, E. Stanley | Lewis, Rt. Hon. J. H. (Univ., Wales) |
| Benn, Capt. Sir I. H., Bart.(Gr'nw'h) | Ganzoni, Captain Francis John C. | Lewis, T. A. (Glam., Pontypridd) |
| Bentinck, Lord Henry Cavendish | Gardner, Ernest | Lister, Sir R. Ashton |
| Bigland, Alfred | Gibbs, Colonel George Abraham | Lloyd, George Butler |
| Bird, Sir Alfred | Gilbert, James Daniel | Lloyd-Greame, Major Sir P. |
| Blair, Reginald | Gilmour, Lieut.-Colonel John | Locker-Lampson, Com. O.(H'tingd'n) |
| Blake, Sir Francis Douglas | Glyn, Major Ralph | Lorden, John William |
| Borwick, Major G. O. | Gould, James C. | Lort-Williams, J. |
| Boscawen, Rt. Hon. Sir A. Griffith- | Goulding, Rt. Hon. Sir Edward A. | Loseby, Captain C. E. |
| Brassey, Major H. L. C. | Greenwood, William (Stockport) | Lowe, Sir Francis William |
| Bridgeman, William Clive | Greer, Harry | Lyle, C. E. Leonard |
| Briggs, Harold | Gregory, Holman | M'Curdy, Charles Albert |
| Brittain, Sir Harry | Greig, Colonel James William | M'Donald, Dr. Bouverie F. P. |
| Broad, Thomas Tucker | Guinness, Lieut.-Col. Hon. W. E. | Macdonald, Rt. Hon. John Murray |
| Brown, Captain D. C. | Gwynne, Rupert S. | M'Guffin, Samuel |
| Bruton, Sir James | Hacking, Captain Douglas H. | Mackinder, Sir H. J. (Camlachie) |
| Buchanan, Lieut.-Colonel A. L. H. | Hailwood, Augustine | McLaren, Hon. H. D. (Leicester) |
| Bull, Rt. Hon. Sir William James | Hall, Lieut.-Col. Sir F. (Dulwich) | McLaren, Robert (Lanark, Northern) |
| Burn, Col. C. R. (Devon, Torquay) | Hambro, Captain Angus Valdemar | Macleod, J. Mackintosh |
| Butcher, Sir John George | Hanson, Sir Charles Augustin | Macnamara, Rt. Hon. Dr. T. J. |
| Campbell, J. D. C. | Harmsworth, C. B. (Bedford, Luton) | McNeill, Ronald (Kent, Canterbury) |
| Carew, Charles Robert S. | Harris, Sir Henry Percy | Macpherson, Rt. Hon. James I. |
| Carr, W. Theodore | Haslam, Lewis | Marriott, John Arthur Ransome |
| Carter, R. A. D. (Man., Withington) | Henderson, Major V. L. (Tradeston) | Martin, Captain A. E. |
| Casey, T. W. | Hennessy, Major J. R. G. | Matthews, David |
| Cautley, Henry S. | Henry, Denis S. (Londonderry, S.) | Mitchell, William Lane |
| Cayzer, Major Herbert Robin | Herbert, Hon. A. (Somerset, Yeovil) | Molson, Major John Elsdale |
| Cecil, Rt. Hon. Evelyn (Birm., Aston) | Herbert, Dennis (Hertford, Watford) | Montagu, Rt. Hon. E. S. |
| Cecil, Rt. Hon. Lord R. (Hitchin) | Hewart, Rt. Hon. Sir Gordon | Moore, Major-General Sir Newton J. |
| Chamberlain, Rt. Hn. J. A.(Birm.,W.) | Hickman, Brig.-Gen. Thomas E. | Moreing, Captain Algernon H. |
| Chamberlain, N. (Birm., Ladywood) | Hills, Major John Waller | Morison, Rt. Hon. Thomas Brash |
| Clough, Robert | Hinds, John | Morrison, Hugh |
| Coats, Sir Stuart | Hoare, Lieut.-Colonel Sir S. J. G. | Mosley, Oswald |
| Cobb, Sir Cyril | Hohler, Gerald Fitzroy | Mount, William Arthur |
| Cohen, Major J. Brunel | Holbrook, Sir Arthur Richard | Murray, Lieut.-Colonel A. (Aberdeen) |
| Colfox, Major Wm. Phillips | Hood, Joseph | Murray, John (Leeds, West) |
| Colvin, Brig.-General Richard Beale | Hope, Sir H.(Stirling & Cl'ckm'nn'n,W.) | Murray, Major William (Dumfries) |
| Conway, Sir W. Martin | Hope, James F. (Sheffield, Central) | Nall, Major Joseph |
| Coote, Colin Reith (Isle of Ely) | Hope, Lt.-Col. Sir J. A. (Midlothian) | Neal, Arthur |
| Cope, Major W. (Llandaff and Barry) | Hopkins, John W. W. | Newman, Colonel J. R. P. (Finchley) |
| Cory, Sir C. J. (Cornwall, St. Ives) | Hopkinson, A. (Lancaster, Mossley) | Newman, Sir R. H. S. D. L. (Exeter) |
| Curzon, Commander Viscount | Hotchkin, Captain Stafford Vere | Newton, Major Harry Kottingham |
| Dalziel, Sir D. (Lambeth, Brixton) | Hume-Williams, Sir W. Ellis | Nicholson, William G. (Petersfield) |
| Davidson, Major-General Sir J. H. | Hunter, General Sir A. (Lancaster) | Norman, Major Rt. Hon. Sir Henry |
| Davies, Alfred Thomas (Lincoln) | Hurd, Percy A. | Norris, Colonel Sir Henry G. |
| Davies, Sir Joseph (Chester, Crewe) | Illingworth, Rt. Hon. A. H. | Oman, Sir Charles William C. |
| Ormsby-Gore, Captain Hon. W. | Roundell, Colonel R. F. | Tryon, Major George Clement |
| Palmer, Major Godfrey Mark | Royds, Lieut.-Colonel Edmond | Waddington, R. |
| Palmer, Brigadier-General G. L. | Rutherford, Colonel Sir J. (Darwen) | Walton, J. (York, W. R., Don Valley) |
| Pearce, Sir William | Rutherford, Sir W. W. (Edge Hill) | Ward, Col. J. (Stoke-upon-Trent) |
| Pease, Rt. Hon. Herbert Pike | Samuel, A. M. (Surrey, Farnham) | Ward, Col. L. (Kingston-upon-Hull) |
| Peel, Col. Hn. S. (Uxbridge, Mddx.) | Sanders, Colonel Sir Robert A. | Waring, Major Walter |
| Pennefather, De Fonblanque | Scott, Leslie (Liverpool Exchange) | Weston, Colonel John W. |
| Perkins, Walter Frank | Seddon, J. A. | Wheler, Lieut.-Colonel C. H. |
| Philipps, Gen. Sir I. (Southampton) | Shaw, William T. (Forfar) | White, Lieut.-Col. G. D. (Southport) |
| Pollock, Sir Ernest M. | Smith, Harold (Warrington) | Whitla, Sir William |
| Preston, W. R. | Smithers, Sir Alfred W. | Williams, Lt.-Com. C. (Tavistock) |
| Prescott, Major W. H. | Sprot, Colonel Sir Alexander | Williams, Lt.-Col. Sir R. (Banbury) |
| Pretyman, Rt. Hon. Ernest G. | Stanier, Captain Sir Beville | Williamson, Rt. Hon. Sir Archibald |
| Pulley, Charles Thornton | Stanley, Major H. G. (Preston) | Willoughby, Lieut.-Col. Hon. Claud |
| Purchase, H. G. | Starkey, Captain John R. | Wills, Lieut.-Colonel Sir Gilbert |
| Rae, H. Norman | Steel, Major S. Strang | Wilson, Capt. A. S. (Holderness) |
| Ramsden, G. T. | Stephenson, Colonel H. K. | Wilson, Daniel M. (Down, West) |
| Raper, A. Baldwin | Stevens, Marshall | Winterton, Major Earl |
| Ratcliffe, Henry Butler | Stewart, Gershom | Wolmer, Viscount |
| Rawlinson, John Frederick Peel | Strauss, Edward Anthony | Wood, Hon. Edward F. L. (Ripon) |
| Rees, Capt. J. Tudor- (Barnstaple) | Sturrock, J. Leng | Wood, Sir J. (Stalybridge and Hyde) |
| Remer, J. R. | Surtees, Brigadier-General H. C. | Wood, Major S. Hill- (High Peak) |
| Remnant, Sir James | Sutherland, Sir William | Woolcock, William James U. |
| Renwick, George | Sykes, Sir Charles (Huddersfield) | Yate, Colonel Charles Edward |
| Richardson, Sir Albion (Camberwell) | Talbot, G. A. (Hemel Hempstead) | Yeo, Sir Alfred William |
| Richardson, Alexander (Gravesend) | Taylor, J. | Young, Lieut.-Com. E. H.(Norwich) |
| Roberts, Rt. Hon. G. H. (Norwich) | Terrell, George (Wilts, Chippenham) | Young, Sir Frederick W. (Swindon) |
| Roberts, Sir S. (Sheffield, Ecclesall) | Terrell, Captain R. (Oxford, Henley) | Younger, Sir George |
| Robinson, S. (Brecon and Radnor) | Thomas, Sir Robert J. (Wrexham) | |
| Rodger, A. K. | Thomson, F. C. (Aberdeen, South) | TELLERS FOR THE AYES.— |
| Rogers, Sir Hallewell | Thomson, Sir W. Mitchell- (Maryhill) | Lord E. Talbot and Mr. Dudley |
| Rose, Frank H. | Thorpe, Captain John Henry | Ward. |
| Rothschild, Lionel de | Townley, Maximilian G. | |
| NOES. | ||
| Acland, Rt. Hon. F. D. | Hayward, Major Evan | Sitch, Charles H. |
| Bagley, Captain E. Ashton | Hirst, G. H. | Spencer, George A. |
| Barnes, Major H. (Newcastle, E.) | Hodge, Rt. Hon. John | Spoor, B. G. |
| Bell, James (Lancaster, Ormskirk) | Hogge, James Myles | Stanton, Charles B. |
| Benn, Captain Wedgwood (Leith) | Holmes, J. Stanley | Sugden, W. H. |
| Bowerman, Rt. Hon. Charles W. | Irving, Dan | Thomas, Rt. Hon. James H. (Derby) |
| Bowyer, Captain G. E. W. | Lambert, Rt. Hon. George | Thomas, Brig.-Gen. Sir O. (Anglesey) |
| Bramsdon, Sir Thomas | Lawson, John J. | Thomson, T. (Middlesbrough, West) |
| Briant, Frank | Lunn, William | Thorne, G. R. (Wolverhampton, E.) |
| Bromfield, William | Maclean, Rt. Hon. Sir D. (Midlothian) | Tootill, Robert |
| Brown, James (Ayr and Bute) | MacVeagh, Jeremiah | Wallace, J. |
| Cape, Thomas | Mills, John Edmund | Walsh, Stephen (Lancaster, Ince) |
| Carter, W. (Nottingham, Mansfield) | Morgan, Major D. Watts | Wedgwood, Colonel J. C. |
| Edwards, C. (Monmouth, Bedwellty) | Murray, Dr. D. (Inverness & Ross) | White, Charles F. (Derby, Western) |
| Entwistle, Major C. F. | Myers, Thomas | Wignall, James |
| Galbraith, Samuel | O'Grady, Captain James | Wilkie, Alexander |
| Glanville, Harold James | Parry, Lieut.-Colonel Thomas Henry | Williams, Aneurin (Durham, Consett) |
| Graham, R. (Nelson and Colne) | Raffan, Peter Wilson | Wilson, Rt. Hon. J. W. (Stourbridge) |
| Graham, W. (Edinburgh, Central) | Rendall, Atheistan | Wilson, W. Tyson (Westhoughton) |
| Griffiths, T. (Monmouth, Pontypool) | Richardson, R. (Houghton-le-Spring) | Wintringham, T. |
| Grundy, T. W. | Robertson, John | Wood, Major M. M. (Aberdeen, C.) |
| Guest, J. (York, W. R., Hemsworth) | Royce, William Stapleton | |
| Hall, F. (York, W. R., Normanton) | Scott, A. M. (Glasgow, Bridgeton) | TELLERS FOR THE NOES.— |
| Hallas, Eldred | Sexton, James | Mr. Waterson and Mr. Neil Maclean. |
| Hancock, John George | Shaw, Thomas (Preston) | |
| Hayday, Arthur | Short, Alfred (Wednesbury) |
§ Question put accordingly, "That the words
§ '(a)Where the profits are profits or surplus arising from the trading with its own members of a society registered under the
2234§ Industrial and Provident Societies Acts no tax shall be charged,' be there inserted."
§ The Committee divided: Ayes, 140; Noes, 218.
2235| Division No. 205.] | AYES. | [6.55 p.m. |
| Acland, Rt. Hon. F. D. | Bell, James (Lancaster, Ormskirk) | Brown, Captain D. C. |
| Adair, Rear-Admiral Thomas B. S. | Benn, Sir A. S. (Plymouth, Drake) | Brown, James (Ayr and Bute) |
| Adkins, Sir W. Ryland D. | Benn, Captain Wedgwood (Leith) | Cape, Thomas |
| Asquith, Rt. Hon. Herbert Henry | Bentinck, Lord Henry Cavendish | Carter, W. (Nottingham, Mansfield) |
| Astor, Viscountess | Blake, Sir Francis Douglas | Casey, T. W. |
| Bagley, Captain E. Ashton | Bowerman, Rt. Hon. Charles W. | Clough, Robert |
| Barker, Major Robert H. | Bowyer, Captain G. E. W. | Coote, Colin Reith (Isle of Ely) |
| Barnes, Rt. Hon. G. (Glas., Gorbals) | Bramsdon, Sir Thomas | Davies, Sir Joseph (Chester, Crewe) |
| Barnes, Major H. (Newcastle, E.) | Briant, Frank | Denniss, Edmund R. B. (Oldham) |
| Barrand, A. R. | Broad, Thomas Tucker | Donald, Thompson |
| Beckett, Hon. Gervase | Bromfield, William | Edwards, C. (Monmouth, Bedwellty) |
| Edwards, Major J. (Aberavon) | Lunn, William | Sitch, Charles H. |
| Elliot, Capt. Walter E. (Lanark) | Macdonald, Rt. Hon. John Murray | Spencer, George A. |
| Entwistle, Major C. F. | M'Guffin, Samuel | Spoor, B. C. |
| Ford, Patrick Johnston | McLaren, Robert (Lanark, Northern) | Sprot, Colonel Sir Alexander |
| Galbraith, Samuel | Maclean, Neil (Glasgow, Govan) | Stanton, Charles B. |
| Glanville, Harold James | Maclean, Rt. Hon. Sir D. (Midlothian) | Stevens, Marshall |
| Glyn, Major Ralph | MacVeagh, Jeremiah | Sugden, W. H. |
| Graham, R. (Nelson and Colne) | Mallalieu, F. W. | Taylor, J. |
| Graham, W. (Edinburgh, Central) | Martin, Captain A. E. | Thomas, Rt. Hon. James H. (Derby) |
| Griffiths, T. (Monmouth, Pontypool) | Mills, John Edmund | Thomas, Brig.-Gen. Sir O. (Anglesey) |
| Grundy, T. W. | Morgan, Major D. Watts | Thomson, F. C. (Aberdeen, South) |
| Guest, J. (York, W. R., Hemsworth) | Mosley, Oswald | Thomson, T. (Middlesbrough, West) |
| Hall, F. (York, W. R., Normanton) | Murray, Lieut.-Colonel A. (Aberdeen) | Thorne, G. R. (Wolverhampton, E.) |
| Hallas, Eldred | Murray, Dr. D. (Inverness & Ross) | Tootill, Robert |
| Hambro, Captain Angus Valdemar | Myers, Thomas | Waddington, R. |
| Hancock, John George | Newbould, Alfred Ernest | Wallace, J. |
| Hayday, Arthur | Newman, Sir R. H. S. D. L. (Exeter) | Walsh, Stephen (Lancaster, Ince) |
| Hayward, Major Evan | O'Grady, Captain James | Walton, J. (York, W. R., Don Valley) |
| Henderson, Major V. L. (Tradeston) | Ormsby-Gore, Captain Hon. W. | Ward, Col. J. (Stoke-upon-Trent) |
| Herbert, Hon. A. (Somerset, Yeovil) | Palmer, Major Godfrey Mark | Waring, Major Walter |
| Hills, Major John Waller | Parry, Lieut.-Colonel Thomas Henry | Waterson, A. E. |
| Hirst, G. H. | Rae, H. Norman | Wedgwood, Colonel J. C. |
| Hodge, Rt. Hon. John | Raffan, Peter Wilson | Wheler, Lieut.-Colonel C. H. |
| Hogge, James Myles | Ramsden, G. T. | White, Charles F. (Derby, Western) |
| Hohler, Gerald Fitzroy | Rees, Capt. J. Tudor- (Barnstaple) | Wignall, James |
| Holmes, J. Stanley | Remer, J. R. | Wilkie, Alexander |
| Hopkinson, A. (Lancaster, Mossley) | Richardson, R. (Houghton-le-Spring) | Williams, Aneurin (Durham, Consett) |
| Hurd, Percy A. | Roberts, Rt. Hon. G. H. (Norwich) | Wilson, Rt. Hon. J. W. (Stourbridge) |
| Irving, Dan | Robertson, John | Wilson, W. Tyson (Westhoughton) |
| Jephcott, A. R. | Rodger, A. K. | Wood, Major M. M. (Aberdeen, C.) |
| Johnstone, Joseph | Rose, Frank H. | Wood, Major S. Hill- (High Peak) |
| Kinloch-Cooke, Sir Clement | Royce, William Stapleton | Younger, Sir George |
| Lambert, Rt. Hon. George | Scott, A. M. (Glasgow, Bridgeton) | |
| Lawson, John J. | Sexton, James | |
| Lewis, T. A. (Glam., Pontypridd) | Shaw, Thomas (Preston) | TELLERS FOR THE AYES.— |
| Lloyd, George Butler | Shaw, William T. (Forfar) | Mr. Kidd and Sir John Hope. |
| Loseby, Captain C. E. | Short, Alfred (Wednesbury) | |
| NOES. | ||
| Ainsworth, Captain Charles | Davies, Thomas (Cirencester) | Hope, James F. (Sheffield, Central) |
| Archer-Shee, Lieut.-Colonel Martin | Davies, Sir William H. (Bristol, S.) | Hopkins, John W. W. |
| Armitage, Robert | Davison, Sir W. H. (Kensington, S.) | Horne, Sir R. S. (Glasgow, Hillhead) |
| Ashley, Colonel Wilfrid W. | Dawes, James Arthur | Hotchkin, Captain Stafford Vere |
| Atkey, A. R. | Dewhurst, Lieut.-Commander Harry | Hume-Williams, Sir W Ellis |
| Baldwin, Rt. Hon. Stanley | Duncannon, Viscount | Hunter, General Sir A. (Lancaster) |
| Balfour, Sir R. (Glasgow, Partick) | Elveden, Viscount | Hurst, Lieut.- Colonel Gerald B. |
| Banbury, Rt. Hon. Sir Frederick G. | Eyres-Monsell, Commander B. M. | Illingworth, Rt. Hon. A. H. |
| Banner, Sir John S. Harmood- | Falle, Major Sir Bertram G. | Jackson, Lieut.-Colonel Hon. F. S. |
| Barrie, Rt. Hon. H. T. (Lon'derry, N.) | Fell, Sir Arthur | James, Lieut.-Colonel Hon. Cuthbert |
| Bell, Lieut.-Col. W. C. H. (Devizes) | Fildes, Henry | Jodrell, Neville Paul |
| Bellairs, Commander Carlyon W. | Fisher, Rt. Hon. Herbert A. L. | Johnson, Sir Stanley |
| Benn, Capt. Sir I. H., Bart.(Gr'nw'h) | Foreman, Henry | Jones, Sir Edgar R. (Merthyr Tydvil) |
| Bigland, Alfred | Forestier-Walker, L. | Jones, Henry Haydn (Merioneth) |
| Blair, Reginald | Forrest, Walter | Jones, William Kennedy (Hornsey) |
| Borwick, Major G. O. | Foxcroft, Captain Charles Talbot | Kellaway, Rt. Hon. Fredk. George |
| Boscawen, Rt. Hon. Sir A. Griffith- | Ganzoni, Captain Francis John C. | Kiley, James D. |
| Brassey, Major H. L. C. | Gardner, Ernest | King, Commander Henry Douglas |
| Bridgeman, William Clive | Gibbs, Colonel George Abraham | Knight, Major E. A. (Kidderminster) |
| Briggs, Harold | Gilbert, James Daniel | Knights, Capt. H. N. (C'berwell, N.) |
| Bruton, Sir James | Gilmour, Lieut.-Colonel John | Lane-Fox, G. R. |
| Buchanan, Lieut.-Colonel A. L. H. | Gould, James C. | Law, Rt. Hon. A. B. (Glasgow, C.) |
| Bull, Rt. Hon. Sir William James | Goulding, Rt. Hon. Sir Edward A. | Lewis, Rt. Hon. J. H. (Univ., Wales) |
| Burn, Col. C. R. (Devon, Torquay) | Grayson, Lieut.-Colonel Sir Henry | Lister, Sir R. Ashton |
| Butcher, Sir John George | Greenwood, William (Stockport) | Lloyd-Greame, Major Sir P. |
| Campbell, J. D. C. | Greer, Harry | Locker-Lampson, Com. O. (H'tingd'n) |
| Carew, Charles Robert S. | Greig, Colonel James William | Lorden, John William |
| Carr, W. Theodore | Guinness, Lieut.-Col. Hon. W. E. | Lort-Williams, J. |
| Carter, R. A. D. (Man., Withington) | Gwynne, Rupert S. | Lowe, Sir Francis William |
| Cautley, Henry S. | Hacking, Captain Douglas H. | Lyle, C. E. Leonard |
| Cayzer, Major Herbert Robin | Hallwood, Augustine | M'Curdy, Charles Albert |
| Cecil, Rt. Hon. Evelyn (Birm., Aston) | Hall, Lieut.-Col. Sir F. (Dulwich) | M'Donald, Dr. Bouverie F. P. |
| Chamberlain, Rt. Hn. J. A. (Birm. W.) | Hanson, Sir Charles Augustin | Mackinder, Sir H. J. (Camlachie) |
| Chamberlain, N. (Birm., Ladywood) | Harmsworth, C. B. (Bedford, Luton) | McLaren, Hon. H. D. (Leicester) |
| Coats, Sir Stuart | Harris, Sir Henry Percy | Macleod, J. Mackintosh |
| Cobb, Sir Cyril | Haslam, Lewis | Macnamara, Rt. Hon. Dr. T. J. |
| Cohen, Major J. Brunel | Hennessy, Major J. R. G. | McNeill, Ronald (Kent, Canterbury) |
| Colfox, Major Wm. Phillips | Henry, Denis S. (Londonderry, S.) | Macpherson, Rt. Hon. James I. |
| Collins, Sir G. P. (Greenock) | Herbert, Dennis (Hertford, Watford) | Marriott, John Arthur Ransome |
| Colvin, Brig.-General Richard Beale | Hewart, Rt. Hon. Sir Gordon | Matthews, David |
| Conway, Sir W. Martin | Hickman, Brig.-Gen. Thomas E. | Mitchell, William Lane |
| Cory, Sir C. J. (Cornwall, St. Ives) | Hinds, John | Molson, Major John Elsdale |
| Curzon, Commander Viscount | Hoare, Lieut.-Colonel Sir S. J. G. | Montagu, Rt. Hon. E. S. |
| Dalziel, Sir D. (Lambeth, Brixton) | Holbrook, Sir Arthur Richard | Moore, Major-General Sir Newton J. |
| Davidson, Major-General Sir J. H. | Hood, Joseph | Moreing, Captain Algernon H. |
| Morison, Rt. Hon. Thomas Brash | Richardson, Alexander (Gravesend) | Thomas, Sir Robert J. (Wrexham) |
| Morrison, Hugh | Roberts, Sir S. (Sheffield, Ecclesall) | Thomson, Sir W. Mitchell- (Maryhill) |
| Mount, William Arthur | Robinson, S. (Brecon and Radnor) | Thorpe, Captain John Henry |
| Murray, John (Leeds, West) | Rogers, Sir Hallewell | Townley, Maximilian G. |
| Nall, Major Joseph | Rothschild, Lionel de | Tryon, Major George Clement |
| Neal, Arthur | Roundell, Colonel R. F. | Ward, Col. L. (Kingston-upon-Hull) |
| Newman, Colonel J. R. P. (Finchley) | Royden, Sir Thomas | Weston, Colonel John W. |
| Newton, Major Harry Kottingham | Royds, Lieut.-Colonel Edmund | White, Lieut.-Col. G. D. (Southport) |
| Nicholson, William G. (Petersfield) | Rutherford, Colonel Sir J. (Darwen) | Whitla, Sir William |
| Norman, Major Rt. Hon. Sir Henry | Rutherford, Sir W. W. (Edge Hill) | Williams, Lt.-Com. C. (Tavistock) |
| Norris Colonel Sir Henry G. | Samuel, A. M. (Surrey, Farnham) | Williams, Lt.-Col. Sir R. (Banbury) |
| Oman, Sir Charles William C. | Sanders, Colonel Sir Robert A. | Williamson, Rt. Hon. Sir Archibald |
| Palmer, Brigadier-General G. L. | Scott, Leslie (Liverpool Exchange) | Willoughby, Lieut.-Col. Hon. Claud |
| Pearce, Sir William | Seddon, J. A. | Wills, Lieut.-Colonel Sir Gilbert |
| Pease, Rt. Hon. Herbert Pike | Smith, Harold (Warrington) | Wilson, Capt. A. S. (Holderness) |
| Peel, Col. Hon. S. (Uxbridge, Mddx.) | Smithers, Sir Alfred W. | Wilson, Daniel M. (Down, West) |
| Pennefather, De Fonblanque | Stanier, Captain Sir Beville | Winterton, Major Earl |
| Perkins, Walter Frank | Stanley, Major H. G. (Preston) | Wolmer, Viscount |
| Pollock, Sir Ernest M. | Starkey, Captain John R. | Wood, Hon. Edward F. L. (Ripon) |
| Preston, W. R. | Stephenson, Colonel H. K. | Wood, Sir J. (Stalybridge & Hyde) |
| Prescott, Major W. H. | Stewart, Gershom | Woolcock, William James U. |
| Pretyman, Rt. Hon. Ernest G. | Strauss, Edward Anthony | Yate, Colonel Charles Edward |
| Pulley, Charles Thornton | Sturrock, J. Leng | Yeo, Sir Alfred William |
| Purchase, H. G. | Surtees, Brigadier-General H. C. | Young, Lieut.-Com. E. H. (Norwich) |
| Raper, A. Baldwin | Sutherland, Sir William | Young, Sir Frederick W. (Swindon) |
| Rawlinson, John Frederick Peel | Sykes, Sir Charles (Huddersfield) | |
| Remnant, Sir James | Talbot, G. A. (Hemel Hempstead) | TELLERS FOR THE NOES.— |
| Renwick, George | Terrell, George (Wilts, Chippenham) | Lord E. Talbot and Mr. Dudley |
| Richardson, Sir Albion (Camberwell) | Terrell, Captain R. (Oxford, Henley) | Ward. |
§ 7.0 P.M.
