HC Deb 06 July 1926 vol 197 cc1941-57

"Any university and any college or hall in any university of the United Kingdom and any public school and any educational institution receiving a Government grant shall be exempt from Income Tax in respect of any profits or gains forming part of the income of such university, college, hall, public school, or educational institution which are applicable to educational purposes only so far as the same are applied to educational purposes only."—[Mr. Withers.]

Brought up, and read the First time.


I beg to move, "That the Clause be read a Second time."

This proposed new Clause was discussed at considerable length in Committee, and it has only been put down on the Report stage to enable us to ask the Chancellor of the Exchequer whether he has very kindly, as he indicated he would, considered the question. He spoke very sympathetically, and I understood him to say that between the Committee and the Report stages he would see how far he could open the door to admit these cases without allowing everybody to come rushing in. The matter is causing a very great deal of anxiety, and I hope the Chancellor of the Exchequer will be able to tell us something.


The House will remember that we had a very long discussion on this subject in Committee, when I unfolded all the arguments on the question which occurred to me; and I am bound to say that I felt that the adverse arguments which I raised were adequate and solid and justified us in declining to accept the Amendment which had been moved. I do not want to repeat all those arguments, because I should come under the ban of the hon. and gallant Member who is sitting below the Gangway, although I must say, parenthetically, that when identically the same point is raised and identically the same arguments are put forward it is very difficult to make an entirely different speech in exactly the same sense. If the answer is to be "No" and it has been given on one occasion in the monosyllabic form of "No," it is difficult to give the same answer on the next occasion without being accused of repetition. I suggested in Committee that the act of opening the door and making exceptions piecemeal and sporadically to the admittedly arbitrary limits which are all we have at present governing the application of the principles of exemption of charitable institutions from Income Tax would be fraught with great dangers, and that we might easily be led on from point to point until a serious loss to the revenue had resulted and all principle in the division of taxable from non-taxable had been completely lost.

I said it would be much better for us to endeavour, not between the Committee stage and the Report stage, for that would be too short an interval, but between this Budget and the next, to see whether it is not possible to draw the line which gives charitable exemption with some greater regard to all the actual circumstances that exist. It is admittedly a line which causes anomalies in many cases. Its application in this case, for instance, divides most vehemently the right hon. Member for Central Newcastle (Mr. Trevelyan) from the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham), the late Financial Secretary to the Treasury, although while holding diametrically opposite views, they both approached the subject, as everyone would believe, from the very highest plane of virtue. But if there is opportunity in the course of the autumn and winter I may find it possible to re-define the limits of charitable exemption, not necessarily in every case in the direction of laxity and indulgence; and possibly a more logical and more satisfactory and water-tight scheme may be devised which, while giving relief, at the same time will not necessarily react injuriously upon the revenue. There may be something to be said on both sides—that some are now out who ought to be in, and some who are now in ought to be out; but that cannot be decided at the present time, and I must clearly state that I cannot undertake to give a definite pledge to alter the present rules. All I say is that they shall be carefully examined in order to ascertain whether a better line can be drawn. That I undertake to do; but I can give no pledge that I shall succeed.

In the meanwhile, what is the position and where is the real hardship? As the House knows, if the Brighton College case had not been raised and carried to the highest Court and there decided against the college, it is possible that in a certain number of cases which were believed by the Inland Revenue to be beyond the scope of the law, there would not have been this year, or in future years, a demand made for Income Tax. Now that the matter has been given this great prominence and publicity, and that the whole of the Inland Revenue staff are apprised of the latest and clearest definition of the law, as laid down by the highest authority, it is undoubted that in a certain number of cases where there have been no demands for taxation in the past there will be demands for taxation in the future. It is impossible for me to intervene in that respect other than by an alteration of the law. I could not, for instance, take up the absurd position of saying that those who had paid taxes in the past will have to go on paying them in the future, while those who, owing to a perfectly honest interpretation of the law, have not paid them in the past, will not be called upon to pay at any future time.