§ Mr. A. WILLIAMSI beg to move in Sub-section (1, a) to leave out the words "hundred pounds thereof" ["no tax shall be charged on the first five hundred pounds thereof"], and to insert instead thereof the words "per cent. payable as dividend or interest on the share capital of the company."
Important as was the Amendment which we have just dealt with, I think my Amendment deals with a wider field. The Bill as introduced does an injustice to the small man who has an investment which brings him in a small rate of interest, and I seek to have it altered so that the small man whose investment brings him in less than 5 per cent. shall not pay this Corporation Tax. The Chancellor proposes in Section 44 (a) that a corporation shall be allowed to deduct from its profits £500 before it estimates the sum on which it has to pay Corporation Tax. This idea of allowing a corporation to deduct a fixed sum seems to me to be founded on a false analogy. We allow an individual before he pays his Income Tax to deduct £150, or whatever the sum may be, from his income. That was done on the ground that that sum is in a sense a living wage, what he needs to live upon before he should begin to pay direct taxation to the State. But to allow a corporation to deduct £500 from its profits before it begins to pay Corporation Tax is not really analogous, for that £500 is not one man's property, on which he has to live, but is divisible among perhaps two 2238 men, or perhaps 5,000 men. If the Government does not deduct it, it is divisible amongst all the shareholders. Now, the essential fact, to my mind, is that the individual will pay the Corporation Tax and not the corporation. The corporation is, after all, an abstraction, and when we are taxing the corporation, it is not the corporation which pays but the individual, because in the last resort the tax comes down upon the individual. It is unjust for a man who has got a small rate of interest on his investment, under 5 per cent., to have to pay practically a new Income Tax, called Corporation Tax, unless he has an income which is above the Income Tax limit,
I would point out that a small man already pays heavily to the State in indirect taxation. If that indirect taxation were got rid of, as many of us hope it will be some day, then the whole question of making the average citizen pay something directly towards the upkeep of the State would, of course, take on a different aspect and might have to be reconsidered. The Chancellor, however, puts this tax upon the small man who has got a small rate of interest and who has an income below the Income Tax level, and I think that is a hardship. I would like to distinguish between two cases, first where the small man's investment is in an ordinary business, and secondly where it is in one of those fairly numerous businesses where the interest 2239 or dividend on capital is strictly limited in amount, usually limited to 5 per cent. In the cases where investment is in an ordinary limited liability company, I think the operation of this £500 limit will be most unequal, and if it is unequal then it is unjust, for the old maxim is that "Equality is Equity." Take a business with £10,000 capital. An investor in that business is given an exemption until he has got a full 5 per cent. on his investment. If the business has £20,000 capital he is only given exemption up to 2½ per cent. interest, although his holding may be the same, an insignificant sum, perhaps £50 or £100, bringing him in a trifling sum as interest each year. If the business in which he happens to be an investor has a capital of £100,000 then he is only allowed an exemption of one-half per cent. If, on the other hand, it is a very small business, say, with only £2,000 capital, he is allowed exemption up to and until he has received 25 per cent. upon his investment. That is most unequal, and therefore most unjust as between one investor and another.
I turn to the cases where the dividend on capital is strictly limited, for the most part limited to 5 per cent. There the shareholder is hit unless the company is earning actually more than 5 per cent. If it is earning less than 5 per cent., then what I have said before applies, and the shareholder is hit. If, on the other hand, the company is earning a little more than 5 per cent., the shareholder gets his 5 per cent., but other people are affected in different ways. I am thinking of a company which has done a very great work in England in developing, town planning, and improvements in housing. In that case it is strictly laid down that the share holder is only to get 5 per cent. if it is earned. As a matter of fact he has never got 5 per cent. hitherto, and until the 5 per cent. is earned he will, of course, suffer loss under this tax. When the 5 per cent. is earned it is the town and the inhabitants of the town which will lose, because under the constitution of that company they are the residuaries of any profit above 5 per cent. Then I would like to take public utility societies for building cottages. In their case the rents are regulated not to make a profit, in the strict sense of the word, but to make 5 per cent. on the capital, or, since rates of interest have gone up so, it may 2240 be 6 per cent. in some of the newer ones. If you are going to tax the profit earned then it is quite evident that those societies in order to live must charge the tenant a rather higher rent. They cannot exist unless they pay the wages of the capital they use, or at any rate they cannot grow, and therefore to meet this tax they must put on a small increase in the rents of the tenant.
Then you come to the position of cooperative societies. We have argued the general question of co-operative societies, and whether the surplus is profit or not, and I am not going over that ground again. In those societies the shareholder gets his 5 per cent. and no more, and when this tax has been imposed the shareholder will still get his 5 per cent. It is the members as consumers who will be hit. Of course, members are both shareholders and consumers, but their interests as members are very different from their interests as consumers. A comparatively large shareholder may be a small consumer, and the other way about, and the effect of this tax will be that the members as consumers will be hit, and will either have to pay higher prices or accept a lower dividend upon their purchases. Seeing that probably 90 out of every 100 of the members of those societies have incomes below the Income Tax limit, it is going to be a great hardship upon them that they have to pay this Corporation Tax on an investment which only brings them in the very moderate return of 5 per cent. I am not, however, putting the case of co-operative investors here: I am putting the case of small investors of all kinds receiving a small rate of interest. I suggest that the Clause as it stands at present would be an injustice to them. To adopt my Amendment would make it just.
I would like the Committee to consider for two or three minutes the objections which I imagine will be brought against my Amendment. The first of these is, I recognise, of a substantial character. It is that you would have to protect yourself against watered capital. If you are going to allow 5 per cent. it must be 5 per cent. on the real share capital, and not something created fictitiously by an exchange of certificates, or something of that kind. I should be glad to see words introduced which would deal with this; for instance, at the end of my Amendment, 2241 after the words "share capital of the company," might be added, "paid up in cash," or "allotted for consideration." Or, again, the Inland Revenue authority might be able to suggest some other words to guard against that difficulty. I do not think the matter is vital. Then comes the second reason which may be urged against my Amendment. I suppose the Chancellor of the Exchequer will use it. It is that my proposal would mean a loss to the Revenue. I do not think that is a sound argument. I think we have to consider in all these cases whether a tax is just or not. The Chancellor may remember the story of a young American woman who was selling a watch in a shop in which she was serving, and was asking an exorbitant price for it. When asked why she was asking such a high price, she said, "Well, I guess the people want the money." That seems to me to be an argument which we often hear, but it is not a conclusive argument, and though the Chancellor of the Exchequer wants the money he ought to get it in a way which is as just as possible. If he wants to get more money out of this Corporation Tax, then I suggest that a higher rate of profit on taxed dividends would be a better way than by levying it upon small dividends, which, in many cases, belong to small people. When the Chancellor of the Exchequer introduced his Budget, if I understood him aright, he hinted that this Corporation Tax might develop into something like a substitute for the Excess Profits Duty. I submit for his consideration that my Amendment is entirely along that line of thought. It seeks to exempt the dividends of the small investor who cannot really afford to pay and, incidentally no doubt, paves the way to putting a bigger burden upon the larger investors. Above all, I use the argument of justice in support of my Amendment: justice to the small investor, whose investments bring in a small rate of interest. For these reasons I hope the Chancellor of the Exchequer will accept this Amendment, which I commend to him as being entirely along the line of his own thought when he introduced his Budget.
§ Mr. CHAMBERLAINThe proposal of the hon. Member, as I think he himself sees, and as a greater portion of his speech plainly shows, is a proposal for an entirely different tax from the one which I have suggested and which is embodied in this 2242 Bill. The idea of the tax in the Bill is a flat rate of tax on the profits of these companies, to be treated by these companies as one of the expenses for which they have to provide as a condition of carrying on. It is true that we propose an exemption of the first£500 profit made in an accounting period of 12 months. That is to eliminate the cases where there are very small profits, and where therefore there would be hardly any tax, and the return would not be commensurate with the trouble given to the collector and to the taxpayer. The hon. Member who moved the Amendment suggests that that basis should be abandoned, and that instead I should tax profits in excess of a certain standard, and he goes on to suggest, what, of course, he cannot put in his Amendment by the rules of the House, that we should graduate the tax on the profits in excess of that standard, in order, by taking a larger sum from a higher proportion of profits paid on the higher rate, to produce sufficient from that sum to compensate us for the loss made by adopting the proposal embodied in his Amendment If we carried out that policy it would not be a Corporation Tax at all. It would be a tax on business profits in excess of a certain standard, graduated according to the percentage of profit borne to capital in a business. That is a proposal which I have always thought to be well worthy of consideration. It is one which the Government worked out in considerable. detail last year as a possible alternative to the Excess Profits Duty, but it is not one that would be universally accepted—as I have good reason to know—as a satisfactory alternative, and it is a wholly different tax from the one now proposed to the Committee. As the Amendment is drawn it is open to the objection—which the hon. Member himself foresaw—that it puts a premium on watering your capital so as to make your capital such an amount that your profits do not exceed the tax. free 5 per cent. The hon. Member suggests that we might meet that by the words he suggested. Suppose those words were effective for that purpose, they would still leave the difference between a business which have been re-capitalised the day before the tax came into operation, and a business that was to be re-capitalised the day after the tax came into operation.
§ Mr. A. WILLIAMSindicated dissent.
§ Mr. CHAMBERLAINOh, yes, certainly that is so. I think the hon. Gentleman suggested the words, "Paid up in cash" or "Allotted for consideration." Take the same capital, the same return, and so on. A business is sold to a new purchaser; they pay cash for it, they pay for the goodwill. In other words, the goodwill is capitalised, and thereupon their capital is repaid by cash received or by the cash paid by the succeeding owners. It may become twice, thrice, or four times that of the capital which exists in the other case. The hon. Member's words would certainly be effective for his own purpose, but to take the Amendment as it stands would be to destroy this tax without being able to produce a tax which would be an ideally fair one. If such a tax is ever to be proposed in this House it needs much more careful elaboration, and cannot be done by a small Amendment to a Clause dealing with an entirely different proposal. It would have to be a Section of the Bill itself. Therefore I fear I must resist this proposal and other similar proposals on the Amendment Paper, although no doubt some of them will not now be moved.
§ Mr. HOLMESI am not surprised that the Chancellor of the Exchequer has refused this Amendment, and I think he is quite right to do so as it stands, but I would like to make a suggestion with regard to it. In the first place, with regard to capital, the Chancellor of the Exchequer referred to the question of watered capital. I think that could be easily got over. Every business has got its capital fixed by the Excess Profits Duty rules. No watering of capital could take place there. No existing company has been able to increase its capital since 1914, except by paying in fresh money, or by leaving its profits undrawn. There would be no difficulty whatever in getting over that point by putting in the Excess Profits Duty capital.
§ Mr. CHAMBERLAINSurely that would not guard against the effect of recapitalisation—the sale of existing companies and recapitalisation.
§ Mr. HOLMESIf the right hon. Gentleman would consult his authorities at Somerset House he will find they will not recognise any capital of a company where that capital is goodwill alone. I think the mistake which the Mover of this Amendment made was in trying to give exemp- 2244 tion from the Corporation Tax of 5 per cent. on the capital of any company, because where a company makes 15 or 20 per cent. there is no necessity at all to give that company an exemption of 5 per cent. What I think the Chancellor of the Exchequer might do would be to say that, where a company on its capital does not make more than 5 per cent., it should be free from the Corporation Profits Tax. The Chancellor of the Exchequer has already limited the amount that any company should pay. He says that the tax shall not exceed a certain amount. Let him also say that, if the total amount of profits in any one accounting period of a year does not exceed 5 per cent. on the capital as computed under the Excess Profits Duty rules, no Corporation Tax shall be payable. That means that in a case of a business that is making 5 per cent. the profits received by the shareholders would not be reduced below 5 per cent. by the Corporation Profits Tax. I think the Amendment is unreasonable as it stands.
§ Mr. CHAMBERLAINThe hon. Member is under a misapprehension. I have verified it by a reference to authorities on the subject. If you want to adopt the basis which he suggests you have to go through the whole machinery of ascertaining what the capital is. That has been the great objection that the industrial community has raised to any proposal for a tax on the lines suggested by the hon. Member.
Mr. MacCALLUM SCOTTI do not know whether the right hon. Gentleman proposes to move the Closure on this discussion. He has recently introduced the principles of moving the Closure. I do not think it has generally been done, unless for the purpose of expediting business, and I hope he will not again resort to it. He has pointed out that if this Amendment were carried the effect it would have upon the tax would be that it would no longer be a Corporation Tax, but would become some other kind of tax. I think it would become a kind of Excess Profits Tax, with a datum line of 5 per cent. If the right hon. Gentleman objects to the Amendment on the ground that it would longer be a Corporation Tax, I think he will be bound to recognise that the same objection applies to the proposal which is contained in his own Bill. It is not a tax levied on all corporations. It is a tax levied on pro- 2245 fits, and only on those corporations which make a profit. A Corporation Tax is one which is levied upon corporations, and which represents some contribution which they make to the State for the privilege which is accorded to them of trading as limited companies, whether they make a profit or not. The tax which the right hon. Gentleman has proposed is an Income Tax limited to certain incomes, and an Income Tax which is not subject to the ordinary abatements and exemptions granted to ordinary Income Tax. I think that is what my hon. Friend (Mr. Williams) has in mind in moving this Amendment. He desires to make some provision for the case of the small man with a small income who secures some exemptions and some abatements from Income Tax, but under the Income Tax which is proposed in this Clause does not secure any exemption or abatement It is an effort to meet that case. I do not think it really does meet it. It does not meet it adequately. So far as the two proposals are concerned, that made by the right hon. Gentleman and my hon. Friend's Amendment, it is really a case of six of one and half-a-dozen of the other. The Amendment is liable to some special objections. The machinery would be more difficult, and the opportunities for evasion would be more frequent. It would be well in theory, and it sounds a little more fair, but it would be a much more difficult tax to enforce and apply, and although I sympathise with the ground on which I conceive it to be moved, I regret that it is not one which I could support. There are other matters referring to the proposal itself, but it would be a much more convenient occasion to raise them when we come to the question that the Clause stand part.
§ The CHAIRMANI should like to make a suggestion to the Committee. It is clear that the present Amendment does not really raise the issue that hon. Members desire to get at. On the other hand, if it is debated and negatived, I shall be bound to hold that it will shut out some subsequent Amendments. Would it not be better, if agreeable to the hon. Member, to pass from this Amendment and come on to Amendments which raise the issue rather more specifically?
Mr. MacCALLUM SCOTTIf my hon. Friend wishes to take a vote, might I suggest that it might be taken in the form that these words be inserted later 2246 in the Sub-section, and that would not cut out the subsequent Amendment?
§ Mr. G. BALFOURIf the Amendment is taken now, I should desire to speak to the Amendment later on on the Paper. I think this Amendment raises the principle and the later Amendment includes the principle which is involved in this Amendment, so the whole principle involved in this Amendment could be taken also as included in the principle in my Amendment.
§ The CHAIRMANThat is a point that occurred to me. It was the hon. Member's Amendment that I was referring to. It is not open to some of the objections involved in the present one, and I was anxious, if I could, to protect it.
§ Sir D. MACLEANIt would assist the Committee very much if you, Sir, would indicate which of the subsequent Amendments, in your judgment, raises the question in a better form than the one we are now discussing.
§ The CHAIRMANSupposing this Amendment be withdrawn, I hardly think the Amendment next following raises the very practical point. After that, I propose to call the hon. Member for Yarmouth, then the hon. Member (Mr. Balfour) to leave out the word "-actually," and the one next following in the name of the hon. Member for North East Derbyshire. In fact, all the next five or six Amendments raise really business points which might be considered.