Therefore I am afraid the hardship of a certain number of institutions which have not hitherto been taxed, but which will in future have to pay the tax, must remain; but I think it would be going beyond what is equitable and fair to go back into the past and make the new interpretation of the law rule retrospectively. For instance, an institution which has not hitherto been asked to pay the tax and which is in every way a charitable institution may now, owing to this question having been raised, be called upon to pay; but if it were called on not merely to pay tax in the future but to pay arrears in the past, for, certainly, three years, I think it would be a hardship, and one which might in particular cases fall with injurious and damaging weight upon particular institutions. I have consulted with the Inland Revenue upon the subject, and I am advised that it would be possible for us, within the very narrow limits that are open to the Treasury in the execution and administration of the law, to do this much. I should explain that we are governed by the law, and the Auditor-General is bound to draw the attention of the Public Accounts Committee to any deviation, however small, which is made in this administration, even if it be a deviation which would command the general assent of Parliament, but I am advised that I shall not be trespassing beyond that very restricted limit of choice given if I make an announcement and give directions as follows. This is the text of the announcement which I propose to make, and which I now make: In the case of an educational charity which is admitted to be a charity for Income Tax purposes, and in whose case, as regards all years prior to 1924–25, non-liability in respect of any profits arising from the surplus of fees over working expenses has been expressly or tacitly admitted by the Income Tax Commissioners concerned, it will not now be sought by the Inland Revenue to re-open or raise for the first time the question of Income Tax liability in respect of such profits for any year prior to the year 1924–25. I think that is a fair way of dealing with the matter. At any rate, it is the most I can do.


The Chancellor of the Exchequer has made on this subject what will be to all students of Income Tax a very interesting statement. There is no desire on our part to recall the discussion which took place on a previous occasion, but the narrow point before the Committee was whether the surplus in the case of Brighton College was something analogous to business profit and therefore taxable material. Whatever view we take of the exemption of charity the House is bound for the time being, and so far as this discussion is concerned, by the decision of the highest Court in the Brighton College case. That is the effective interpretation of law on this subject until the law is changed. The Chancellor of the Exchequer now proposes to take that case, as he must, as the basis for the assessment of Income Tax of these surpluses as they emerge following that decision.

6.0 P.M.

The right hon. Gentleman proposes not to go back in the case of colleges of education and institutions prior to that decision. I think that the Chancellor of the Exchequer and the Financial Secretary will agree that in so far as these past assessments are final and conclusive they probably could not be re-opened in any case, and accordingly any steps of a retrospective character could only apply to those which are still open and not fixed or finally settled, and which would get the benefit of what the Chancellor of the Exchequer now proposes. It is perfectly true that this question has divided hon. Gentlemen on this side of the House, but may I say at once to those who differ from me that we shall make them a present this afternoon, if we may, of the retrospective concession which the Chancellor of the Exchequer suggests, but it should be remembered that the law, as laid down, is to be enforced until we can undertake this review of the whole question and, as the Royal Commission suggests, arrive at some sensible and practical proposal.


I realise the way in which the Chancellor of the Exchequer sympathises with this claim, but I would like to ask him whether he would try to get his advisers to consider whether the suggested assessment in these cases are made quite as fairly as they ought to be at the present time. I made the point during the Committee stage that these profits were earned only by reason of those institutions possessing large buildings and valuable properties which, in the case of a commercial undertaking, would have been provided by the subscribed capital. I want to ask the right hon. Gentleman whether he will consider the question of allowing these institutions to bring into account for the purpose of this assessment a certain rate of interest on the capital value.


I will consider that point.


I do not know, and I wish the right hon. Gentleman could give us a little more indication, as to what the complete effect of the new interpretation of the law is going to be. It seems to me that a very considerable threat is put forward for the future in regard to these educational institutions, and I ask the Chancellor whether between now and next year, when this matter will undoubtedly come up again, he will obtain information with regard to the number of institutions affected by the law as it stands at present. It is clear that a great many important schools, and, as I pointed out, the right hon. Gentleman's own schools, are going to be adversely affected by the law as it stands before the House comes to discuss this matter again next year. I think we ought to be put in the position of knowing what educational institutions are affected, and how far they are adversely affected. We are afraid that a great many of them are going to be very seriously affected, and if so the House would be in a better position to support the Clause moved by my hon. Friend.