§ Mr. WILLIAMSI have no desire to stand between hon. Members and the decision of the Committee on particular Amendments, and it is quite evident that the Government is not going to accept my Amendment. I wish to say that I did not intend, in putting this forward, to put forward an entirely different substitute for the right hon. Gentleman's tax. I suggested that I thought he had something of that kind in his mind, and my Amendment might be a step in that direction. I only intended to offer it as an abatement from the tax in a different form. After what you and other hon. Members have said, I ask leave to withdraw.
§ Amendment, by leave, withdrawn.
2247§ Sir A. FELLI beg to move, in Subsection (1, b), leave out the word "ten" ["represented by ten per cent."] and to insert instead thereof the word "five."
I shall have to go a little more broadly into the question of this and state, what I believe is not generally known, what the nature of the tax is. It is a tax of 5 per cent., or 1s. in the £, on the profits of all companies—not only limited, but statutory companies. It will rise by various stages up to 2s. in the £ according as the company or corporation has debenture and preference shares ranking in front of the ordinary shares The tax will fall entirely on the ordinary shares and it will rise in proportion to the amount the ordinary shares bear to the total capital of the company. If the ordinary shares represent about a half and the debenture and preference shares represent the other half of the capital, as there is 1s. on the whole of the return of that capital, as it is not taken off the debenture or preference shares, the whole of it is taken from the ordinary shareholders. It would amount then to 2s. in the £ and it is limited by this Subsection to 2s. in the £. I heard the other day of a company which had only one-fifth of its capital in ordinary shares and the other four-fifths was in debenture and preference shares. It is a large, well known and very profitable company. The ordinary shares in that case will bear the whole of this Corporation Tax, and if it was not limited by this Clause they would pay a tax of 5s. or 6s., and when that was deducted they would have to pay 6s. Income Tax, so they would pay about 11s. in the —. I suggest that the Clause should be altered and that it should be made a flat rate of 5 per cent. and not 2s. or 1s. 6d. or some other varying sum which it will be under the Bill as it stands. For instance, when you are buying shares in a company you will have to ask whether the tax will be 1s., or 1s. 6d., or 2s., and the broker will have to find out the best way he can how much debenture and preference shares there are in front of the ordinary shares. In one case he will say there are no debentures in front of it, like an ordinary rubber company, and the Corporation Tax will only be is. in the £. In another case he will say it will be 2s. in the £, and with Income Tax 2248 that will be a very serious thing, and it will very materially affect all companies.
The Joint Stock Acts of Great Britain have done more to assist trade and business in the last 50 years than any other Act of Parliament that has ever been passed and those Acts have formed a model for similar Acts to control or regulate the business of companies throughout the English-speaking world. They are adopted in practically all the Colonies, and now we are going to a totally different tax, that tax having proved so successful and having worked so well and under it English trade having grown up as it has and developed the whole world, and we are now going to put on an extra tax which will, I believe, in the future most materially hamper trade. The ordinary shareholder is the one man whom the Government should encourage to put his money into enterprise. He is the man who has built up our trade everywhere, not the debenture holder. He has found the money which has started all the enterprises which have built up the British Empire. The debenture holders can take care of themselves; they are only creditors. If such a tax as this is put upon the ordinary shareholders alone the future of our British limited liability companies will be very seriously affected. This is class legislation. Two people who have both invested in a company, and who may be neighbours, pay in the one case 6s. in the £ Income Tax, and in the other 8s. in the £, because they have taken a different kind of stock in the company, one preference or debenture stock and the other ordinary stock. It is quite wrong that in the one case a man should pay 6s. and in the other 8s. I do not think it has been understood what this really means. I remember hearing the Chancellor of the Duchy of Lancaster at one time saying in this House that you cannot tax the man with red hair any more than you tax the man with black hair, but that we must tax all alike. You are not taxing all alike in this case. You are taxing one man more than another man in the ways I have indicated.
It was pointed out by a previous speaker that this tax means an immense hardship upon people of moderate means, who will not be able to get any abatement. There are many people in this country who are drawing small incomes from railway shares, incomes of £200 a year or so, which have been left to them by their parents, and they are living on 2249 these incomes. Now this tax comes along, and they will have to pay an Income Tax of £20 out of their £200, quite apart from the ordinary Income Tax of 6s. in the £, which, of course, they will be able to get back. The £20 they will not be able to get back. It seems to me that this tax was put forward as a kind of substitute for the extra Excess Profits Duty, and that if the extra 20 per cent. Excess Profits Duty was not to be put on, this tax would act as a sort of substitute for it. I believe it was suggested with the idea of catching people who are avoiding Super-tax. The Treasury are perfectly able, if they wish, to catch people who are avoiding Super-tax, and it seems to me absurd that, in order to catch that small class of people who are trying to avoid Super-tax, they should tax an enormous volume of shareholders in our public utility companies and in our railway companies, electric light undertakings and waterworks to the extent of from 1s. to 2s. in the £, solely because a few people may have escaped Super-tax in private limited companies in which they own all the stock. There must be some different justification given before we can pass such a new tax as this, which will materially interfere with enterprise.
There will be many concerns in England which will transfer their head offices from London to the Colonies or to the countries where they are doing their business if this tax is persisted in. I refer particularly to a large number of railway companies in the River Plate, representing hundreds of millions of capital belonging to English shareholders. I have examined a good many of these companies, and if the ordinary shares are to be taxed an additional 2s. in the 2, this extra Income Tax will undoubtedly have the effect of causing them to transfer their head office elsewhere. I cannot imagine that all these great concerns can continue to stay in London and pay a double tax, which brings their tax up to 8s. in the £. It is not in the interests of this country that we should force these companies to transfer their head offices from London to the countries where they are doing their business. I could inform the Chancellor of the Exchequer of some companies that will do so; they will be obliged to do it because they cannot pay the extra 2s. tax. If this tax is to be 2250 imposed, I suggest that the right hon. Gentleman should make it a fixed tax of not more than 1s. He would then do something to meet the position, but if there is to be an indefinite tax of from 1s. to 2s. hanging over the ordinary shareholder, it will make his position intolerable. If the tax was fixed at 1s., I suppose it would have to be endured; the shareholders would then realise that, instead of getting 20s., they would get 19s., and they would also have to pay their 6s. tax.
§ Mr. RONALD McNEILLOn a point of Order, Mr. Whitley. When my hon. Friend opposite withdrew the last Amendment, he did so because you said that there was an Amendment lower down on the Paper which raised the same question in a wider form. I understood that my hon. Friend (Sir A. Fell) was going to move the Amendment in his name which raised the same point, namely, whether or not the £500 of exempted capital is sufficient, but when he rose he said he was not going to move that Amendment, and he passed on to a totally different part of the Clause, dealing with an entirely different matter. Is there any Amendment to be moved which will raise the point in question? I should have risen to address you on the Amendment of my hon. Friend opposite if I had not understood that my hon. Friend (Sir A. Fell) was going to raise it in his Amendment.
§ The CHAIRMANI indicated that the Amendment of the hon. Member for Hampstead (Mr. G. Balfour) raised it in a better form, namely, that it should be 6 per cent. instead of 5 per cent.
§ 8.0 P.M.
§ Mr. CHAMBERLAINI should have felt more impressed by the doleful prognostications of my hon. Friend (Sir A. Fell) if I had not heard them on every Budget, or nearly every Budget, since I have sat in this House, on every occasion when there has been necessity for increasing taxation. I recognise that as you raise the burden of taxation pro tanto you do increase the danger that enterprise may be removed elsewhere, if the burdens elsewhere are not also rife. That is only one of the considerations which affect the domicile or place of management of businesses. The advantages of London are so great that I am not as much alarmed as my hon. Friend. I hope and believe that his very gloomy prognostications are mistaken, 2251 and so I am certain are his fancy accounts of the interviews which he or others will have with their brokers as to the exact effect of this proposal before they purchase shares. I suggest that he need not consult his broker for that purpose. If he will look at the market quotations he will see the effect on the value of the shares. My hon. Friend misconceives the whole purpose and scheme of the tax. I despair of convincing him, as I have dealt with this matter more than once. What I say passes off his mind like water off a duck's back. It may be the fault of the water in this case. I must not blame my hon. Friend unnecessarily, but I rather despair of making clearer to him than I have done what is, in my opinion, the misconception under which he labours. Though I cannot accept my hon. Friend's gloomy views, I am prepared to go some way to meet the case which he has in mind.
Perhaps it will be for the convenience of the Committee if I very briefly indicate now the Amendments which I think are germane to the discussion which my hon. Friend has initiated. In the first place, there is an Amendment on the Paper in the name of the hon. Member for North-East Derbyshire (Mr. Holmes), in paragraph (b), to leave out the words "being shares which do not confer on the holders thereof any right to participate in profits beyond the right to receive dividends at the fixed rate," and to insert instead thereof the words "(so far as the dividend paid thereon is at a fixed rate)." I am prepared to accept that. It gives to that portion of the dividend on such shares, which is a fixed dividend, the same terms as to fixed payments on debentures or other forms of shares. But there is a wider issue. My hon. Friend is specially concerned with the case of public utility companies, including in that term railways. A good many Members have shown special interest in these cases, and I have considered them as carefully as I can. I do not believe that if something in the nature of the Corporation Tax remains a permanent part of our system, that if it is approved by Parliament and accepted by the country, it would be possible to exclude those companies permanently from its scope. At the same time, I recognise that their position at the present time is a very peculiar one. They cannot adjust themselves to a new 2252 business expense thrown upon them, and that is what this tax is. It is not a deduction from the dividend of the individual shareholder, but an additional business expense put upon the business. They cannot adjust themselves to that in the same way that a business can which is not subject to the conditions under which they are working. These companies are, nearly all of them at the present time, either the subject of legislation now before the House, or of proposed legislation which is to be brought before the House as soon as possible, intending to enable them to adjust their circumstances to the new conditions which the War has produced, or, in other words, to adjust their charges and the terms of their business to the increased cost which has come about in consequence of the War. In these circumstances I have come to the conclusion, after the best consideration I could give to the matter, that it would not be fair or right—I could not justify it in Debate—to bring the Act into immediate operation as regards these companies. If, as I hope, it will meet the views of those hon. Members who have put down these numerous Amendments, and who are interested in this matter, I shall be prepared to bring up words on Report—I am sorry to say I have not the words ready now—to suspend the operation of the tax in respect of that class of com pany for a period of three years, by which time conditions will be settled, the legislation contemplated will have been passed, and Parliament can then review the position in the light of the then existing circumstances and of any changes that have been made. I hope I have not trespassed beyond the limits of order, but I thought that it was for the convenience of the Committee that I should make a statement of this kind, because it does not respond exactly to the Amendment of my hon. Friend. I am sure, from his previous speech, as from his speech to-day, that it pertains to what he had in mind and what is in the mind of a great number of people.
§ Mr. DENNIS HERBERTWill the right hon. Gentleman indicate what course he proposes to adopt with regard to the next Amendment?
§ Mr. CHAMBERLAINI could not accept that.
§ Sir J. BUTCHERThe statutory undertakings to which the right hon. Gentleman has referred are very grateful for the concessions which he has indicated, not only in the interests of the companies themselves and their shareholders, but also because they think it a very great advantage to the public to have exemption from this taxation, at any rate, for three years. If this concession is accepted, I understand it will mean this, that for three years there should be no Corporation or Profits Tax charged upon these public utility companies, but the right hon. Gentleman does not expect those interested in this particular question to pledge ourselves that at the end of three years we shall accept this tax and it would be open to us and every other Member of the House then to give our views either in favour of this tax or against it.
§ Mr. CHAMBERLAINI thought I had made it quite plain that it would give an opportunity to the House to review the position of these companies in relation to the tax in the light of the then existing circumstances and of the legislation that might be passed in the meantime.
§ Mr. McNEILLOn a point of Order. May I ask whether an hon. Member who may have any observations at all to make on the statement which my right hon. Friend has just made can make them now? Strictly speaking, they seem entirely out of Order on the present Amendment. The right hon. Gentleman forecasted what he was going to do in reference to further Amendments. Should a discussion on the matter take place now or should we wait until he intimates the particular Amendment he is going to accept?
§ The CHAIRMANIf we dispose of the Amendment of the hon. Member now we can come on to the actual spot.
§ Mr. BIGLANDAs far as I understand, the Chancellor intends to write off all cash, that is income raised by any debenture or any preference shares, and tax us to the full on the ordinary shares. That seems to me to be quite unfair. I know many companies where all the shares are ordinary shares, and they count on getting a big overdraft from the bank instead of debenture bonds. In the one case the shareholders will pay 2s in the pound. In the other case they will only pay a shilling in the pound. [HON. MEMBERS: "No!"] I am a business man and I 2254 am talking about what I know. Many bankers will give an open credit—I am not talking of permanent loan on property, but of the ordinary current loan that is often given. This is a very unfair tax, and I would put it to the Chancellor that he has not quite weighed up the arguments of my hon. Friend the Member for Yarmouth, because it is manifestly unfair that certain companies should pay 2s. in the pound and others only 1s. I think it important that my hon. Friend should push this to a Division because the other matter that comes up is not really germane to this particular Amendment. It comes up much better with regard to the Amendment of the hon. Member for Hampstead (Mr. Balfour). In reference to what the Chancellor said about stockbrokers in my opinion the confusion on the Stock Exchange will be dire. Every broker will have to find out and say to his client, "This is a 5 per cent., and you have to pay 2s. in the pound on any dividends you get from that corporation." It will work great confusion. It is a bad tax in any case, but if it is passed at all certainly it should be a straight flat 5 per cent. on the ordinary shares of every company.
Mr. MacCALLUM SCOTTMy right hon. Friend has, I think, drawn a red herring across the trail of this Amendment. The references which he gave to future Amendments, especially with regard to statutory companies, have no relation to this Amendment and do not affect it and do not grant the relief which is desired. I hope that my hon. Friend will persist in his Amendment and go to a Division. My right hon. Friend referred to his speech as a doleful speech, but he omitted altogether to reply to the main gravamen of it. The case that appeals to me most strongly is this. We are dealing here under the name of Corporation Tax with a tax of 1s. in the pound on certain incomes, a tax without any abatement or exemption on small incomes. Under this Clause it is proposed that in certain conditions this tax of 1s. in the pound may be doubled. That is that very small investors, who may only have an income of £100 a year, and who would get complete exemption from ordinary Income Tax, do not get any exemption from this Income Tax of 2s. in the pound. That is a hardship, and should be resented all the more because it is thought to come in the way of a 2255 snare. It does not come in the shape of An honest, straightforward proposal, but tomes by a side wind, and people as a whole will not generally realise what has happened to them until the demand for this Income Tax is presented to them. There are not many of the Amendments which I am inclined to support, because I object to the tax as a whole on account of its method of assessment, though I do not object to a Corporation Tax. But this Amendment I do support because in the case of small incomes it does give some small relief.
§ Mr. McNEILLI agree entirely with what my hon. Friend has just said about the difficulty of knowing what is going to be done on future Amendments. If I could be certain that the Bill is going to stand as it now stands, I should have no hesitation in supporting the Amendment before the House. But I think that it would be very much modified if the proposal of my hon. Friend the Member for Hampstead were accepted, because that would apply in some measure exemption for the small incomes to which my hon. Friend has just referred. Of course, he is quite right. Whatever you may call it, it is in point of fact an Income Tax, and obviously, as in the case of every other Income Tax, there should be exemption for the small income. The difficulty that I am in is that if I could be quite certain that the Amendment which my hon. Friend is about to propose was going to be inserted in the Bill, then I would think that the present Amendment would be unnecessary, but in the state of uncertainty in which we all must be until we have a definite statement from the Government, I am inclined to urge my hon. Friend to divide upon this.
§ Mr. A. WILLIAMSThe Chancellor of the Exchequer has stated that he proposes to give three years' exemption to certain public utility companies. How far does he intend to extend that? There are public utility societies as well as public utility companies which are strictly limited as to what dividend they can pay. Is he going to give this three years' exemption to these public utility companies and deny it to these working-class organisations whose dividends are also strictly limited—mutual building societies, provident societies, public 2256 utility building societies, and other organisations of that kind? If the exemption is going to be given to enterprises of a purely capitalistic character, and not to working-class organisations, there would be very serious discontent aroused in the country.
§ Mr. PRETYMANI hope my hon. Friend will not withdraw the Amendment; if he takes it to a Division I will support him in the Lobby. The Amendment is to limit this tax to 5 per cent. as a maximum, whereas it is proposed in the Bill that it may amount to 10 per cent. as a maximum. I agree that it is nothing but an Income Tax. After having sat for over a year and a half on a Royal Commission, and having spent laborious days and weeks and months in trying to equalise the Income Tax and to apportion it exactly, with abatements and exemptions according to the ability of the taxpayer to bear it, and also after having dealt with the difficult question of Double Income Tax, here in the very same Bill in which our particular recommendation is being adopted, we have another Double Income Tax proposed without any exemptions or abatements. I object to this tax on that ground. The announcement of the Chancellor of the Exchequer of the exemption of statutory companies and public utility societies, although I think it would be a great help to us if we had had that a little more clearly defined, and if we knew what companies were to be included and what not included, merely accentuates the hardship of piling 5 per cent. or 10 per cent. on certain selected people. If it is intended to deal with the question of Super-tax avoidance through accumulated reserves, the tax does not meet the case at all. The Super-tax payer may just as well be the owner of debenture or preference shares as of ordinary stock, and in that case he will not pay anything. The tax appears to have the great vice of an Income Tax without any graduation or abatement, and is placed upon particular people in varying degrees without any sort of reference to their ability to pay, but merely because of the particular method in which the capital of the companies in which their money is invested happens to be distributed.
Take the case of two individuals of absolutely equal ability to pay and with 2257 exactly similar investments, one in a company whose capital happens to be distributed in a certain proportion between preference and debenture stock and ordinary stock and the other in a company which happens to have a different proportion of distribution. One would have to pay twice as much tax as the other. That is neither fair nor reasonable. The tax seems to have been hastily conceived to carry out certain objects. However good those objects, it is not sound finance to commit a great error and to start on a slippery slope of unfair taxation on a very large scale, merely to meet some comparatively minor question of evasion of or difficulty, which is of far less importance than the evils which this tax will impose on the country.
Mr. PRESTONPersonally I am against this tax, and I hope the Government will see their way to withdraw it. If we must have the tax, I hope they may see their way to accept the Amendment, and for a reason which has not been put forward so far. Many of us who are interested in industry are endeavouring to improve the relations between capital and labour by persuading the workmen to take up ordinary shares in the company in which they work. The men are very suspicious about doing it, but a lot of them have made such investments. Many of these men are not liable to Income Tax. They would be liable under this proposal. They would then turn to the employer who had persuaded them to invest and they would say, "You deceived us, and now we have to pay an Income Tax of at least 1s. in the £1, and very likely a good deal more." It would be bad enough for a master to face his men if they had to pay a tax of 1s. in the £ which they had not anticipated, but I happen to be an unfortunate individual mixed up with a company in which, owing to the strong proportion of preference stock and preferred stock, the ordinary shareholder will pay considerably more than 1s. in the £ tax under this scheme.
§ Mr. BARTLEY DENNISSOn behalf, I may say, of almost the whole of the cotton trade of Lancashire, I oppose this tax, and therefore support the Amendment. I do not know whether my right hon. Friend understands that nearly all the mills in Lancashire and nearly all the cotton companies have very small 2258 share capital indeed, and that they work the whole of their business on borrowed money. The workpeople themselves lend the money to the mills. This Clause, if it passed, would impose 10 per cent. on the whole of the profits of these companies. I do not suppose the right hon. Gentleman knows as well as I know the enormous number of working men who are shareholders in the cotton trade. It is a thing to be encouraged; it is one of those which make our constitution stable and render it unlikely that Bolshevist ideas will take root and prevail in this country at any time. Those people do not pay Income Tax. Under this proposal some of them will pay Income Tax for the first time without any repayment whatsoever. For a miserable £3,000,000 a year there is being introduced a tax which, I predict, will grow and grow and grow year after year, and be regarded as a fruitful source of income by the Government. It is limited strictly to those people who happen to have invested their money in limited liability companies. Why did not the Government allow those people to have some sort of notice that this tax was going to be imposed, so that they might change their investments? Why is this class of people to be singled out for the payment of an extra Income Tax?
Did not the Chancellor of the Exchequer say the other day that the Income Tax had already reached its limit, that 6s. in the £ was as much as it was possible to impose on the people of this country, and that if he put on more not only would he get a less amount of tax, but the unfortunate people who had to pay it would in many instances be unable to bear it? Yet now you are putting on an extra 10 per cent. in this Clause on those very people and letting off everybody who has invested money in land, or in houses, or in private firms. This sort of tax also tends to drive money out of the country. Particularly on behalf of the cotton trade in Lancashire, which will be hit by this Clause and helped by this Amendment, I shall vote against the Government. I want to ask the right hon. Gentleman to drop the tax altogether. It is a bad principle and a principle which will, I am sure, do more to injure the trade of this country than any tax that has ever been introduced in this House. It is far worse in principle than the Excess Profits Duty, because it excludes the whole of one class 2259 and places the burden entirely on those who have invested their money in limited liability companies. If it were ever thought proper to tax corporations of this description when the Limited Liability Companies Act of 1867 was first passed, and when the numerous amending Acts since then were passed, some provision would have been made in them for taxing the profits of limited liability companies, but the public have gone on in the confidence that they would never be obliged to pay a double Income Tax on money invested in these companies. I therefore support the Amendment.
§ Major ENTWISTLEAs one who opposed the Excess Profits Duty as being a very bad tax, I feel that a word or two ought to be said in favour of this tax, which to my mind avoids a very great many of the evils involved in the other tax. We have heard all the arguments against this tax, as if it is based on the assumption that where a company has debentures and preference issues the ordinary shares are especially penalised by being taxed at 10 per cent. instead of 5 per cent.; but that is not representing the position correctly. The tax on these companies is the same. It is 5 per cent. on the profits which are made, but as a concession to those companies which have large preference or debenture issues it is said that the net profits which are attributable to the ordinary shares shall not be taxed at more than 2s. in the £, so that it is a concession. The hon. Member who spoke last referred to the cotton trade, and said that workpeople invested their money in loans, and I cordially agree. I know a little of the cotton trade myself, but I suggest to him that he did not select a very good example, because
§ if he will notice interest on borrowed money is allowed as a deduction unless it is a permanent loan, and the definition of a permanent loan is one which is repayable at not less than three months' notice. Now the majority of the loans in the cotton mills are payable at less than three months' notice, so that they would be allowed as a deduction.
§ As regards the debenture and preference shares, when a business is started and you have to consider what capital you are going to get, you can either form your business and provide all the necessary money by ordinary shares, or you can at your option have some of that in debenture and preference shares. The advantage of having debenture and preference shares is that you get cheap money, and the result of that cheap money is that there are far more profits which are left over for the ordinary shares, and they get the benefit, and surely they ought not to grumble because they have to pay the same rate of Corporation Profits Tax on the profits as if those debentures and preference shares had not been issued, but they get a concession, that they shall not have to pay, however big the debenture and preference issue by which they are getting cheap money, on the net profits more than 10 per cent. I think that is a very reasonable provision, and I think the light in which it has been put by several hon. Members is one which does not convey a proper impression. I therefore hope the Government will stick to this tax and get rid of the Excess Profits Duty.
§ Question put, "That the word 'ten' stand part of the Clause."
§ The Committee divided: Ayes, 185; Noes, 52.
2261| Division No. 206.] | AYES. | [8.34 p.m. |
| Adair, Rear-Admiral Thomas B. S. | Bowerman, Rt. Hon. Charles W. | Davidson, Major-General Sir J. H. |
| Addison, Rt. Hon. Dr. C. | Brace, Rt. Hon. William | Davies, Thomas (Cirencester) |
| Adkins, Sir W. Ryland D. | Bramsdon, Sir Thomas | Dawes, James Arthur |
| Ainsworth, Captain Charles | Briggs, Harold | Dewhurst, Lieut.-Commander Harry |
| Armitage, Robert | Broad, Thomas Tucker | Duncannon, Viscount |
| Baird, Sir John Lawrence | Brown, James (Ayr and Bute) | Edwards, C. (Monmouth, Bedwellty) |
| Baldwin, Rt. Hon. Stanley | Bruton, Sir James | Edwards, Major J. (Aberavon) |
| Balfour, Sir R. (Glasgow, Partick) | Burn, Col. C. R. (Devon, Torquay) | Entwistle, Major C. F. |
| Barnes, Rt. Hon. G. (Glas., Gorbals) | Campbell, J. D. G. | Eyres-Monsell, Commander B. M. |
| Barnston, Major Harry | Cape, Thomas | Falcon, Captain Michael |
| Barrand, A. R. | Carew, Charles Robert S. | Flannery, Sir James Fortescue |
| Barrie, Rt. Hon. H. T. (Lon'derry, N.) | Carter, R. A. D. (Man., Withington) | Ford, Patrick Johnston |
| Beckett, Hon. Gervase | Carter, W. (Nottingham, Mansfield) | Foreman, Henry |
| Bell, James (Lancaster, Ormskirk) | Casey, T. W. | Fremantle, Lieut.-Colonel Francis E. |
| Betterton, Henry B. | Chamberlain, Rt. Hn. J.A.(Birm.,W.) | Ganzoni, Captain Francis John C. |
| Blair, Reginald | Clay, Lieut.-Colonel H. H. Spender | Gardner, Ernest |
| Blake, Sir Francis Douglas | Cobb, Sir Cyril | Gibbs, Colonel George Abraham |
| Blane, T. A. | Cohen, Major J. Brunel | Gilmour, Lieut.-Colonel John |
| Borwick, Major G. O. | Conway, Sir W. Martin | Goulding, Rt. Hon. Sir Edward A. |
| Boscawen, Rt. Hon. Sir A. Griffith- | Coote, Colin Reith (Isle of Ely) | Graham, D. M. (Lanark, Hamilton) |
| Graham, R. (Nelson and Colne) | Law, Alfred J. (Rochdale) | Sexton, James |
| Grant, James A. | Lister, Sir R. Ashton | Shaw, Thomas (Preston) |
| Grayson, Lieut.-Colonel Sir Henry | Lloyd-Greame, Major Sir P. | Short, Alfred (Wednesbury) |
| Green, Joseph F. (Leicester, W.) | Locker-Lampson, Com. O. (H'tingd'n) | Sitch, Charles H. |
| Greenwood, William (Stockport) | Loseby, Captain C. E. | Smith, Harold (Warrington) |
| Greer, Harry | Lunn, William | Spencer, George A. |
| Griffiths, T. (Monmouth, Pontypool) | Macdonald, Rt. Hon. John Murray | Sprot, Colonel Sir Alexander |
| Grundy, T. W. | Mackinder, Sir H. J. (Camlachie) | Stanier, Captain Sir Beville |
| Guest, J. (York, W. R., Hemsworth) | Macleod, J. Mackintosh | Stanley, Major H. G. (Preston) |
| Hacking, Captain Douglas H. | Mallalieu, F. W. | Stanton, Charles B. |
| Hailwood, Augustine | Malone, Major P. B. (Tottenham, S.) | Strauss, Edward Anthony |
| Hall, F. (York, W. R., Normanton) | Moreing, Captain Algernon H. | Sugden, W. H. |
| Hambro, Captain Angus Valdemar | Morgan, Major D. Watts | Surtees, Brigadier-General H. C. |
| Hancock, John George | Murray, Lieut.-Colonel A. (Aberdeen) | Sutherland, Sir William |
| Harmsworth, C. B. (Bedford, Luton) | Murray, Dr. D. (Inverness & Ross) | Sykes, Colonel Sir A. J. (Knutsford) |
| Harris, Sir Henry Percy | Murray, John (Leeds, West) | Sykes, Sir Charles (Huddersfield) |
| Hartshorn, Vernon | Murray, Major William (Dumfries) | Taylor, J. |
| Hayday, Arthur | Myers, Thomas | Thomas, Rt. Hon. James H. (Derby) |
| Hayward, Major Evan | Neal, Arthur | Thomas, Sir Robert J. (Wrexham) |
| Henry, Denis S. (Londonderry, S.) | Newbould, Alfred Ernest | Thomson, T. (Middlesbrough, West) |
| Hirst, G. H. | O'Grady, Captain James | Thomson, Sir W. Mitchell- (Maryhill) |
| Hodge, Rt. Hon. John | Oman, Sir Charles William C. | Thorne, G. R.(Wolverhampton, E.) |
| Holbrook, Sir Arthur Richard | Parkinson, John Allen (Wigan) | Tootill, Robert |
| Holmes, J. Stanley | Parry, Lieut.-Colonel Thomas Henry | Tryon, Major George Clement |
| Hope, Sir H. (Stirling & Cl'ckm'nn'n,W.) | Perkins, Walter Frank | Waddington, R. |
| Hope, James F. (Sheffield, Central) | Pollock, Sir Ernest M. | Walsh, Stephen (Lancaster, Ince) |
| Hope, Lt.-Col. Sir J. A. (Midlothian) | Prescott, Major W. H. | Waring, Major Walter |
| Hopkinson, A. (Lancaster, Mossley) | Pulley, Charles Thornton | Wheler, Lieut.-Colonel C. H. |
| Hunter-Weston, Lieut.-Gen. Sir A. G. | Purchase, H. G. | Whitla, Sir William |
| Hurst, Lieut.-Colonel Gerald B. | Ramsden, G. T. | Wigan, Brig.-General John Tyson |
| Illingworth, Rt. Hon. A. H. | Renwick, George | Wignall, James |
| Irving, Dan | Richardson, Sir Albion (Camberwell) | Williams, Lt.-Col. Sir R. (Banbury) |
| James, Lieut.-Colonel Hon. Cuthbert | Richardson, Alexander (Gravesend) | Wills, Lieut.-Colonel Sir Gilbert |
| Jephcott, A. R. | Richardson, R. (Houghton-le-Spring) | Wilson, W. Tyson (Westhoughton) |
| Jesson, C. | Robertson, John | Winterton, Major Earl |
| Jodrell, Neville Paul | Rodger, A. K. | Wintringham, T. |
| Johnson, Sir Stanley | Roundell, Colonel R. F. | Wood, Sir J. (Stalybridge & Hyde) |
| Jones, Sir Edgar R. (Merthyr Tydvil) | Royce, William Stapleton | Yeo, Sir Alfred William |
| Jones, Henry Haydn (Merioneth) | Royden, Sir Thomas | |
| Jones, William Kennedy (Hornsey) | Samuel, A. M. (Surrey, Farnham) | TELLERS FOR THE AYES.— |
| Kellaway, Rt. Hon. Fredk. George | Sanders, Colonel Sir Robert A. | Lord E. Talbot and Mr. Dudley |
| King, Commander Henry Douglas | Seddon, J. A. | Ward. |
| Larmor, Sir Joseph | Seely, Major-General Rt. Hon. John | |
| NOES. | ||
| Agg-Gardner, Sir James Tynte | Hohler, Gerald Fitzroy | Pennefather, De Fonblanque |
| Astbury, Lieut.-Commander F. W. | Hood, Joseph | Preston, W. R. |
| Bagley, Captain E. Ashton | Hurd, Percy A. | Pretyman, Rt. Hon. Ernest G. |
| Brassey, Major H. L. C. | Johnstone, Joseph | Rae, H. Norman |
| Bull, Rt. Hon. Sir William James | Kidd, James | Raffan, Peter Wilson |
| Clough, Robert | Knights, Capt. H. N. (C'berwell, N.) | Ratcliffe, Henry Butler |
| Cory, Sir C. J. (Cornwall, St. Ives) | Lorden, John William | Remnant, Sir James |
| Denniss, Edmund R. B. (Oldham) | M'Donald, Dr. Bouverie F. P. | Robinson, Sir T. (Lancs., Stretford) |
| Edwards, John H. (Glam., Neath) | McLaren, Robert (Lanark, Northern) | Scott, A. M. (Glasgow, Bridgeton) |
| Foxcroft, Captain Charles Talbot | McNeill, Ronald (Kent, Canterbury) | Scott, Leslie (Liverpool Exchange) |
| Galbraith, Samuel | Marriott, John Arthur Ransome | Shaw, William T. (Forfar) |
| Gould, James C. | Moore, Major-General Sir Newton J. | Smithers, Sir Alfred W. |
| Hall, Lieut.-Col. Sir F. (Dulwich) | Morden, Colonel H. Grant | Thomas, Brig.-Gen. Sir O. (Anglesey) |
| Henderson, Major V. L. (Tradeston) | Nall, Major Joseph | Wedgewood, Colonel J. C. |
| Herbert, Hon. A. (Somerset, Yeovil) | Newman, Sir R. H. S. D. L. (Exter) | White, Charles F. (Derby, Western) |
| Herbert, Dennis (Hertford, Watford) | Newton, Major Harry Kottingham | Wood, Major M. M. (Aberdeen, C.) |
| Hills, Major John Waller | Norris, Colonel Sir Henry G. | |
| Hinds, John | Palmer, Charles Frederick (Wrekin) | TELLERS FOR THE NOES.— |
| Sir A. Fell and Mr. Bigland. |
§ Mr. G. BALFOURI beg to move, in Sub-section (1, b) to leave out the word "actually" ["any interest or dividends actually paid"].
It will suit the convenience of the Committee, perhaps, if I am allowed to take this Amendment and the next Amendment standing in my name and the name of the hon. Member for North East Derbyshire (Mr. Holmes) together. The hon. Member for North East Derbyshire is satisfied with that course, if it is agreeable to the 2262 Committee. The object I have in moving this Amendment is to protect the interests of the struggling company. The peculiar feature of the second Amendment is that if you leave the Clause as it stands, you protect the interests of the prosperous company and leave the struggling company in a bad position. The first Amendment I may dismiss in a word. I think the word "actually" is redundant in any event in the Clause as it stands, and in the event of the second Amendment being inserted, I think it is quite unnecessary.
§ Sir D. MACLEANThe second Amendment is consequential on the first. Amendment, and I would suggest that the hon. Member first explain what the Amendment means.
§ The DEPUTY-CHAIRMAN (Sir Edwin Cornwall)I thought that was what the hon. Member was intending to do. I understand there is no meaning in the Amendment which he is now moving unless the Amendment which follows be proposed, after this Amendment has been dealt with, and is therefore consequential upon the Amendment which follows.
§ Sir D. MACLEANConsequential on the second Amendment?
§ The DEPUTY-CHAIRMANYes.
§ Sir D. MACLEANThis is a new experience in this House. I have never seen it done yet.
§ Mr. BALFOURThe first Amendment is to omit the word "actually." I suggest that that word is not required, because if the dividend be paid, it is actually paid. The second Amendment—
§ The DEPUTY-CHAIRMANThe hon. Member should not develop his argument on the second Amendment. He is quite right to mention its relation to the first Amendment.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. Baldwin)I think it would be for the convenience of the Committee if the hon. Member would withdraw this Amendment, and take the discussion on the Amendment of the hon. Member for North East Derbyshire (Mr. Holmes).
§ Colonel GRETTONApparently this word "actually" is standing in the way of the second Amendment, and my hon. Friend must get this word out of the way, in order that the second Amendment may become effective. If that be the case, would not the discussion be more conveniently taken on the first Amendment?
§ Mr. G. BALFOURIt appeared to me that the word "actually" was rebundant, and in any event particularly unnecessary in view of my second Amendment. I am quite prepared to adopt the course suggested by the Financial Secretary.
§ Amendment, by leave, withdrawn.
§ Mr. HOLMESI beg to move, in Subsection (1, b), after the word "paid" 2264 ["dividends actually paid out of those profits"], to insert the words, "or payable in respect of that accounting period."
The Clause as it stands says:
(b) The amount of tax payable in respect of the profits of the British company for any accounting period shall in no case exceed the amount represented by 10 per cent. of the balance of the profits of that period, in accordance with the provisions of this part of the Act, after deducting from the amount of those profits any interest or dividends actually paid out of those profits … on any debentures, debenture stock, preference shares…What I want to make clear is this: many companies do not actually pay during the accounting period their debenture interest or preference dividend. They may close the year on 30th June. They may pay their debenture interest and their preference interest on 1st July. This is not actually paid during the accounting period. It, however, is payable in respect of the accounting period. I merely want the companies to have the right to charge against each accounting period the full debenture interest payable in respect of that period, and also the fixed preference dividend. Beyond that I do not want to go.
§ Mr. BALDWINThis is a somewhat difficult matter. We quite admit that whatever words are ultimately chosen there will be adequate grounds for criticism of those words. What we want to do is to secure that the concession that is given to the companies shall be given to them at the time when it is to their greatest benefit to receive it. We consider that by taking interest on the dividend actually paid out of the profits of the accounting period we attain that end. The hon. Member who moved this Amendment was good enough to explain to me in private what was the object that he wished to attain. I can assure him that our intention was that the charge should fall exactly as he wishes it should fall, and we are advised that the words we are employing do attain that object. I hope he will be content and take that from me. It is a very technical matter. I have the assurance of our draftsmen that what I have stated is the case; but I am quite willing to look again at these words between now and Report, and if there is any doubt that they do not give the effect he wants, I am quite willing to meet him. It is 2265 our intention that they should. With this brief explanation I hope, under the circumstances, he will be willing to withdraw his Amendment.
§ Mr. HOLMESSo far as the particular point goes, I am quite satisfied with what the Financial Secretary has said. As his observations will appear in the OFFICIAL REPORT, and will be read through the country, it will satisfy those concerned that the point has been raised. But it appears from what the right hon. Gentleman has just said that this Clause goes beyond what one anticipated, namely, that though the arrears of preference dividend were paid in any given accounting period—perhaps three or four years preference dividend was paid off—the whole of that amount, since it was actually paid in the accounting period, would be allowed to be deducted.
§ Sir J. BUTCHERThis may become a serious point of substance if the Bill goes through, and I hope my right hon. Friend will really consider whether the point is really met. My right hon. Friend has pointed out that the intention of the Government is that only the interest on debentures or the dividends on preference stock, if not actually paid during the accounting period, yet has become payable during the accounting period, shall be deducted. That is the point. We do not want to leave it to the uncertain decision of a court as to how this Clause shall be interpreted. I urge my right hon. Friend between now and the Report stage to look into the matter a little further so as to make the position clear.
§ Mr. G. BALFOURThere is another aspect of this point which has not been touched upon, but which is most important. I suggest that if we leave the words, "paid out of those profits," and do not put in "paid or payable"—do not amend the Clause—you are seriously affecting the interests of these trading companies which ought to receive the necessary protection. To make the matter clear, let me give three illustrations which have come under my notice lately, though I do not pretend to be personally interested in the destiny of these companies. Lord Farrer is chairman of a company with 16¼ millions of debentures and preference share capital. That is excluding ordinary capital. That 16¼ 2266 millions of capital would be available for the purposes of deduction. Up to June, 1914, that company was able out of its earnings to pay the whole of its prior charges on the whole of that 16¼ millions. Entirely due to the War it had to stop payment on the whole of these charges, except the first 4 millions of First Debentures. On 12¼ millions it had to default in its interest. That interest on dividend would be payable for the purposes of the deduction of 10 per cent. That went on for some time, and the preference shareholders and debenture holders of the company agreed to accept 3½ years' deferred warrants for the amount of interest and dividends which ought to have been paid to them. The aggregate amount of that interest and dividends was nearly £1,000,000 in the three and a half year, or £979,000. Those warrants were payable in June, 1919, and in that year the company could not pay them, and they weighed in the warrants and accepted in exchange further debentures. They also made a further sacrifice. They said, "We will accept 3 per cent. interest only on this round figure of £1,000,000 of debentures on condition that the preference shareholders will waive the whole of their preference dividend while these low-yielding debentures are outstanding." What is the position of that company under this proposal? It has not paid its preference dividends, and it cannot deduct them until these debentures are out of the way. If the Parliamentary Secretary can show me where that point is covered, then I do not wish to waste further time. I can see no words which will protect you where you fail to pay your preference dividend or the debenture interest, because you cannot deduct it from your 10 per cent. total.
Take a second instance. This is the case of an English company owning an agricultural property in Greece. That company, with £650,000 share capital and £425,000 debenture capital, had all kinds of troubles to face; it has defaulted on its debenture interest and has given up part of its debentures. It is not allowed to deduct the interest because no payment is actually made, and it has an accrued charge, and you are going to tax that part although it is earned. An urgent call for money necessitated putting the money back for this general purpose to save the company from further difficulties. 2267 My third case is that of a company owning a light car traction business in the Argentine. That company at the outbreak of War had just finished the first portion of its construction work. The War came on and the earnings of the company had all to be put back into the company in order to go on with the construction work. There were big arrears of preference dividend. It is in the position of not being able to find cash for development. It is not paying preference dividend, but it is accruing against the company, and because it is not paying this dividend, it is not allowed to deduct it from the 10 per cent. net earnings. I suggest that this means simply a direct tax on war losses. Without the words "paid or payable" the Chancellor of the Exchequer is not giving effect to the very idea which he has expressed, and the intention which can be read into this Clause. Under these circumstances I ask my hon. Friend to press this Amendment and, if necessary, to divide upon it.
§ 9.0 P.M.
§ Mr. BALDWINThe speech of my hon. Friend only shows once more what I said in the few remarks when I rose before, that this is an exceedingly difficult and complicated subject, and every method which has been suggested for securing relief is easily open to criticism. Let me point out what is the effect of the words of the Clause as at present drafted. The relief for the accounting period is given when the profits are actually used for the benefit of the fixed charge, and no relief is given when the profits are not actually distributed in the payment of the fixed charge. If my hon. Friend will work out a number of fairly simple examples, and not such difficult ones as he has instanced to the Committee, I think he will find that under the Clause as drafted, the relief comes when it is most seriously required, and on the whole I think what we propose is the fairest method.
§ Mr. G. BALFOURCan the right hon. Gentleman give me a few illustrations to show that is the case? I could give him scores of struggling companies as examples.
§ Mr. BALDWINI do not think we should have any difficulty in giving any number of cases, but I think it would be 2268 wasting the time of the Committee. The issue between us is really very simple. It seems to us that the natural time when the relief is required is the time when the large payment is made, and that is the time when you want relief. Should my hon. Friend wish to carry this matter to a Division now, of course he is at liberty to do so; but if, on the other hand, he is not satisfied, and cares to raise the question again when we come to the Report stage, we shall be perfectly prepared to look into any words which may be suggested.
§ Mr. HOLMESThe last remark of the Financial Secretary seems an entire contradiction of what he said before. I explained that I moved this Amendment for the purpose of allowing a company to charge up against the accounting period the interest on its debentures which it did not actually pay in the accounting period, but perhaps paid one day after the accounting period ended. Does the right hon. Gentleman say that that point is covered?
§ Mr. BALDWINYes.