In reply to a question during Question Time the Chancellor of the Exchequer said "No, Sir," when he really meant "Yes, Sir." Now he says "No, Sir" quite clearly and he means "No." The concession which the right hon. Gentleman has made this afternoon is one which strict observers of the Income Tax like the right hon. Gentleman the Member for Central Edinburgh (Mr. Graham) might very well examine more carefully. I am not quite clear under what powers the Chancellor of the Exchequer claims the right to say to an individual taxpayer, who under the recent decision is held liable for Income Tax, that he will not be assessed for Income Tax. Surely it is a serious departure from the ordinary practice that the Chancellor of the Exchequer may, of his own free will, power and selection, say that any individual taxpayer may be free from assessment, and free from this tax when he has no legislative authority for so doing. I submit this is a very dangerous precedent. If the right hon. Gentleman really wishes to relieve these institutions, as I am sure the whole House does, of charges which they are quite unable to pay, the proper thing to do is for the right hon. Gentleman to propose a new Clause relieving them from liability. I think that was the course the right hon. Gentleman ought to have adopted. What the right hon. Gentleman says really amounts to this, that he will consider the case and display his usual courtesy with his hon. Friends and Members of the Opposition interested in universities and colleges, although it may be that at the end of it all he may form one view or the other.

The right hon. Gentleman has made no promise that is worth anything whatever, and those who look at the question purely from the point of view of these educational institutions have nothing to thank the right hon. Gentleman for at the present time, except that he has promised to be very polite to them for the remainder of the calendar year, and I suppose we must be very grateful to him for that promise. This promise will not help the right hon. Gentleman's own school or other institutions, because he has promised absolutely nothing, and he is taking a step in regard to granting exemptions which is a very dangerous precedent. I suggest that even now the best thing for him to do is to re-commit this Bill, and bring in a Clause of his own drafting, and send a short Minute to the Inland Revenue granting exemption to these institutions who, by the Courts of Law, are now known to be liable. I hope a very strict observer of the law, like the right hon. Gentleman the Member for Central Edinburgh, will reconsider his decision, and not be so ready to fail in with the Chancellor of the Exchequer when he strays from the path of rectitude.


The Chancellor of the Exchequer has admitted that the levying of Income Tax on these profits is a new tax. A large number of secondary schools are concerned, and many of them have been hardly hit by what is practically a new tax. For these reasons I ask the right hon. Gentleman to make his promised inquiry very fully, find out the conditions of those schools, and how this new tax will affect them. The Chancellor of the Exchequer has not told us yet how much this tax on surplus profits has brought in during past years. I hope that schools which have to pay off debt on buildings or land will be carefully taken into account in assessing the Income Tax.


I want to suggest that there is a distinct dividing line between charity in general and educational charities. An educational charity is quite a different thing, and we should draw a clear line between money spent for the benefit of the rising generation and money spent for ordinary charitable purposes. I am driven to this line of argument by the view put forward by the right hon. Gentleman the Member for Central Edinburgh, who takes rather a purist view of this matter, and I quite realise the danger of having an overwhelming demand made which cannot be granted. If the principle is set up that money which is spent for the advantage of child life is not to be subject to the tax in the same way as other charitable expenditure, you would have there a perfectly clear line of division. I suggest that that would be strictly in line with other provisions in regard to the Income Tax at the present time. Exemption is already given in certain cases where there are children attending secondary schools, and that seems to be strictly in line with the cleavage I am suggesting. I hope the Chancellor of the Exchequer will make a cleavage on those lines next year.