§ Mr. HOLMESFor how long afterwards? Suppose it was paid three months or three years afterwards, would it then be exempt? The right hon. Gentleman, in his second speech, seemed to say, "We are going to disregard altogether the period covered by the debenture interest or the preference dividend, and we are only going to take the actual payments made." I think the Chancellor of the Exchequer and the Financial Secretary are entirely wrong in allowing the company to charge against the accounting period the particular interest they have paid in that accounting period. They ought to allow them to charge up, if it is a six months period, six months debenture interest or six months preference interest. If the intention is different, if the intention is to allow the company to charge up the amount they have actually paid they are entirely wrong, and I am prepared to divide the Committee against it.
§ Colonel GRETTONDo the Government and its advisers realise where this Clause carries them? I agree with the hon. Member for North-East Derbyshire (Mr. Holmes) that it is right that the money payable and due in any accounting period should be set down as a deduction, 2269 and that the day when the payment is made has really nothing to do with the obligation. But the other point which has been raised is altogether different. Where a company has defaulted, from whatever cause, and is practically in an insolvent position, the circumstances are quite different. There are cases where companies are temporarily in difficulties. My right hon. Friend the Financial Secretary proposes to tax companies temporarily defaulting, and to impose upon them this tax, with all its rigours, simply because they have not paid out the dividends, and when it gets into a more solvent condition he is going to make the deduction. That is an actual contradiction in terms. Certainly, whatever allowance is made for a company which is able to meet its obligations should also be made for a company which is temporarily embarrassed and unable to meet its obligations. The tax should not be imposed with all its rigours on the defaulting company, while the company in a more prosperous condition gets exemption. If the right hon. Gentleman will give an undertaking to consider the bearing of the Clause on the cases cited by my hon. Friend behind me (Mr. G. Balfour), and will endeavour to meet those particular cases, I hope my hon. Friend will not press the Amendment to a Division.
§ Mr. BALDWINI am quite willing to give that undertaking. I see the difficulty which has been raised. After all, there is a very broad distinction between dividends that are made in the accounting period and passed for payment, even though the actual clay of payment may not be fixed. There is a great difference between a position like that and the other type of case where the dividend is entirely passed for the time being, and the company has no idea as to at what date it will be able to pay out the interest or dividend in arrear. I shall be very pleased to give consideration to the whole question before the Report stage.
§ Mr. G. BALFOURI am glad the right hon. Gentleman has agreed to look into the matter before the Report stage with a desire to try and meet our point. I could give him more illustrations of the kind I have submitted.
§ Mr. HOLMESI ask leave to withdraw my Amendment.
§ Amendment, by leave, withdrawn.
2270§ Mr. MARRIOTTI beg to move, in Sub-section (1, b), after the word "stock" ["debenture stock"], to insert the words "rentals, annuities, or other fixed charges, and." This is merely a drafting Amendment, and I hope the Government will be disposed to accept it. The words will make the Clause much more clear.
§ Sir F. BANBURYThere is one question which I think might possibly be asked here. I want to know what is the position in the event of there being no profits on ordinary stock. We were told that this is a charge on profits. If the profits are only sufficient to pay a dividend on the debentures and on the preference shares and there is nothing for the ordinary shares, there surely will be nothing out of which the tax can be paid, because there will really be no profit. What is going to happen in that case? Is anything going to happen, or will the amount which is to be charged and which cannot be paid because there are no profits be held over until the time when there will be profits, or will it be wiped out altogether? My own opinion is that this is a tax on the profits on ordinary shares, and if there are no profits, the tax will be wiped out. I submitted this point to a very clever lawyer, who told me that he really did not know, but he thought my solution was probably the right one. I thought this was a good opportunity, as the question of debentures is raised by the Amendment of my hon. Friend, to put this question to the right hon. Gentleman.
§ Mr. BALDWINIt certainly does not add to the amenities of Debate if one is apt to have a conundrum, which has cost its intelligent author a good deal of exertion to compose, thrown at one's head without any notice. I should imagine that this is a case which is provided for under the Amendment which we discussed at some length and divided upon about dinner-time. The Corporation Tax is charged at 1s. in the £ on the total profits, and some of the profits, of course, may have been used, as in my right hon. Friend's illustration, for paying preference dividends and, possibly, interest on mortgages, if they come within the terms of the Act. In his illustration all the profit is eaten up 2271 by these prior charges, and there the concession comes in, the amount of the tax being limited to 2s. in the £ on the amount available for ordinary dividends.
§ Sir F. BANBURYIf there be no amount available, what will happen?
§ Mr. BALDWINIf there be no amount available, of course, there will be nothing charged. With reference to the Amendment moved by my hon. Friend the Member for Oxford, I would ask him most respectfully if he would postpone bringing it forward until the Report stage. I have not seen it, and we have not had it to consider, but it is obviously an Amendment of some interest, involving some technical points. I should be very grateful to him if he would give us an opportunity of considering it, as neither I nor any of my advisers have had an opportunity of attempting to construe it in relation to the context of the Bill.
§ Mr. MARRIOTTIn reference to the right hon. Gentleman's appeal, I am prepared to withdraw the Amendment and move it again on Report.
§ Amendment, by leave, withdrawn.
§ Mr. HOLMESI beg to move, in Subsection (1, b), to leave out the words
(being shares which do not confer on the holders thereof any right to participate in profits beyond the right to receive dividends at the fixed rate)and to insert thereof the words "so far as the dividend paid thereon is at a fixed rate."The Chancellor of the Exchequer has already intimated that he will accept this Amendment, and therefore I need not say more than that the words I desire to leave out do not take into account a new type of preference shares which have come very much into vogue lately, called participating preference shares. They bear a fixed dividend, and a further amount is payable to the preference shareholders after the ordinary shareholders have received say 10 per cent. The words in the Bill do not meet the case of these shares, but it is met by the words which I have put down, and which the Chancellor of the Exchequer has already signified his willingness to accept.
§ Amendment agreed to.
2272§ Mr. HOLMESI beg to move, in Subsection (1, b), to leave out the words "issued before the twentieth day of April, nineteen hundred and twenty."
In arriving at the amount of profits under this Sub-section, it is permitted to deduct the interest on a permanent loan issued before the 20th April, 1920, but can see no object in that limitation. Let us take the case of a company which is raising debentures at the present time, for the purpose of its business, in order to increase its trade and increase its profits. The Bill says that the interest on those debentures must not be deducted from the profits. Apparently the Chancellor of the Exchequer sees some method, which I cannot imagine, by which companies may be able to "fake up" permanent loans after the date of the introduction of the Finance Bill. Possibly the Financial Secretary will explain to us. what that method may be. I can see no reason why a company raising permanent loans for the purpose of its business should not be allowed to deduct the interest on them.
§ General Sir IVOR PHILIPPSI desire to support this Amendment, for I cannot see any reason why these words should be included in the Bill. I do not suppose that a permanent loan means a perpetual loan. I am not a lawyer, but I understand that it might be a loan for a fixed period, and, on the expiration of that fixed period, according to some agreement, a new financial arrangement might have to be made and a new loan raised. There seems to be no reason why new money brought in in place of the previous permanent loan, which, under some agreement, has been paid off, should not have the same benefit as the money already raised under the previous loan.
§ Sir F. BANBURYAs I understand this Bill, one of its objects was a good object, namely, to prevent people from turning themselves into private companies and so evading the Super-tax. Let us suppose that the hon. and gallant Gentleman opposite (Sir Ivor Philipps) turns himself into a private company, and that he puts into it his investments, which, let us say for the sake of argument, amount to £100,000. That returns him an interest of £5,000. Being a prudent and economical man, he only spends £1,000 a year, and therefore he 2273 puts £4,000 to reserve and does not pay Super-tax on it. If this Bill becomes law, he will be obliged, if not to pay Super-tax, to pay this particular tax. What he now wants is to be able to say, "I will turn £90,000 of that £100,000 into debentures or into a permanent loan, with the result that I avoid the tax altogether." That is the effect of it. I happen to have had some knowledge of this from my experience on the Treasury Issues Committee, and I think there was a leakage which ought to have been stopped. That arose from imposing these enormous taxes upon people who, as I think the right hon. Gentleman the Member for Paisley said yesterday, had the right to evade the law if they could. The result of that evasion has been an endeavour on the part of the Government to stop it by bringing in this Bill, which inflicts a great deal of hardship on a great many innocent people. If the Bill is to have any effect, this particular Clause must remain in it, although I do not know what is going to happen to an ordinary company which wants to borrow money on debentures. You are attempting to do something to put right an injustice or an evasion of some tax, and in so doing you cause more harm than by letting it alone. That, as far as I understand it, would be the effect.
Mr. GREENWOODI should like to ask the meaning of the word "otherwise" in the Clause where this permanent loan is explained. It says:
The expression 'permanent loan' means a loan of a permanent character which is secured by mortgage or debentures or otherwise.
§ The DEPUTY-CHAIRMANrose to put the Question—
§ Mr. G. BALFOURI understood that we might expect a reply from the right hon Gentleman before the Question was put. Like the hon. Member for North-East Derby (Mr. Holmes), I am quite at a loss to understand why these words "issued before 20th day of April, 1920," should remain in, and I think we might have some explanation.
§ Mr. BALDWINI was going to rise, but I thought the hon. Gentleman wished to speak.
§ Mr. BALFOURI only rose when the Question was being put—
§ Mr. BALDWINI never refused to reply.
§ Mr. BALFOURNo, I do not say that. I do not think the right hon. Gentleman wished to avoid a reply, but the Question was being put to the Committee, and I only interrupted in order to give him an opportunity to reply.
§ Mr. BALDWINThe reason for these words being inserted is this: In future, people who form companies will know exactly what liability they have upon them, and they will be able to consider this liability in deciding on the form and the amount of the capital which they employ in their companies. Companies that were in existence before this tax came into being, of course, have not had that advantage. I admit what the Member for North-East Derbyshire (Mr. Holmes) has said as to its being difficult always to foresee any and every method of evasion of a new tax, and it is possible that a line of evasion, which seems possible to those who are responsible for collecting the taxes, may not be the line that is practised. We have a fear that it may be sought to evade or to minimise the effect of this tax by floating a company in which by far the greater part of the share capital takes the form of prior charges, leaving so small an amount of ordinary stock that the company may get the benefit of the concession to which I have recently alluded, and which was debated this afternoon. It is for that reason that these words have been put in. I quite realise that, as we are now in July and the final form of this Bill is not yet settled, it may be that the date inserted is earlier than is reasonable, and I am quite willing to reconsider that date, but I cannot accept the Amendment put forward.
§ Sir CLIFFORD CORYI think with the Secretary to the Treasury that cases may occur in which an excessive amount of debentures or preference shares are created, but surely that difficulty can be overcome by fixing proportions, saying that not more than a certain proportion of the capital shall be debentures or preference shares. It is not an uncommon thing to divide the capital into thirds, making one-third debentures, one-third preference, and one-third ordinary. Why should not my right hon. Friend put in a limit and say that if they have not exceeded this limit they shall get the concession.
§ Sir J. BUTCHERI should like to ask what my right hon. Friend really means by the words "issued before the 5th of April, 1920.' Are those words meant to govern not merely the words "permanent loan," but the words, occurring three or four lines higher up, "Debentures, debenture stock and preference shares"? If that is so, it is a very important point, and I am rather disposed to agree that to prevent evasion of this tax you should make the words refer not merely to issues of loans, but to the debentures, debenture stock and preference shares. Perhaps, as the Chancellor of the Exchequer has come in, he will tell us whether that is the meaning. If it does refer to the words above, I suggest that it should be made more clear, for otherwise there will be great difficulty hereafter in the law courts in saying whether the word "issued" applies only to a loan or to the other stocks. I do not suppose any of us want evasions of this Bill, and therefore might it not be necessary to insert words to prevent a company from so re-arranging its capital as to turn practically the whole of the capital into debentures and preference shares, leaving no ordinary shares at all. If a company were at liberty to do that, then the amount received under this Act by way of profits would be entirely wiped out. The point immediately before us is as to what antecedent words the word "issue" refers to.
§ Mr. BALDWINIt governs all the words—debentures, debenture stock, and so forth.
§ Sir W. HOWELL DAVIESIt seems to me that if such a policy were adopted as turning the whole of the capital in a business into debenture stock, as the Secretary of the Treasury suggested was possible, the particular firm doing it would get no credit at all, and therefore such a proceeding may be reckoned impossible. I think the question raised in this Amendment is a substantial one and ought to have the consideration of the Treasury, and if a decision cannot be arrived at now it ought to be thought out before the question comes up on the Report stage.
§ Sir I. PHILIPPSI certainly had no idea in my mind, until the point was raised by the right hon. Baronet the Member for the City of London (Sir Frederick Banbury), that old-established companies who have at present a deben- 2276 ture issue which is, under the terms of it, to be paid off, and arranged a fresh debenture issue, will not get the benefit of the terms in this Act, and so will be placed in a worse position than another company which has its debenture issue running for another five or ten years. But the discussion has raised a much more interesting subject, and that is, that no further preference shares can be issued. It is an entirely new idea. Not being a lawyer, I certainly did not understand that "before the 20th of April" referred to future issues of preference shares. There may be some old-established companies that have half a million preference shares, of which 300,000 have been issued, proposing in the ordinary course to issue the further 200,000. The first 300,000 would get the benefit, but there would he no benefit for the further 200,000. I have no wish to support anybody who desires to evade the law, but I do think that is putting different companies under different conditions, and, although I support the Chancellor of the Exchequer in any condition which he puts upon all companies, I think it is most essential that we should not perpetuate the inequalities and the unfair taxation that we have already carried in this House in the way of Excess Profits Duty.
It appears now, according to the right hon. Gentleman, the Financial Secretary to the Treasury, that the words will apply to all; to preference shares and debenture stock. That opens up a rather alarming prospect, especially for new concerns, though it will not be so bad for old-established concerns. We are all in agreement with the Chancellor of the Exchequer in his main object, which is that there should be equitable taxation and that everyone will bear his proper share of the burden. But these new concerns which are developing and want to develop in the future are likely to be penalised. It is the same old story which we have had in the case of the Excess Profits Duty. It will give an advantage to those old-established businesses. I cannot help thinking that many of the Chancellor of the Exchequer's advisers are among the bankers and the members of the big financial houses who do not suffer in any way by paying a penny to the Excess Profits Duty, and I think will not suffer under this tax. The greater burden will fall upon the young, on the venturesome youth who desire to make a new business and to carry 2277 out the great commercial undertakings of the future. At any rate, they are making an attempt to start them. It seems to be entirely against the young man, the young business, and the progressive business. I hope the Chancellor of the Exchequer will not thus tamper with the trade of the country, and will not in this way penalise young businesses while leaving in a better position than they will be the greybeards of finance. I hope he will leave these young firms alone.
§ Mr. CHAMBERLAINI have been away for a few minutes upon other business, but I have been informed of what has passed by my right hon. Friend who sits on this Bench. The hon. and gallant Gentleman who has just spoken would not find it so easy to speak if he were in the same position as we are on this Bench. He is not under the restrictions as we are. I am glad to find that among us there is a large measure of agreement upon the main points. Perfection is something which we strive to obtain even in taxation, though we do not often succeed. It is extremely difficult to bring into our complicated and traditional system which is the growth of centuries, some new taxation and to adjust it so that it is absolutely fair to everyone. In this case, however, we have two great objects, one of which is to prevent the tax being frustrated and rendered nugatory or void by a large number of people so that it would become oppressive upon those upon whom it does fall. There has been some criticism with regard to inequalities, but my object is certainly not to put old businesses in a preferential position over new ones. I am as anxious as anybody to encourage new business and new enterprise, but I am bound by the limitations which are imposed upon anyone who proposes a new tax. You must take care that your new tax is not rendered void by people carrying out something which might have been done for other reasons previously, but which would now simply have the effect of evading the tax. I think the matter is one well worthy of further consideration, and if the hon. Gentlemen who are interested will allow me the opportunity, I will take time to consider what has been said in my absence more fully than I have been able to do up to this moment. I shall also be glad if they will give me any suggestions which they 2278 may think will satisfy our two objects, the first of which is to see that the tax is not evaded, and the other, that as far as possible it shall be equitable. I will consider the matter with an open mind and see if I can do anything before the Report stage to meet the points which were raised. That is as far as I can go now.
§ Sir F. BANBURYThis is really a very important matter. The hon. and gallant Gentleman on the Front Opposition Bench has said that it would be more favourable to banks than to other businesses. But the Banks have no debentures. This tax will fall upon them in a larger proportion.
§ Sir I. PHILIPPSI was referring to the Excess Profits Duty.
§ Sir F. BANBURYI thought he was referring to this tax. I should like to see the Chancellor of the Exchequer give the matter his consideration, but I do not think he will find that it is going to be against new businesses. It is much more likely to hit the old businesses. An hon. Gentleman has just given an instance of what would happen. He said that suppose a firm was authorised to issue £500,000 in preference shares, of which £300,000 had been issued. He asked, "What about issuing the balance?" I think the balance would be liable to this tax and the other £300,000 would not be. Suppose it was decided to issue them. Consider the confusion that will arise. Here is an issue of £500,000, safe in every way as to security, as to rate of interest, and as to priority of capital. In the ordinary way it can be dealt with as one security. Under this Bill, £300,000 of it will be subject to tax and £200,000 of it will not be. How are you going to distinguish? On every transfer, will you have to enact that a number shall be put, and that number shall correspond with the number of the certificate which was issued when the 200,000 shares were issued? I do not say it is impossible, but look at the trouble it is going to put upon ordinary people, and look at the effect it is going to have upon investments.
§ Sir I. PHILIPPSThat is how it is under the Bill.
§ Sir F. BANBURYExactly. I am supporting the hon. and gallant Gentleman. When the Chancellor of the Ex- 2279 chequer was out of the Committee, I gave the real reason for these words, and with all due humility and respect to the Financial Secretary, I think I put the case clearer than he did. There is no doubt, however we choose to camouflage it, that was the meaning, and it was a good meaning, and it ought to be done, but the result of doing it is that you cure one evil and bring in a great many more which are not cured. I suppose we want to encourage capital to invest itself in industrial undertakings. What is going to happen? The public will not bother themselves to find out whether or not the particular issue which they think of subscribing to is or is not subject to a particular tax. No doubt a lawyer can tell, on looking at the documents, whether an issue is subject be the tax, but I do not know that anyone else can. You will have to say in the prospectus, "It is understood that a person subscribing to this issue will be in a different position from other shareholders in the same issue." [Interruption.] I am sure I am right. That shows the difficulty of bringing forward a new tax of this sort and attempting to pass it hurriedly through the House We cannot do these things in a hurry. Leaving out any question whether the tax is right or wrong, we are going to do something which is going to influence to a very great extent, for good or for evil, the business of the country and the probability of raising capital for the business of the country. We really must consider that in some detail. I trust, if we do not pursue the subject any further, it will be understood that on the Report stage some attempt will be made to get over the difficulty. I do not see how you can. My right hon. Friend has asked for suggestions. I will make one. The only way I can see to get over the difficulty, or rather to minimise it, is to say that a company, new or old, may have a certain percentage in debentures, a certain percentage in preference, and the remaining percentage in ordinary, and if that percentage has not been entirely issued before the passing of the Bill, it may be made up. I do not say that will meet it altogether, but it will go some way to meet it, and it will put all companies in more or less the same position.
§ Mr. CHAMBERLAINYesterday many speakers repeated the charge against the Government that they were not sufficiently ready to propose an alternative to a tax which is generally disliked. Perhaps our discussion to-day will give the Committee some idea why the Government does not rashly forego an existing tax and propose an alternative. It is not so simple.
§ Sir F. BANBURYI was not attacking you.
§ Mr. CHAMBERLAINThat is not in reply to my right hon. Friend. It is an observation occasioned by the contrast in the Debates we have had on two successive days. Yesterday we were told, "It is your business to produce an alternative. Lay it before us, and we will, of course, accept it." To-day we have a new tax, and we see some difficulty in framing it and adjusting it to circumstances. I am quite ready to consider—I cannot say more than that—the suggestion with which my right hon. Friend concluded. I should like very much, while I am considering it, to know whether it would be generally accepted. It helps some people, it injures others. I do not say that as an invitation to a prolongation of the Debate.
§ Sir I. PHILIPPSTo what proposal is the right hon. Gentleman referring?
§ Mr. CHAMBERLAINThe proposal with which my right hon. Friend concluded his speech.
§ Mr. CHAMBERLAINPerhaps hon. Members will look at the report of the speech, and if they have views on the subject will communicate them to me. While my right hon. Friend's proposal is well worthy of discussion, he is wrong in the arguments with which he led up to it. The tax is upon the company, and not upon a particular part of an issue made by the company, and there is no reason for any distinction between that part of the debenture issue which gains and that part which does not. If my right hon. Friend will consider what has been said, and will look again at the Bill, he will see that his fear as to these complications on the Stock Exchange, this necessity for noting the scrip with a 2281 reference as to whether it was issued before or after a certain date is really a chimera of his own imagination. That is not the point; but that there is a point which really requiries consideration I readily conceive, and I will give my best consideration to it.
§ Amendment, by leave, withdrawn.
§ 10.0 P.M.
§ Mr. G. BALFOURI beg to move, at the end of Sub-section (1, b) to add the words "and a sum equal to six per cent. per annum on the amount of the issued and paid-up ordinary share capital."