Commander WILLIAMS

I was very much interested in the attempt made by the right hon. Gentleman below the Gangway (Mr. Runciman) to try to bring himself into line with the people who hold that under this Amendment we are going rather beyond our powers in regard to finance in this House. The right hon. Gentleman took the point of view of refusing to grant this new Clause in which I most thoroughly agree with him, in fact I think I was the only hon. Member on this side of the House who urged him not to accept it the other day. The hon. Gentleman below the Gangway pointed out that it is a very dangerous thing for the Chancellor of the Exchequer to come down here and say, as he said to-day, that there were a large number of people who up to now were liable for this tax but who, quite innocently and by luck, have not had to pay. It is almost impossible for the Chancellor of the Exchequer to assess those people.

Supposing we have a reverse and another Chancellor of the Exchequer comes into office. There is nothing to prevent him going back and extracting the money from those institutions. I do think that, in all the circumstances of the present time, it would be grossly unfair to these institutions to put them in a position in which they are not certain whether they may or may not have to make payments to cover exemptions in the past. I entirely agree with the Chancellor of the Exchequer on that point, and I do not think the occasion is one on which the law should be driven hard and bitterly so as to extract the last farthing from the taxpayer. I should like, however, to add my opinion that, in the case of all these charitable institutions, at a time when taxation in every other line of life is being tightened up, when the burden is being made more and more heavy, and when there is a tendency to widen, naturally and rightly, the extent of the charges made on these cheritable institutions, it is absolutely essential and necessary that we should have a clearly defined line indicating where charitable institutions begin and where they end. That has been the point of view of a good many speakers this afternoon, and I hope that within the next 12 months that line will be made clear and definite, so that we may know absolutely where we are in this respect.


In view of what has been said by the Chancellor of the Exchequer, may I ask the leave of the House to withdraw the Clause?




On the suggestion that the Clause be withdrawn, I should, with the permission of the House, like to ask the Chancellor of the Exchequer a question on one point which emerges from the speech of my right hon. Friend the Member for West Swansea (Mr. Runciman). As regards those past assessments which are closed and final, I think it must be clear that, under the Income Tax law, they are beyond challenge and are protected; but there is a class of assessments, as applied to these educational institutions and colleges prior to 1924–25, which may not yet be fixed and determined, and presumably it is to that class that the Chancellor of the Exchequer proposes to apply the concession he has made this afternoon. I think we are bound to point out, and here I support the right hon. Gentleman very strongly, that now it has been determined, under the Brighton College case, that that is the law of the land, the proposal of the Chancellor of the Exchequer, if it were made applicable to these still undetermined assessments, would not be in order, and I cannot imagine the Comptroller and Auditor-General or the Public Accounts Committee of this House approving of anything which, at the date when the law was determined, was not strict application of the law. I do not think the Chancellor of the Exchequer has cleared up that point, and I apologise to the House for not putting it when I spoke before on this matter in Committee.

Captain BENN

I must congratulate the hon. Member for Cambridge University (Mr. Withers) once again on his submission to the whim of the Government. I never saw Members of this House so readily or touchingly submissive. They introduce an Amendment which was much talked of in the Press; they bring the Noble Lord the Member for Oxford University (Lord H. Cecil), one of the senior and most distinguished Members of this House, to make an admirable case; but they get nothing from the Chancellor of the Exchequer, and then, at the first time of asking, they ask leave to withdraw, in view of a concession which he promised. On the Report stage, the representatives of the same seats of learning come forward again. The Chancellor tells the House he can make no pledge, but that somehow, at some time, somewhere, he will consider it. That is all he says, and then the hon. Gentleman rises again and says that, in view of the generous way in which his case has been met, he again proposes to withdraw. I do not think it is an argument in favour of university representation.