This was referred to on the Amendment moved by the hon. Member above the Gangway, and I think it is necessary to review the facts of paragraph. (b) in order to grasp the fulll meaning of the Amendment. Under paragraph (b) company may, as an alternative to the five per cent. Corporation Tax, pay a lesser sum, that being a sum calculated on 10 per cent. of the profits of the company after deducting from those profits, first, any debenture interest and interest on permanent loans, and secondly, any preference dividends paid at a fixed rate on preference shares. If the abatement from the 10 per cent. stops at that point, you are hurting the unsuccessful company and favouring the successful company. The benefit of the deduction rests entirely on the extent of the capital arrangement. Let me illustrate the point. If you take two companies, each with £1,000,000 total capital, one company happening to have £500,000 of 8 per cent. preference shares and £500,000 in ordinary shares, and the other having a straight £1,000,000 of ordinary shares, in the one case you get, as a deduction from the 10 per cent., 8 per cent. of the £500,000 preference shares, whereas in the other case the whole of the charge falls on the ordinary shareholders and on the million of issued ordinary shares. The Chancellor of the Exchequer says that the whole of this tax falls upon the business or corporation, and does not in any way affect the shareholders. He pointed out that there would be no difficulty, because certain debentures and certain preference shares were to be exempted as to the amount of interest if issued before April last, and as to others, he said that it did not matter a bit as the whole charge came upon the business, and there could be no preference in connection with an 2282 old business. I suggest that there would, and that the difference is equal to a preference given to the old-established business. If he will look into the matter he will find that it is so, and that it is a distinct preference given to that corporation or trader. If you have a company with £500,000 of issued capital to-day compared with a company of £500,000 issued before 29th April, you have the further point that the capital issued before April last is given a preference to the extent of the interest on the preference shares of the company issued before April last.
Let me show another inequality. Three companies can be instanced. Two companies last year raised the rate of their preference dividend by 2 per cent., from 6 per cent. to 8 per cent., simply because it was not possible to raise preference money at a lower rate. In both these cases the increase in rate was entirely an accidental event and had no reference to this Bill, because this Bill was not then known. These two companies will obtain the benefit of an abatement of 8 per cent. on their preference shares instead of 6 per cent. Take the case of another company with £350,000 of preference shares outstanding. They could not issue any more preference shares, and being short of cash they got the preference shareholders to agree to convert their preference shares into ordinary shares. That was only done a few months ago. It was due to the pure accident of that capital re-arrangement that in computing the amount of Corporation Tax they have to pay the preference dividend on £350,000 worth of 6 per cent. preference shares. That is entirely inequitable. The accident of converting the share capital in the one case to ordinary shares denies them the right of deduction in computing the Corporation Tax.
There is a much more serious consideration than those to which I have referred, and that is the consideration which was mentioned by the hon. Member for Yarmouth (Sir A. Fell), namely, the driving of capital out of the country. The Chancellor of the Exchequer referred to that point and indicated that he did not look upon it as a very serious matter. There has been a steady tendency for some time past, owing to the burdens occasioned by increasing taxation of every kind, to drive the Colonial public utility companies and 2283 a great many other companies out of England. I can mention companies who have actually left this country on account of the increasing taxation. They have been heavily hit by the various taxes prior to this tax. The Excess Profits Tax, in certain cases, drove them almost to despair, and this tax, I am sure, will drive a great many other companies to follow their example and leave the country. There is one company with a capital of £200,000 which has left London. It has changed its location and is no longer recognised as an English company. There is a Bombay company with a capital of £2,149,499 which has left the country, a Rangoon company with a capital of £685,063, and a Hong Kong company with a capital of £251,875. All these companies have left this country. It is generally agreed that a large number of other Colonial companies have under consideration the transfer of their head offices from London to places abroad.
How much will this tax yield altogether? A small amount of capital, relatively, transferred from London to abroad will more than swamp the total amount which you will get from the Corporation Tax. You will lose all the other taxes—Income Tax, Super-tax, and, so long as it lasts, the Excess Profits Duty. I do not think this tax can be supported as it stands, and I suggest that if the Chancellor of the Exchequer can see his way to give an abatement of a sum equal to 6 per cent. on the ordinary share's of the company, he would get over this difficulty—at any rate so far as the Corporation Tax is concerned. Is it not right that people putting their money into trade and industry should at least expect that that trade and industry should yield a reasonable return, coupled with their hard work? Is it not right, reasonable, and essential that they should at least be secured of revenue equal to the amount that a lazy individual can get by putting his money into British secured Government Bonds at 6 or 7 per cent.? Surely we are entitled to demand of the Chancellor of the Exchequer an absolute and definite exemption up to such an amount as a man who is living entirely on what is called unearned income can get, and that at least the man who is putting his money into industry and working hard is entitled to demand, before he comes under the Corporation Tax, exemption to an 2284 amount equal to what the lazy individual can get; the man who sits beside the fire toasting his toes or taking scented baths and amusing himself. Speaking from a very wide experience in many industries in England, Scotland, and Wales I am certain that the amount that will be deductable, due to this exemption, will be trifling because, remember, the tax is computed on the basis of Schedule D and the actual amount taken would be very small; but this Amendment will release industry and give confidence that people who put money into trade and industry are entitled to 6 or 7 per cent. as a normal yield not subject to special taxation. I press the Chancellor of the Exchequer to think seriously over this Amendment, which will make very little difference in the yield and will go a long way to re-establish the confidence that is so much needed for those who are engaged in industry.
§ Mr. CHAMBERLAINThis is really a continuation of the discussion which we began upon the Amendment of the hon. Member for the Consett Division of Durham (Mr. A. Williams) much earlier in the day. All I said then applies to the Amendment of my hon. Friend. My hon. Friend will hardly expect the Chancellor of the Exchequer to echo his depreciatory references to the investor in public funds, and his description of that gentleman as a person probably sitting in idleness at home or indulging in scented baths does not seem to have any connection with realities At any rate, the Chancellor of the Exchequer will not single out for special penal legislation or animadversion anybody who invests in public funds at a time when there are none too many and when it is of the first consequence to the nation that their number should be increased. My answer to the hon. Member is that he has in mind a totally different tax from that which we have been considering. The logical conclusion of this proposal is, as was seen by the hon. Member for Consett, not merely that you exempt profits below a certain per cent., but that you graduate the tax on profits above a certain per cent. in order to make good the loss of revenue. The hon. Member on the calculation formed I know not how—as a Member of Parliament or a private individual I should not venture to form a calculation on a matter of this kind—said that the cost of his suggestion to the State would be a trifle. I am advised that it would not be 2285 less than £10,000,000 or £12,000,000. That is not a figure which we look on as trifling. As long as we are discussing Excess Profits Duty, I am urged to take a flat tax on profits, but the moment we come to a flat tax on certain profits, I am urged to transform it into a tax on profits beyond a certain tax-free exemption and then logically by the hon. Member for Consett, graduated.
§ Mr. A. WILLIAMSI did not use the word "graduated." I said I thought that the right hon. Gentleman had something of that sort in his mind.
§ Mr. CHAMBERLAINI may have misunderstood the right hon. Gentleman, though I do not think so. I thought he said that one argument with which I was confronted was that there would be a loss of revenue, to which I felt I could not expose myself. Therefore he suggested that that might be met by a higher rate of tax, where the profits were not merely at the exemption limit, but something above it.
§ Mr. WILLIAMSI was not so precise as that.
§ Mr. CHAMBERLAINThe hon. Member is never precise in constructive suggestion. In criticism he can be as precise as anybody else. Constructive suggestions are vague and always made in such a form that when translated into a project of legislation the real father can be transformed into a violent critic.
§ Mr. WILLIAMSI made a definite suggestion for changing the exemption from one form to another. I did say that the right hon. Gentleman had certain things in his mind and, if so, my suggestion would fit in with his.
§ Mr. CHAMBERLAINI do not want to go into personal controversy with the hon. Gentleman, and will state the case without reference to what I thought he said. You may have a flat rate of tax on profits of certain concerns, but not a flat rate proposal over all, or you may have a scheme of taxation on profits in excess of a certain amount. It seems to me logical that the rate of tax should increase with the amount of the excess above your limit. There you are at once landed in two difficulties. I do not say that they are insuperable, but they are not to be handled, as the right hon. Gentleman the Member for the City of London has said, by a single scheme, but 2286 by a very carefully conceived scheme. You have got to determine what is the real capital in a company on which you are going to allow exemption. When I attempt to do that I have hitherto found universal resistance on the part of those who assume to speak on behalf of industry and commerce, and you have got, in addition, to make that valuation of capital, and to provide that the capital of companies is not re-arranged, and that companies are not reconstructed with a view to the avoidance of the tax in which they would be liable if they remained in their present condition, and with a view to turning their capital into such a form as will render them exempt from tax or liabilities. I think that my hon. Friend recognises that that is a work of difficulty which it is quite impossible for me to undertake at this moment, and that it is not possible to graft on to a proposal for a flat tax a complicated proposal of that kind requiring machinery more elaborate than anything which we have at present.
§ Amendment negatived.
§ Mr BALFOURI beg to move, in Subsection (2, a), after the word "company," to insert the words "(not being a public utility company)."
If I understand the Chancellor of the Exchequer aright earlier in the evening, I gathered that he is to make a proposal to exclude public utility companies for a period of three years. If that is so, I have nothing more to say on this Amendment and would be very glad to accept the proposal of the right hon. Gentleman and to thank him for meeting us in a reasonable manner. It is not possible at this moment to commit the Government to a definite policy for all time regarding public utility companies. Three years will give us time to turn round and will give the Government opportunity to review matters, as to whether exemption can be continued or not.
§ Sir J. BUTCHERI have an Amendment on the Paper which is, I think, designed to meet the same point as that aimed at by the hon. Member. It seeks to insert the words
but not including an undertaking when the rates, tolls, fares, dues, prices, or other charges are regulated by Act of Parliament or Order having the force of an Act.I presume that is the sort of public utility company that the Mover of the 2287 Amendment contemplates and that the Chancellor of the Exchequer proposes to exempt them for three years. If that is so, I can only thank my right hon. Friend for having met us.
§ Mr. G. BALFOURIn answer to my hon. and learned Friend (Sir J. Butcher), I would mention that later on the Paper I have an Amendment to define a public utility company in words that may be appropriate. The definition is:
'A public utility company' means a company authorised by a special Act or an Order confirmed by, or having the effect of, a Statute with power to raise capital by the issue of stock, or the borrowing of money for the purpose of carrying on any gas, water, hydraulic power, or electricity undertaking.I do not say that those words are perfect, but I think they convey a general idea of a public utility undertaking.
§ Mr. CHAMBERLAINI understand that the Amendment which has been moved was not to be moved. I am rather sorry it has been moved, because on Report I must bring my own Clause forward, and I cannot give a definition on the spur of the moment. In regard to the undertakings with which I intended to deal, my proposal is to suspend the operation of the tax in respect of them for three years, so that Parliament may settle how it is to deal with them, and can then review the question of taxing them in the light of the decision taken. The hon. Gentleman's definition is not wide enough to cover the undertakings to which I shall apply my Amendment. If, therefore, he will leave not merely the terms of the concession but the definition of the undertakings to be brought up by me on Report, he will have an opportunity of discussing the matter then. I hope I shall be able to satisfy him.
§ Mr. G. BALFOURI quite understood the Chancellor of the Exchequer. I had no intention of submitting my Amendment now, because I understood I was to withdraw it and also the definition. I wanted only to make a statement of my view, and I am quite prepared to accept the Clause that will subsequently be submitted by my right hon. Friend. I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
2288§ Mr. HOODI beg to move, in Subsection (2, a), after the word "company," to insert the words "(except a company whose business is wholly carried on and directed abroad)."
The object of the Amendment is to exclude from liability to this tax companies which, although incorporated in the United Kingdom but carry on their businesses wholly abroad and are directed abroad. I have no doubt it is in the knowledge of the Committee that a very large number of companies have been incorporated here but carry on their business entirely abroad, one reason for their coming here being that the company laws of this country are looked upon as model laws and another reason being that the money or a portion of it has been found here to start those businesses. This country has benefited to this extent, that it has been paid the incorporation duties in respect of these companies, and it has perhaps benefited incidentally in other ways, but those companies do not pay Income Tax here, and therefore the reasons which I think the Chancellor of the Exchequer gave as to the evasion of the Excess Profits Duty by companies do not apply here. I would remind the Committee that these companies do not earn a penny profit here and therefore on that account do not pay Income Tax. I would ask the right hon. Gentleman whether it is wise now for the first time to impose this tax on companies which might just as well have incorporated themselves abroad instead of here. A good many of them have been incorporated here, and it seems to me that if this tax is to be imposed upon them there is no reason why they should not take themselves away, and in regard to companies which might have come here in the future, there seems no reason why, if this tax is imposed, they should not be incorporated where their business is actually carried on, instead of here.
Mr. TERRELLI desire to support this Amendment, because it raises a question which I put to my right hon. Friend yesterday and which he never answered. As far as companies which are registered in this country and which carry on their business abroad are concerned, I obtained only recently an answer from the Treasury that they paid a total of £35,000,000 a year in Income Tax and Excess Profits Duty, and on 2289 top of that it is proposed to add this Corporation Profits Tax. That is going to make a very heavy burden. I quoted yesterday a case of a company where the profits for this year were anticipated to be £1,000,000, out of which sum, net profits, something over two-thirds, was taken already by this country in the form of taxation. The company had foreign shareholders. The foreign shareholders were clamouring for a transfer of the registration to another country where taxation is lighter. If you oppress a company of this character, you will lose the whole of that revenue. That will be a very serious loss to us all who are taxpayers. It is a most serious question for every taxpayer in this country, and I therefore support the Amendment to exclude companies that are carrying on their businesses abroad from the operation of the Corporation Profits Tax. I do think it is a matter which requires far more consideration than the Committee has given it, because an item of £35,000,000 a year is a very important item indeed, and one which we cannot afford entirely to disregard.
§ Mr. CHAMBERLAINI hope my hon. Friend who moved this Amendment will not press it. Of course, it is true, as I said earlier to-day, that the heavier the weight of taxation the greater the inducement to go outside this country, provided the taxation is not rising in other countries at all comparably, and provided they can get in other countries equal advantages. I do not think they can. Taxation is rising in other countries, and the advantages in the City of London lead me to think that now, as hitherto—though I have heard the same apprehensions expressed ever since I was a Member of this House, or, at least, ever since I attended Budget Debates—those apprehensions are unfounded, and that the London home and management of the companies will outweigh the disadvantages.
§ Mr. CHAMBERLAINYes, "wholly carried on and directed abroad." The hon. Member who supported the Amendment did not make that distinction. Any concession of the kind that my hon. Friend suggests would not be logical to this particular scheme.
§ Mr. HOODMay I point out that my Amendment is directed to companies that do not carry on business here, nor are directed from here, nor earn their profits here.
§ Mr. CHAMBERLAINI am afraid I have become a little confused between the hon. Member's Amendment and the arguments by which his Seconder supported that Amendment. I understood him to quote, or to be dealing with, a company registered in this country incorporated here under the laws of the United Kingdom, but carrying on its business abroad, and with its direction abroad. We impose a tax in respect of the privilege accorded to incorporation in this country, and the conditions which render a corporation liable are fulfilled in the case which the hon. Gentleman has just mentioned and by the supporter of the Amendment.
Mr. TERRELLMay I tell the Chancellor that I have handed in a manuscript Amendment, which is to the effect—possibly it will be convenient to deal with the two Amendments together—after the word "on" in paragraph (a) ["British Company carrying on any trade"], to insert the words "in the United Kingdom" That is a somewhat more vital Amendment than the Amendment which is now before the Committee.
§ Mr. CHAMBERLAINIf I accepted this I should probably have the Mover of the Amendment disclaiming the addition and the hon. Member opposite (Mr. Terrell) would use it as a jumping-off place from which the more easily to drive me further out of the position which I have adopted, and further to reduce the scope of the tax and the limit of its yield I trust under all the circumstances the Mover of the Amendment will see his way not to press it.
§ Amendment negatived.
§ The CHAIRMANThe next Amendment in the name of the hon. and gallant Gentleman (Major Hamilton)—dealing with charges, tolls, rates, etc., regulated by Act of Parliament—is covered by the decision which has been given by the Chancellor.
§ Mr. D. HERBERTCan I not more that Amendment? I was asked to do so by my hon. Friend. It deals with quite an important point.
§ The CHAIRMANYes, but I think the larger point covers the lesser one. I really could not go back in view of the decision which has just been given. The next Amendment is in the name of the hon. Member for Oldham (Mr. Bartley Denniss). I am not quite clear as to whether that is covered by the undertaking of the Chancellor of the Exchequer.
§ Mr. CHAMBERLAINNo, Sir.
§ Sir C. CORYI beg to move, at the end of Sub-section (2, b), to insert the words
Provided that this Part of this Act shall not apply to the profits of a company carrying on the trade or business of producing coal (coal mining) so long as the price at which coal may be sold or the standard of profits of the company is fixed by Act of Parliament or by an order having the effect of an Act.I trust this will receive the sympathetic consideration of the right hon. Gentleman. The coal owners have given over the whole of the Excess Profits Tax in consideration of the guarantee of nine-tenths of their pre-War profits, retaining 10 per cent. for the losses of their more unfortunate neighbours. Therefore they are placed in a worse position than any other industry in the country, and to put upon them a Corporation Profits Tax as well would be something which they could not bear. Not only are they deprived of excess profits, but the prices at which they are allowed to sell coal inland is limited. Therefore I think there are very good reasons for excluding them from this tax.
§ Mr. CHAMBERLAINBefore I reply to this Amendment, may I be allowed to make a statement in regard to business? We had hoped to conclude everything except the Land Values Duties to-night, but I am afraid that that will be impossible, and we ought not to ask the Committee to do it. After consultation with the Leader of the House, I propose to move to report Progress when we have finished the Corporation Profits Tax. I understand that the Land Values Duties will come first to-morrow, and that when we have disposed of them, we shall go on with the rest of the business.
My hon. Friend wishes us to exclude coalowners. I have a good deal of sympathy with the difficulties of the coal industry at the present time, but I cannot possibly accept this Amendment. I have 2292 agreed to temporary exclusion in respect of public utility societies, but they are not merely subject in one form or another to a limitation in their charges and profits, but unlike the coalowners they enjoy no guarantee from the State. The coalowners do enjoy such a guarantee, and I cannot think myself it would be right, and I do not think this House would approve of such an exemption.
§ Sir C. CORYThe profits are made under the direction of the Coal Controller so that they are in a somewhat similar position to public utility companies.
§ Sir J. HARMOOD-BANNERMere sympathy is not much good. We shall have to pay the tax when our profits are absolutely limited to 5 per cent. pre-War standard. There are many concerns which are making a loss, even with the contribution of the State, and yet that contribution is now to have 5 per cent. deducted from it. We want something more than sympathy in such cases as that.
§ Amendment negatived.
§ Mr. WATERSONI beg to move, in Sub-section (3), after the word "limited" ["of its members is limited"], to insert the words, "but does not include a society registered under the Building Societies Acts, 1874 to 1894."
§ Mr. CHAMBERLAINI do not know whether the hon. Gentleman will be content to wait. I cannot promise him any concession at this moment, but I should like to consider the position of the societies for which he is speaking in relation to the concession promised with respect to public utility societies. If he will allow the matter to stand over until Report, I shall be in a better position to answer him.
§ Mr. WATERSONI shall be, pleased, on the suggestion of the right hon. Gentleman, and with the permission of the Committee, to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Captain GANZONII beg to move, in Sub-section (3), after the word "limited" ["of its members is limited"], to insert the words,
but shall not be deemed to include any company incorporated and conducted for the purpose of encouraging, promoting, and protecting the interests of agriculture, housing, or transport, or any general industry in the 2293 United Kingdom, and not having a capital divided into shares.This Amendment is designed to protect societies or companies which have a capital not divided into shares, and I rather hope the right hon. Gentleman may be able to assure us that these societies are not touched by the Corporation Tax. They are societies which can hardly be said to trade; they do not make a profit, or if they do it is entirely devoted to the interests for which the society has been established, and it is not divided up among the shareholders in the form of dividend or any other form. The societies particularly referred to are the Church Army, the Physical Society of London, the Smoke Abatement Institute, the Society of Medical Officers of Health, and the City and Guilds of London Institute for the Advancement of Technical Education. I hope the right hon. Gentleman may be able to assure me that in spite of his somewhat capacious maw for companies generally, companies such as those I have mentioned are not among those liable to Corporation Tax.
§ Mr. CHAMBERLAINAs far as I understand the matter, the cases which my hon. and gallant Friend has in mind are those in which each member of a company guarantees a certain amount, which is not, in fact, paid up, and his liability is limited to the amount of his guarantee. I think that most of these companies carry on some kind of trading operations, although they are not engaged in trade for profit as a primary object. They do come within the scope of the Bill as drawn, but, if my hon. and gallant Friend will allow me, I will consider his suggestion, also, in the light of the concession which I have already made. The difficulty of making these concessions is that it opens the door, and it is difficult to know exactly where to draw the line. Having made that concession with regard to public utility companies, I should like to consider how far there is an analogy between them and such associations as my hon. and gallant Friend has in mind.
§ Captain GANZONIHaving regard to what the right hon. Gentleman has said, I shall not press the Amendment. I think it must be present to his mind that certain of these incorporated societies do trade to a certain extent, though their profits are nominal and are not divided up, but 2294 are devoted to the purposes for which the societies were formed.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
Mr. MacCALLUM SCOTTI desire to oppose the Motion that the Clause, as amended, stand part of the Bill; and I do so for two reasons. In the first place, this is not a Corporation Tax, although it is named a Corporation Tax in the Clause. A Corporation Tax would be a tax imposed on all corporations in respect of the privileges accorded to them in regard to trading under limited liability. It would be imposed upon them whether they made a profit or not. This, in substance and in effect, is an income Tax. It is a tax on some profits which have to be earned in a certain class of business. It is an Income Tax with two characteristics. In the first place, it is not applied to all incomes on the same principle, and in the second place it is not subject to the ordinary exemptions and abatements which apply to small incomes. In view of the Report of the Royal Commission on Income Tax, and of the fact that Income Tax is going to be dealt with more fully at a later stage, I think it is inadvisable to complicate the matter by dealing with it in this piecemeal way. It will introduce a wholly unnecessary measure of complication into the consideration of the subject of Income Tax in the near future. My second objection to this tax arises, to some extent, from its application to cooperative societies. That was not fully dealt with in the very short discussion that we had at the beginning of this sitting, and I think the Chancellor of the Exchequer made a mistake in closuring that discussion.
§ The CHAIRMANThe hon. Member is criticising both the action of the Committee and the action of the Chair.
Mr. MacCALLUM SCOTTI have no-desire to criticise the action of the Chair, and I think that, the matter having been raised, it was quite right to leave it to the decision of the Committee. Regarding this as an Income Tax, I can see no justification, on the showing of the Chancellor of the Exchequer, for applying it to co-operative societies. The whole 2295 basis of the proposals of this Bill is that Income Tax should not be imposed upon co-operative societies.
§ The CHAIRMANThe hon. Member must not, on the question, "That the Clause, as amended, stand part of the Bill," review the decisions of the Committee in proceeding through the various Amendments. He can deal only with the general question of the effect of the tax.
Mr. SCOTTI do not propose to go in any detail into the arguments, but simply to state that one of the reasons why I desire to vote against the Clause is that in its revised and amended form it applies to co-operative societies. I will content myself by saying that I propose to vote against the Clause because, in the first place, it is a camouflaged Income Tax, and because, in the second place, it applies to co-operative societies.
§ Sir F. BANBURYI sincerely trust that the Committee will reject this Clause, which is undoubtedly a second, or if you include Super-tax, a third Income Tax. My second objection to it is that it imposes a very great hardship upon companies whose profits are small. It may be all very well for a company earning 20 or 30 per cent. to contribute 2s. in the £, but to make shareholders in companies paying 3 and 4 per cent. pay 2s. or perhaps more, because, in some cases, it may be 8s., in addition to the enormous burden which they have already to bear, seems to me quite wrong. I believe that this tax originated in certain people evading Super-tax by turning themselves into limited liability companies, paying small dividends, and putting the rest to reserve. Some years ago it was suggested to me as an easy way of avoiding Super-tax by a former Member of the Government. I need not say That I did not follow his suggestion. I quite agree that sort of thing ought to be stopped, though I do not think that there are many instances, but this is not the right way to stop it. Do not, because something is wrong and you want to stop it, inflict a serious wrong upon a great number of people who have been doing their duty to the State and are doing no wrong. The tax this year is only going to bring in £3,000,000, and I trust, after the long discussion which 2296 has shown the evils of it, that the Government will consent to withdraw the tax. If it be necessary, let us bring in legislation to deal with the evil which I have outlined without inflicting hardship upon a large number of people.
§ Colonel GRETTONI trust that the Committee will not consent to this tax which is a third income tax with the particular vice that it taxes at the source and not on the income when it reaches the individual. As well as the reason given for the tax by the right hon. Baronet (Sir F. Banbury) there was the object that it was intended to take the place of the Excess Profits Duty. It is a new engine of taxation capable of inflation to any extent. Any Chancellor can come down and say that it is only 5 per cent, and that the country needed money and he might increase it to 10 per cent. It is a most formidable engine to use against the taxpayer. It has already landed the Government in difficulties and evidently the details have not been threshed out by the authors. It has caused a totally unnecessary and unfruitful controversy as to the cooperative societies. On all those grounds I propose to vote against this tax as an unnecessary impost on the subject and not needed for the expenses of the current year.
§ Lieut.-Commander ASTBURYMay I ask if an Amendment of which I gave notice [to leave out the Clause] has been ruled out of Order?
§ The CHAIRMANWe are now on the Question, "That the Clause, as amended, stand part of the Bill," and if the hon. Member had an Amendment we have gone beyond that point.
§ 11.0 P.M
§ Mr. BIGLANDI have been present during nearly the whole of the Debate on this Clause and in my judgment the Committee has not been enlightened on many points. I have been utterly unable to ascertain the exact conditions under which some shareholders holding ordinary shares in limited companies may find themselves charged 2s. in the £, whilst others will only be charged 1s. I am told companies in which all the shares are ordinary shares cannot be charged more than 5 per cent., but if a company has a large amount of debenture and preference stock the holders of ordinary shares may find themselves charged 2s. in the £ before they pay 2297 Income Tax, Super-tax and other taxes. The right hon. Baronet (Sir F. Banbury) has rightly said that if this Clause becomes the law of the land we are practically mulct in three Income Taxes, because this is undoubtedly another form of Income Tax. I sincerely trust, as the Chancellor of the Exchequer has already admitted that the tax would fall with great severity on all those companies whose dividend is now regulated by Act of Parliament, and they are not allowed to pay more than a certain specified dividend, that the Clause will not become the law for at least three years, and shall then be reconsidered. When we have such a statement as that from the Chancellor I take it that the Committee will be of the opinion that the whole Clause had better be regulated for three years, and that at the end of the three years we may reconsider the whole question of the tax. To my mind the principle of it is wrong, and its incidence will be most unjust and unfair, and on every ground, after the four hours' discussion we have had and the number of cases which have been proved, especially those limited liability cases which, through the War, have found themselves in great difficulties, unable to pay their preference dividends, unable to meet their debenture interest—there have been so many cases brought to light of intense hardship which will be brought about if this Clause becomes law, that I trust the Committee will put such pressure on the Chancellor that he will admit the judgment of the Committee is that Clause 44 should not stand part.
§ Lieut.-Commander ASTBURYI think the course of the Debate has shown that this proposed new tax bristles with innumerable difficulties and will be most unjust in its application. Moreover, I consider this is the first time a tax has been levied without taking into account the ability of the person to pay. It is practically nothing more or less than a debenture charge against the ordinary shareholders, and in this way it is going to press most heavily on the working classes, the small investor and more than ever on that of the large middle class. It is all very well for the Chancellor of the Exchequer to say it is only on an entity. We all know that entity is distributed amongst the shareholders, whether preference or ordinary shareholders, and it means that if any company is in a position out of its 2298 profits only to pay 5 per cent., with the deduction of this tax they will not be able to pay that 5 per cent., and in that way the individual is paying more than Income Tax. He is in fact paying double tax. An anamoly is that a man or woman will be taxed for something that he never receives. An investor who has £1,000 in any company gets a dividend of 5 per cent. £50 a year. He is below the limit of the assessment for Income Tax. He will nevertheless have indirectly paid this tax and will have no means of getting it back. I want to make that a very strong point for the middle classes and also for those people who have saved till they got to the age of 60 and provided themselves with the small amount to live on for the rest of their lives, and it is quite unfair that they should be subjected to this tax. It means that, although this is going to hit the wealthy man it is going to hit the poorer classes to a far greater extent. For this reason that the ordinary man of wealth will invest his money in debenture stock and Government securities, whereas the middle-class people, with less capital to invest, will place their money in ordinary shares. Therefore, it is going to hit these people far worse.
This tax will deter the great mass of people from investing in ordinary industrial shares, because they know that even in good times on industrial shares they may get 7 or 8 per cent.; but they have to consider that there will be this debenture charge before their ordinary shares, and they will be more tempted to invest, if they can, in debentures or in Government securities. That is a reason why I consider that this tax will be a bar on industry.
I am not going to indulge in the language of hon. Members who declare that this tax is going to destroy industry, but I do say that we are saddled with Excess Profits Duty, and by putting this tax on the top of the Excess Profits Duty, you are laying a burden on industry which will fail to give the amount that you expect to receive. I am speaking not only as a Member of this House, but as a director of the Manchester Chamber of Commerce. The Chancellor of the Exchequer knows that we supported him on the Excess Profits Duty, of 60 per cent., but I should like to draw his attention to the fact that in Manchester this tax is looked upon in a far worse light 2299 than the Excess Profits Duty. In the Excess Profits Duty you are taxing a man on his ability to pay. You do not take his excess profits unless he has made something, but in this tax you are taking his profit whether he has the ability to pay or not and you are going back and putting the tax on his pre-War standard. Therefore, you are hitting him both ways, hitting him with Excess Profits Duty and on his pre- War standard. I urge the Chancellor of the Exchequer to withdraw this tax for the present. It is with great reluctance that I make this appeal, because I know the terrible burden with which the right hon. Gentleman has to contend. If it had not been that I consider it to be my bounden duty, speaking not only for the traders in Lancashire, and especially for the textile trade, which is the second largest industry in the country, and also for the great middle class, I should have been only too happy to have remained silent and not to have made a plea to add to the burden of the right hon. Gentleman.
§ Major-General SEELYMany of us who would wish to give general support to the principle embodied in this Clause are in a difficulty, owing to the words which the Chancellor of the Exchequer used in reference to the very important Amendment moved by the hon. Member for Kettering (Mr. Waterson). Many of us desire to support the Government in spite of the remarks of the hon. Member who has just spoken, but we do think that, as some exemptions have been made, the remarkably strong case for the building societies ought certainly to be included in the exemption. The matter was not debated, because the Chancellor of the Exchequer indicated that he would consider it. Having been a Member of the House for 20 years I never heard a concession which was in its essence more thin than the actual words of the Chancellor of the Exchequer. The case of the building societies is very strong—owing to various causes, the failure of the Government to build houses, and the efforts which the State must make by every means in its power, including taxation, to get houses built. The Chancellor of the Exchequer said that he would consider the matter, but he could give no promise whatever. If the Financial Secretary could give us a little more 2300 comfort in the matter, it would make it easier for many of us who wish to support this Clause to go into the Lobby in support of it, but this is a point to which we attach such importance that we are justified in asking for a clearer statement with regard to the concessions that may possibly be made.
§ Sir J. HARMOOD-BANNERBefore we part with this Clause we ought to appreciate the reason of its creation. It is certainly peculiar. The Excess Profits Duty was very much in the minds of all the trading community for a considerable time, and I happened to be a party to introducing a deputation to the Chancellor of the Exchequer when there was suggested, as an alternative to the Excess Profits Duty, the tax now brought forward in Clause 44. To the astonishment of the trading community, when the Finance Bill was brought forward, they found that not only was the Excess Profits Duty raised from 40 per cent. to 60 per cent., but in addition there was this 5 per cent. Corporation Tax. It was rather alarming that their own suggestion was accepted by Somerset House authorities and by the Government, and one had this penal Clause in addition to the Excess Profits Duty. I would like to know whether this Clause is intended as an educational measure for the Government in order that they may appreciate truly what they can do with this 5 per cent. instead of a graduated Excess Profits Duty, or whether it is intended to have a double tax, because it would be some consolation to many of us if the Chancellor of the Exchequer would inform us that this was an educational process for ascertaining a new method of taxation to take the place of the Excess Profits Duty? But we have some apprehension when we find him applying the double whip to us. It would be very much better to be more generous to those who made this suggestion to withdraw this £3,000,000 from the present budget, and allow it to stand over until he had more thoroughly studied what the 5 per cent. would give. I would like to refer those who study the Scriptures to the case of Rehoboam. He was asked what he would do in a certain case, and he said, "My father chastised you with whips, but I will chastise you with scorpions. My little finger is bigger than my father's loins." We have seen a great deal of the little finger of the Excess 2301 Profits Duty. We are always ready to assist in paying our taxes, but we never did expect, when we suggested an alternative, that it would be taken as the scorpion to chastise us in the manner proposed in this tax. I venture to appeal to the Chancellor of the Exchequer to withdraw the Clause.
§ Mr. BALDWINI am very much moved by the illustration of my hon. Friend. I would rather put it that we are, all of us in this country, in the position of the Jews who went to Jerusalem to be taxed, and that it is in connection with the carrying out of this process that we are all gathered here this evening. If we cast our minds back to the speech of the Chancellor of the Exchequer on the introduction of his financial statement for the year, it will be recalled that he said he was going to ask for a great sacrifice, because he believed that the circumstances of the country required a great sacrifice. To a certain extent he received, at that time the sympathy of the House, because they gave him the Second Reading of the Finance Bill without a division. I am quite aware that that in no way prejudices any Member, or any section of the Committee, in Debate at this stage, but I think it does mean that we accepted then, as I am sure most of us accept now, the fact that we have still this year, and perhaps for some little time longer yet, to continue making those financial sacrifices which we made, and made with much better spirit naturally, during the War.
The hon. Member said, "Is this Corporation Profit Tax to remain as a double tax, in harness with the Excess Profits Tax?" The answer to that is "No." The idea in the mind of the Chancellor of the Exchequer in devising this tax was to introduce a tax on the industry of the country which might be left when the Excess Profits Tax were removed, and which would help to provide that increased revenue which we know will be required for a great many years, although we hope, and with reason, that before many years are gone we shall be able to subsist by raising a good deal less money than we are raising to-day. Of course, a new tax of this kind, or of any kind, is bound to be examined with great care, and it is certain to cause a great deal of criticism—criticism from 2302 those who quite rightly are anxious to make it fair and efficient, and criticism from those who are anxious to see it set aside, who, perhaps in Debate and in the process of deputations, express themselves as only too ready to find an alternative, but whose real desire is to get rid of the tax altogether. I cannot hold out any hope that the Government are prepared to get rid of this tax altogether, but I hope also that they are not showing themselves unwilling in any way to examine and to have examined the details of this tax critically, and to try and meet as far as they can, when they have had further time to reflect on some of the difficult questions which have been raised, on the Report stage, the various views which have been expressed in the course of the Debate.
My right hon. Friend, the Member for Ilkeston (Major-General Seely) put a point to me with reference to an undertaking which the Chancellor gave in answer to an Amendment moved and then very courteously withdrawn by my hon. Friend, the Member for Kettering (Mr. Waterson). The Chancelor of the Exchequer is not here at this moment, but I heard what he said. I think I know what is in his mind, and I will try and express his pledge in my own words, which may or may not give the satisfaction which my right hon. Friend desires. The Chancellor has undertaken this evening to define, on the Report stage what he means by public utility companies, with a view to their exemption for the time being from the incidence of this tax. He regards the building societies sympathetically. That I can say without qualification, but until he comes to examine the matter—and he has had no opportunity of doing that yet—it is impossible for him to say whether he will be able to utilise that phrase, a public utility company, to embace these societies. Beyond that I am afraid I cannot go. He approaches it sympathetically, he is anxious to do it if he can, and he will in due course put down a Clause upon the paper. I need hardly point out to my hon. Friend that if the Chancellor should not find himself able to do what he desires to do, my hon. Friend the Member for Kettering will have ample time in which to bring up this matter again and have it debated on the Report stage. I hope the Chancellor 2303 and myself may be able to meet him in the fullest way he desires. The principle of this tax has now been clearly defined, and the issue is very simple. It is between those who are willing to help the Chancellor of the Exchequer to perfect a new instrument of taxation with a view to the future needs of the country and those who desire to throw out this new tax.
§ Mr. PRETYMANNo.
§ Mr. BALDWINI do not blame the attitude, but it is an attitude that I thought I perceived from the speeches of some of those hon. Members who have spoken, and of course, for those who feel that a tax of this kind cannot be made equitable or workable, they must vote against it, but I think the good sense of the Committee will be given to the support of the Chancellor of the Exchequer in this matter, and that we may now be allowed to take a Division upon this Clause and bring our proceedings to an end at not too late an hour to-night.
§ Mr. PRETYMANI feel very strongly on this matter, and I do not think I should have risen again but for something which was said by my right hon. Friend. I submit to the Committee that the statement he has made that this is intended as a permanent tax to replace the Excess Profits Duty throws upon us the great responsibility of starting a totally new taxation. This is a most serious new departure, and I oppose this tax freely because, so far as I am aware, it will not touch me at all, and if I spoke from a personal point of view I should say that this was a tax which did not touch land, in which I am interested, and would stand aside and say, let this tax fall upon companies in which I am not interested, but I cannot take that attitude. I believe everyone of us who thinks deeply on financial questions has a responsibility to the country, on purely national grounds, to see that our taxation should be based on sound principles. I only fought one tax furiously before, and that was the Land Taxes. I was interested then, but my main reason for fighting them was because I believed them to be unsound in principle, as I believe this tax to be unsound in principle. The Chancellor of the Exchequer has removed from the orbit of the tax an immense number of industries. Surely if a tax is to be applied to a great 2304 area of trade it ought to cover the whole area without exception, but you are piling this tax upon a small proportion of interests. The whole of the national securities are to go free, the railways are to go free for three years, and the dock companies and statutory companies and. a large proportion of others are to go free. What is left? Nothing but a bad principle, and the Chancellor of the Exchequer suggested this was a Corporation Tax. It is not a Corporation Tax, and its title is not Corporation Tax, but Corporation Profits Tax. Corporation Profits are already taxed for Income Tax under Schedule D, and here are the taxing words of the Statute:
Tax under this Schedule shall be charged in respect of—(a) The annual profits or gains arising or accruing—(i)to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere.All this profit is included in this tax, May I call attention to Clause 45 of this Bill, which says in Sub-section (2):Subject to the provisions of this Act profits shall be the profits and gains determined on the same principles as those on which the profits and gains of a trade would be determined for the purposes of Schedule D set out in the First Schedule to the Income Tax Act, 1918.There you have direct proof that this is nothing but Income Tax, and I have proved that it is nothing but an extension of Income Tax, but unaccompanied by all the exemptions and abatements which the Royal Commission tried to elaborate in order to make the Income Tax fair. Yet here you have an Income Tax up to 2s. in the £ which may be levied on people who get absolutely nothing out of the company. Supposing there is a small profit on the ordinary shares of the company subject to this tax, which might be sufficient to pay, say, one per cent. to the ordinary shareholders. The whole of that one per cent. might easily be absorbed by this ten per cent. limit which is imposed by this tax upon the total profits of the company. Therefore, although there might be enough to pay some very poor people the very small dividend of one per cent. before a single penny of it reached them it would be absorbed by this tax, where other people would pay nothing. May I add this—for really this is an important matter and a national issue—and though 2305 I do not want to defend the Committee [HON. MEMBERS: "Go on!"] I say that this tax will fall upon people who are absolutely exempt from taxation under the Income Tax Acts, entirely exempt, yet this tax will fall upon them.The point I wish to make is this, that direct taxation of this kind is only paid by a very small proportion of the responsible voters of this country. I regard it as most injurious that this direct taxation, which though it bears three or four different names, all falls upon the same identical source, and diminishes it. Each different call diminishes the amount obtainable by the other call. It is most important in the vital financial interests of this country that the voters, as a whole, should realise the extent of the total of their direct taxation. As it is they are only told, "Here is a six shillings Income Tax." Here you are actually increasing your Income Tax to eight shillings, though you do not say so. You camouflage it, and hide it up, and put on the two shillings in one direction and six shillings in the other. I entirely recognise the friendly way in which the Chancellor has admitted my criticisms of this Bill. I desire to make no attack upon him, nor upon the right hon. Gentleman (Mr. Baldwin), who has just spoken, and whose remarks I listened to with the greatest regard. I have no desire to attack the Government. There is the necessity for raising the money. So far from any other desire, I wish to help the Chancellor to raise the money. I will gladly help him and be prepared to sanction any sacrifice. I said so in the Debate on the Excess Profits Duty. This, at any rate, has the merit of being only temporary. If this Corporation Profits Tax were only put forward as a temporary expedient the principles of which were not advocated as permanent, I would not say so much. But we have it proposed as permanent. I regard it as vicious. Therefore much as I desire to help the Chancellor, and as I would help him if he would say that this is a temporary tax, I cannot. We know it is a vicious tax. Because the tax is partial, unfair, and has the vices to which I have referred, while I would vote for the Government if this were a temporary measure, as it is proposed as a permanent tax, whatever the consequences may be, I am bound to vote against it and to ask others to do so.
§ Mr. BONAR LAW (Leader of the House)If the Committee will allow me, I should like to say a few words in answer to the speech of my right hon. Friend, the sincerity of which I fully realise. The position really is this. We have got a tremendous burden to bear. It has got to be borne by somebody. The view of the Government was that so long as industry was in its present position, or anything like it, industry should bear the burden beyond that borne by people with fixed incomes derived from other sources. When my right hon. Friend says that he regards this tax as permanent, he means only so long as it is right in the interests of the country that this special tax should be kept on industries. What my right hon. Friend the Chancellor of the Exchequer had in view was that it might possibly be found that either by this Corporation Profits Tax, or by some adaptation of it, we might get the proper method of obtaining the special revenue from industries which the needs of the country at the present time demand. Nobody, I think, would maintain—I certainly should not—that if trade arrived at the position that it could not bear any other burden than is at present borne, the whole position must not be reconsidered. That is obvious. I cannot imagine that this Committee, or the country as a whole, would deny the justice of the foundation upon which the tax is based. Since this burden has to be borne, it ought to fall upon the people who are making the profits, and not on those with fixed incomes. No one suggests that any tax put on any particular section of the people is a good tax in itself. All we say is that in the special circumstances arising out of the War, it is necessary to raise this money, although many hon. Members seem to think we can defer it. The burden is there; we have to bear it, and my contention is that in the present circumstances the proposal of my right hon. Friend is a fair one and one which the Committee ought to adopt.
§ Mr. G. TERRELLI wish to say a few words on the subject of this tax. [HON. MEMBERS: "Divide, divide."]
§ The DEPUTY-CHAIRMANIf the Committee will give the hon. Member a few moments, perhaps he will conclude his remarks.
§ Mr. TERRELLIt is only on very rare occasions that I address the House[HON. MEMBERS: "Divide, divide."]
§ The DEPUTY-CHAIRMANThe Committee might let the hon. Member proceed.
§ Mr. TERRELLAll I wish to say is this: Last night the Excess Profits Duty received a considerable amount of support from a certain section of this Committee, and to-night's Debate shows that to a very large extent those who were in favour of the Excess Profits Duty are vigorously opposed to the Corporation Tax. There are two duties before the Committee, both of them admittedly bad. The Chancellor of the Exchequer has told us he must get the money, and it is therefore a choice between two evils. The Corporation Tax is, I think, the less harmful of the two, because there is in it a measure of equality in the sacrifice which has to be made. I shall, therefore, on this occasion, support the Government. The Manchester Chamber of Commerce— [Interruption. ]
§ Major Sir KEITH FRASEROn a point of Order—
§ The DEPUTY-CHAIRMANI hope the hon. Member will be permitted to conclude his speech.
§ Sir F. BANBURYrose in his place, and claimed to move "That the Question be now put."
§ Mr. TERRELLI may say, Sir—
§ The DEPUTY-CHAIRMANDoes the hon. Member wish to continue his speech?
§ Mr. TERRELLYes.
§ The DEPUTY-CHAIRMANThe Question is "That the Question be now put."
§ Question put, "That the Question be now put."
§ The Committee divided: Ayes, 227; Noes, 21.
2309| Division No. 207.] | AYES. | [11.45 p.m. |
| Adair, Rear-Admiral Thomas B. S. | Conway, Sir W. Martin | Henderson, Major V. L. (Tradeston) |
| Agg-Gardner, Sir James Tynte | Coote, Colin Reith (Isle of Ely) | Henry, Denis S. (Londonderry, S.) |
| Amery, Lieut.-Col. Leopold C. M. S. | Cope, Major Wm. | Herbert, Dennis (Hertford, Watford) |
| Archer-Shee, Lieut.-Colonel Martin | Davidson, Major-General Sir J. H. | Hills, Major John Waller |
| Armitage, Robert | Davies, Alfred Thomas (Lincoln) | Hinds, John |
| Astbury, Lieut.-Commander F. W. | Davies, Thomas (Cirencester) | Hirst, G. H. |
| Atkey, A. R. | Davies, Sir William H. (Bristol, S.) | Hohler, Gerald Fitzroy |
| Baird, Sir John Lawrence | Dawes, James Arthur | Hood, Joseph |
| Baldwin, Rt. Hon. Stanley | Dennis, J. W. (Birmingham, Deritend) | Hope, Sir H. (Stirling & Cl'ckm'nn'n,W.) |
| Balfour, George (Hampstead) | Dewhurst, Lieut.-Commander Harry | Hope, James F. (Sheffield, Central) |
| Banbury, Rt. Hon. Sir Frederick G. | Duncannon, Viscount | Hope, Lt.-Col. Sir J. A. (Midlothian) |
| Banner, Sir John S. Harmood- | Du Pre, Colonel William Baring | Hopkinson, A. (Lancaster, Mossley) |
| Barnston, Major Harry | Edgar, Clifford B. | Horne, Sir R. S. (Glasgow, Hillhead) |
| Barrand, A. R. | Edwards, Major J. (Aberavon) | Hotchkin, Captain Stafford Vere |
| Barrie, Rt. Hon. H. T. (Lon'derry, N.) | Elliot, Capt. Walter E. (Lanark) | Hunter, General Sir A. (Lancaster) |
| Barton, Sir William (Oldham) | Eyres-Monsell, Commander B. M. | Hunter-Weston, Lieut-Gen. Sir A. G. |
| Bell, Lieut.-Col. W. C. H. (Devizes) | Falcon, Captain Michael | Hurd, Percy A. |
| Bellairs, Commander Carlyon W. | Fell, Sir Arthur | Jephcott, A. R. |
| Betterton, Henry B. | Fildes, Henry | Jodrell, Neville Paul |
| Bigland, Alfred | FitzRoy, Captain Hon. E. A. | Johnstone, Joseph |
| Bird, Sir A. (Wolverhampton, West) | Ford, Patrick Johnston | Jones, Sir Edgar R. (Merthyr Tydvil) |
| Blair, Reginald | Foreman, Henry | Jones, Henry Haydn (Merioneth) |
| Blane, T. A. | Forestier-Walker, L. | Jones, J. T. (Carmarthen, Llanelly) |
| Borwick, Major G. O. | Forrest, Walter | Jones, William Kennedy (Hornsey) |
| Boscawen, Rt. Hon. Sir A. Griffith- | Foxcroft, Captain Charles Talbot | Kellaway, Rt. Hon. Fredk. George |
| Bowerman, Rt. Hon. Charles W. | Fremantle, Lieut.-Colonel Francis E. | Kidd, James |
| Bowyer, Captain G. E. W. | Galbraith, Samuel | King, Commander Henry Douglas |
| Brassey, Major H. L. C. | Gange, E. Stanley | Knights, Capt. H. N. (C'berwell, N.) |
| Bridgeman, William Clive | Ganzoni, Captain Francis John C. | Lane-Fox, G. R. |
| Briggs, Harold | Gardner, Ernest | Law, Alfred J. (Rochdale) |
| Broad, Thomas Tucker | Gibbs, Colonel George Abraham | Law, Rt. Hon. A. B. (Glasgow, C.) |
| Brown, Captain D. C. | Gilbert, James Daniel | Lawson, John J. |
| Bruton, Sir James | Gilmour, Lieut.-Colonel John | Lewis, Rt. Hon. J. H. (Univ., Wales) |
| Burdon, Colonel Rowland | Glyn, Major Ralph | Lewis, T. A. (Glam., Pontypridd) |
| Butcher, Sir John George | Goff, Sir R. Park | Lister, Sir R. Ashton |
| Cape, Thomas | Gould, James C. | Lloyd-Greame, Major Sir P. |
| Carew, Charles Robert S. | Graham, D. M. (Lanark, Hamilton) | Locker-Lampson, Com. O. (H'tingd'n) |
| Carr, W. Theodore | Graham, R. (Nelson and Colne) | Lorden, John William |
| Casey, T. W. | Grayson, Lieut.-Colonel Sir Henry | Lort-Williams, J. |
| Cayzer, Major Herbert Robin | Green, Albert (Derby) | Loseby, Captain C. E. |
| Cecil, Rt. Hon. Evelyn (Birm., Aston) | Greene, Lt.-Col. Sir W. (Hack'y, N.) | Lunn, William |
| Chamberlain, Rt. Hn. J. A.(Birm.,W.) | Greenwood, William (Stockport) | Lyle, C. E. Leonard |
| Churchill, Rt. Hon. Winston S. | Greig, Colonel James William | McLaren, Robert (Lanark, Northern) |
| Clay, Lieut.-Colonel H. H. Spender | Gretton, Colonel John | Macleod, J. Mackintosh |
| Clough, Robert | Grundy, T. W. | Macmaster, Donald |
| Coates, Major Sir Edward F. | Hacking, Captain Douglas H. | McNeill, Ronald (Kent, Canterbury) |
| Coats, Sir Stuart | Hallwood, Augustine | Marriott, John Arthur Ransome |
| Cobb, Sir Cyril | Hall, F. (York, W. R., Normanton) | Mitchell, William Lane |
| Colvin, Brig.-General Richard Beale | Hayday, Arthur | Montagu, Rt. Hon. E. S. |
| Moore, Major-General Sir Newton J. | Roberts, Sir S. (Sheffield, Ecclesall) | Thomson, F. C. (Aberdeen, South) |
| Moore-Brabazon, Lieut.-Col. J. T. C. | Robinson, S. (Brecon and Radnor) | Thomson, T. (Middlesbrough, West) |
| Moreing, Captain Algernon H. | Robinson, Sir T (Lancs., Stretford) | Tootill, Robert |
| Murray, John (Leeds, West) | Rodger, A. K. | Townley, Maximilian G. |
| Murray, Major William (Dumfries) | Rose, Frank H. | Tryon, Major George Clement |
| Nall, Major Joseph | Roundell, Colonel R. F. | Vickers, Douglas |
| Neal, Arthur | Royce, William Stapleton | Wallace, J. |
| Norris, Colonel Sir Henry G. | Royden, Sir Thomas | Walters, Sir John Tudor |
| Palmer, Charles Frederick (Wrekin) | Sanders, Colonel Sir Robert A. | Weston, Colonel John W. |
| Parkinson, John Allen (Wigan) | Seely, Major-General Rt. Hon. John | Wheler, Lieut.-Colonel C. H. |
| Pease, Rt. Hon. Herbert Pike | Shaw, Thomas (Preston) | White, Lieut.-Col. G. D. (Southport) |
| Pennefather, De Fonblanque | Shaw, William T. (Forfar) | Whitla, Sir William |
| Perring, William George | Short, Alfred (Wednesbury) | Wild, Sir Ernest Edward |
| Philipps, Gen. Sir I. (Southampton) | Sitch, Charles H. | Williams, Lt.-Com. C. (Tavistock) |
| Pollock, Sir Ernest M. | Smith, Harold (Warrington) | Wills, Lieut.-Colonel Sir Gilbert |
| Pownall, Lieut.-Colonel Assheton | Sprot, Colonel Sir Alexander | Wilson, Rt. Hon. J. W. (Stourbridge) |
| Preston, W. R. | Stanley, Major H. G. (Preston) | Wilson, Colonel Leslie O. (Reading) |
| Pretyman, Rt. Hon. Ernest G. | Stanton, Charles B. | Wilson, W. Tyson (Westhoughton) |
| Pulley, Charles Thornton | Starkey, Captain John R. | Winterton, Major Earl |
| Purchase, H. G. | Steel, Major S. Strang | Wood, Hon. Edward F. L. (Ripon) |
| Rae, H. Norman | Stephenson, Colonel H. K. | Wood, Sir J. (Stalybridge & Hyde) |
| Ramsden, G. T. | Stewart, Gershom | Wood, Major S. Hill- (High Peak) |
| Raw, Lieutenant-Colonel N. | Sturrock, J. Leng | Young, Sir Frederick W. (Swindon) |
| Rees, Sir J. D. (Nottingham, East) | Sugden, W. H. | Younger, Sir George |
| Remnant, Sir James | Sutherland, Sir William | |
| Rendall, Athelstan | Sykes, Sir Charles (Huddersfield) | TELLERS FOR THE AYES.— |
| Richardson, Alexander (Gravesend) | Talbot, G. A. (Hemel Hempstead) | Lord E. Talbot and Mr. Dudley |
| Richardson, R. (Houghton-le-Spring) | Thomas, Brig.-Gen. Sir O. (Anglesey) | Ward. |
| NOES. | ||
| Acland, Rt. Hon. F. D. | Maclean, Neil (Glasgow, Govan) | Tillett, Benjamin |
| Barnes, Major H. (Newcastle, E.) | Morgan, Major D. Watts | Walsh, Stephen (Lancaster, Ince) |
| Benn, Captain Wedgwood (Leith) | Newbould, Alfred Ernest | Waterson, A. E. |
| Brace, Rt. Hon. William | Newman, Sir R. H. S. D. L. (Exeter) | White, Charles F. (Derby, Western) |
| Edwards, C. (Monmouth, Bedwellty) | Remer, J. R. | Williams, Aneurin (Durham, Consett) |
| Finney, Samuel | Scott, A. M. (Glasgow, Bridgeton) | |
| Hartshorn, Vernon | Sexton, James | TELLERS FOR THE NOES.— |
| Holmes, J. Stanley | Thorne, G. R. (Wolverhampton, E.) | Lieut.-Commander Kenworthy and |
| Major Entwistle. |
§ Question put accordingly "That the Clause, as amended, stand part of the Bill."
2310§ The Committee divided: Ayes, 145; Noes, 99.
2311| Division No. 208.] | AYES. | [11.55 p.m. |
| Agg-Gardner, Sir James Tynte | Dawes, James Arthur | Jephcott, A. R. |
| Amery, Lieut.-Col. Leopold C. M. S. | Duncannon, Viscount | Jodrell, Neville Paul |
| Archer-Shee, Lieut.-Colonel Martin | Du Pre, Colonel William Baring | Jones, Sir Edgar R. (Merthyr Tydvil) |
| Baird, Sir John Lawrence | Edgar, Clifford B. | Jones, Henry Haydn (Merioneth) |
| Baldwin, Rt. Hon. Stanley | Entwistle, Major C. F. | Jones, J. T. (Carmarthen, Llanelly) |
| Barnston, Major Harry | Eyres-Monsell, Commander B. M. | Jones, William Kennedy (Hornsey) |
| Barrand, A. R. | Falcon, Captain Michael | Kellaway, Rt. Hon. Fredk. George |
| Barrie, Rt. Hon. H. T. (Lon'derry, N.) | Fildes, Henry | Kidd, James |
| Barton, Sir William (Oldham) | Ford, Patrick Johnston | King, Commander Henry Douglas |
| Bell, Lieut.-Col. W. C. H. (Devizes) | Foreman, Henry | Lane-Fox, G. R. |
| Bellairs, Commander Carlyon W. | Forestier-Walker, L. | Law, Alfred J. (Rochdale) |
| Betterton, Henry B. | Forrest, Walter | Law, Rt. Hon. A. B. (Glasgow, C.) |
| Blair, Reginald | Fremantle, Lieut.-Colonel Francis E. | Lewis, Rt. Hon. J. H. (Univ., Wales) |
| Borwick, Major G. O. | Ganzoni, Captain Francis John C. | Lewis, T. A. (Glam., Pontypridd) |
| Boscawen, Rt. Hon. Sir A. Griffith- | Gardner, Ernest | Locker-Lampson, Com. O. (H'tingd'n) |
| Brassey, Major H. L. C. | Gibbs, Colonel George Abraham | Lorden, John William |
| Bridgeman, William Clive | Gilbert, James Daniel | Lort-Williams, J. |
| Briggs, Harold | Gilmour, Lieut.-Colonel John | Loseby, Captain C. E. |
| Broad, Thomas Tucker | Glyn, Major Ralph | Lyle, C. E. Leonard |
| Brown, Captain D. C. | Goff, Sir R. Park | Macleod, J. Mackintosh |
| Bruton, Sir James | Grayson, Lieut.-Colonel Sir Henry | Macmaster, Donald |
| Butcher, Sir John George | Green, Joseph F. (Leicester, W.) | McNeill, Ronald (Kent, Canterbury) |
| Carew, Charles Robert S. | Greene, Lt.-Col. Sir W. (Hack'y, N.) | Mitchell, William Lane |
| Carr, W. Theodore | Greenwood, William (Stockport) | Montagu, Rt. Hon. E. S. |
| Cayzer, Major Herbert Robin | Greig, Colonel James William | Moore-Brabazon, Lieut.-Col. J. T. C. |
| Chamberlain, Rt. Hn. J A. (Birm. W.) | Hacking, Captain Douglas H. | Moreing, Captain Algernon H. |
| Churchill, Rt. Hon. Winston S. | Hailwood, Augustine | Murray, John (Leeds, West) |
| Clay, Lieut.-Colonel H. H. Spender | Henry, Denis S. (Londonderry, S.) | Neal, Arthur |
| Coates, Major Sir Edward F. | Herbert Dennis (Hertford, Watford) | Pease, Rt. Hon. Herbert Pike |
| Cobb, Sir Cyril | Holmes, J. Stanley | Pollock, Sir Ernest M. |
| Colvin, Brig.-General Richard Beale | Hope, Sir H. (Stirling & Cl'ckm'nn'n,W.) | Pownall, Lieut.-Colonel Assheton |
| Conway, Sir W. Martin | Hope, James F. (Sheffield, Central) | Pulley, Charles Thornton |
| Cope, Major Wm. | Hopkinson, A. (Lancaster, Mossley) | Purchase, H. G. |
| Davidson, Major-General Sir J. H. | Horne, Sir R. S. (Glasgow, Hillhead) | Raw, Lieutenant-Colonel N. |
| Davies, Alfred Thomas (Lincoln) | Hunter, General Sir A. (Lancaster) | Rees, Sir J. D. (Nottingham, East) |
| Davies, Thomas (Cirencester) | Hunter-Weston, Lieut-Gen. Sir A. G. | Remer, J. R. |
| Rendall, Atheistan | Sturrock, J. Leng | Weston, Colonel John W. |
| Roberts, Sir S. (Sheffield, Ecclesall) | Sugden, W. H. | Wheler, Lieut.-Colonel C. H. |
| Robinson, S. (Brecon and Radnor) | Sutherland, Sir William | White, Lieut.-Col. G. D. (Southport) |
| Robinson, Sir T. (Lancs., Stretford) | Sykes, Sir Charles (Huddersfield) | Whitla, Sir William |
| Rodger, A. K. | Talbot, G. A. (Hemel Hempstead) | Wild, Sir Ernest Edward |
| Roundell, Colonel R. F. | Terrell, George (Wilts, Chippenham) | Williams, Lt.-Com. C. (Tavistock) |
| Sanders, Colonel Sir Robert A. | Thomson, F. C. (Aberdeen, South) | Wills, Lieut.-Colonel Sir Gilbert |
| Seely, Major-General Rt. Hon. John | Thomson, T. (Middlesbrough, West) | Wilson, Colonel Leslie O. (Reading) |
| Smith, Harold (Warrington) | Townley, Maximilian G. | Winterton, Major Earl |
| Stanley, Major H. G. (Preston) | Tryon, Major George Clement | Wood, Major S. Hill. (High Peak) |
| Starkey, Captain John R. | Vickers, Douglas | |
| Stephenson, Colonel H. K. | Wallace, J. | TELLERS FOR THE AYES.— |
| Stewart, Gershom | Walters, Sir John Tudor | Lord E. Talbot and Mr. Dudley |
| Ward. | ||
| NOES. | ||
| Acland, Rt. Hon. F. D. | Graham, D. M. (Lanark, Hamilton) | Pennefather, De Fonblanque |
| Adair, Rear-Admiral Thomas B. S. | Graham, R. (Nelson and Colne) | Perring, William George |
| Armitage, Robert | Greame, Sir Philip Lloyd- | Preston, W. R. |
| Astbury, Lieut.-Commander F. W. | Grundy, T. W. | Rae, H. Norman |
| Atkey, A. R. | Hall, F. (York, W. R., Normanton) | Ramsden, G. T. |
| Balfour, George (Hampstead) | Hartshorn, Vernon | Remnant, Sir James |
| Banbury, Rt. Hon. Sir Frederick G. | Hayday, Arthur | Richardson, Alexander (Gravesend) |
| Banner, Sir John S. Harmood- | Henderson, Major V. L. (Tradeston) | Richardson, R. (Houghton-le-Spring) |
| Barker, Major Robert H. | Hills, Major John Waller | Rose, Frank H. |
| Barnes, Major H. (Newcastle, E.) | Hinds, John | Royce, William Stapleton |
| Benn, Captain Wedgwood (Leith) | Hirst, G. H. | Royden, Sir Thomas |
| Bigland, Alfred | Hohler, Gerald Fitzroy | Scott, A. M. (Glasgow, Bridgeton) |
| Blane, T. A. | Hood, Joseph | Sexton, James |
| Bowerman, Rt. Hon. Charles W. | Hotchkin, Captain Stafford Vere | Shaw, Thomas (Preston) |
| Bowyer, Captain G. E. W. | Hurd, Percy A. | Shaw, William T. (Forfar) |
| Brace, Rt. Hon. William | Johnstone, Joseph | Short, Alfred (Wednesbury) |
| Cape, Thomas | Kenworthy, Lieut.-Commander J. M. | Sitch, Charles H. |
| Casey, T. W. | Knights, Capt. H. N. (C'berwell, N.) | Sprot, Colonel Sir Alexander |
| Cecil, Rt. Hon. Evelyn (Birm., Aston) | Lawson, John J. | Stanton, Charles B. |
| Clough, Robert | Lister, Sir R. Ashton | Steel, Major S. Strang |
| Coats, Sir Stuart | Lunn, William | Thomas, Brig.-Gen. Sir O. (Anglesey) |
| Coote, Colin Reith (Isle of Ely) | McLaren, Robert (Lanark, Northern) | Thorne, G. R. (Wolverhampton, E.) |
| Cory, Sir C. J. (Cornwall, St. Ives) | Maclean, Neil (Glasgow, Govan) | Tillett, Benjamin |
| Davies, Sir William H. (Bristol, S.) | Mallalieu, F. W. | Tootill, Robert |
| Dennis, J. W. (Birmingham, Deritend) | Marriott, John Arthur Ransome | Walsh, Stephen (Lancaster, Ince) |
| Dewhurst, Lieut.-Commander Harry | Moore, Major-General Sir Newton J. | Waterson, A. E. |
| Edwards, C. (Monmouth, Bedwellty) | Morgan, Major D. Watts | White, Charles F. (Derby, Western) |
| Elliot, Capt. Walter E. (Lanark) | Nall, Major Joseph | Williams, Aneurin (Durham, Consett) |
| Fell, Sir Arthur | Newbould, Alfred Ernest | Wilson, W. Tyson (Westhoughton) |
| FitzRoy, Captain Hon. E. A. | Newman, Sir R. H. S. D. L. (Exeter) | Wood, Hon. Edward F. L. (Ripon) |
| Foxcrott, Captain Charles Talbot | Norris, Colonel Sir Henry G. | Young, Sir Frederick W. (Swindon) |
| Galbraith, Samuel | O'Grady, Captain James | |
| Gange, E. Stanley | Palmer, Charles Frederick (Wrekin) | TELLERS FOR THE NOES.— |
| Gould, James C. | Parkinson, John Allen (Wigan) | Mr. Pretyman and Colonel Gretton. |
Question, "That the Clause, as amended, stand part of the Bill," put, and agreed to.