I was expecting, and still expect, the Chancellor of the Exchequer to tell us whether he is satisfied that he has legal authority to remit taxes to certain people. It is a very important point, and I would suggest that, if there be the least doubt as to whether this legal authority exists, we should, inasmuch as we are considering the Finance Bill, put the necessary authority into the Bill. No one can complain of that, and it would put the whole matter beyond doubt. As has been pointed out by two ex-Financial Secretaries to the Treasury. it is a dangerous thing to remit taxation by administrative action. The Chancellor of the Exchequer seems to have satisfied himself that he has the power. If he has the statutory power, it may be otiose to put anything in now, but, if not, I would certainly suggest that the necessary steps should be taken to put a Clause in the Bill remitting for the last three years, or whatever the period may be, the taxation in these particular cases. I strongly urge the Chancellor of the Exchequer, on the ground of Parliamentary propriety and of justice to all taxpayers alike, either to state that he is satisfied that he has the necessary authority or to propose a new Clause.


The question which we are now discussing, and which, after all, is not a large one, has strayed into strange directions, such as the vast constitutional power of dispensing with taxation which his opponents seem to accuse the Chancellor of the Exchequer of claiming for himself. The particular question that is now before us seems to me to have assumed exaggerated dimensions in the eyes of some of my hon. Friends with whom I am usually glad to act. It will be seen that my name is not down as supporting the Amendment, and that is because, however interested I am in education, I do not think the Amendment is either well-timed or calculated to do good to the interests of education. I have long known about the Brighton judgment, and I think it affects only a comparatively small number of schools. Everyone knows that there is an enormous number of schools which are conducted for private profit. In some of these the profits are very large, and they ought to pay taxes like anyone else. In other cases, although the profits are almost nothing, yet they are conducted as companies, and are technically liable to tax. If they wish to escape taxation, they can surrender their rights as shareholders, and carry out a purely charitable work. I received myself the other day an offer, I think at an enhanced price, of one or two shares in such a joint stock school. I have forgotten whether I received any interest, but if I did I see no reason why I should not pay on it. I differ from my friends, thinking that they are calling out "Wolf!' under the influence of imaginary fears. None of the real charitable schools, which are doing a great charitable work, will be hurt by matters being allowed to go on for a year on two as they now are. I entirely dissent from the rodomontade of the right hon. Gentleman the Member for East Edinburgh (Mr. W. Graham) about the parricidal wickedness of the Chancellor of the Exchequer in robbing Harrow School, to which he owes the development of his genius. I believe Harrow is as secure as ever it was. If the coming year shows that it is threatened, then let us move.


We have had a very small concession from the Chancellor of the Exchequer, and I think he has shown wisdom in making it, for it is quite possible that it would cost more to collect the tax in these cases than it would bring in. I think this tax would hamper and restrict the governors of endowed schools, and would also add further to their expenses of administration. For instance, their auditors would have to prepare accounts for the Inspector of Taxes, and would have to appear before the Inspector of Taxes and argue them, for doing which they would charge the governors. I should like also to support my hon. Friend the Member for Windsor (Mr. Somerville) in asking the Chancellor of the Exchequer to give special consideration to those charges that have been paid out of income in the past for loans which have been raised by these different schools, and which are now being paid off.


I desire to add a word or two in support of the point that has been raised by my right hon. Friend the Member for West Swansea (Mr. Runciman), and which has been referred to by one or two other hon. Members, namely, the dispensing powers which the Chancellor of the Exchequer claims for himself in regard to schools which come under the judgment in the case of Brighton School. It was with great astonishment that I listened to the letter which the Chancellor of the Exchequer read out, when I found that he, as Chancellor of the Exchequer, was directing a letter to his officers to say that they were not to collect taxes which were due. Surely, the position is most peculiar. I was expecting to hear that the Chancellor of the Exchequer was going to propose a new Clause in the Bill which would get over the difficulty, but all that he did was to read a letter of instructions to his officers to say that they should not collect taxes which are due. I should like to know by what right the Chancellor of the Exchequer claims this dispensing power. Surely, if the law says that these taxes are due, he should be the first person to see that they are collected. If he does not wish to collect them, I suggest that the only possible course he can take is to alter the law by adding a Clause to the Bill which is now before the House.


I can only speak again by the leave of the House, and what I say shall be very brief. I must, in the first place, draw the attention of my hon. Friends on this side of the House to the concession they received. My right hon. Friend the Member for West Swansea (Mr. Runciman) and the hon. and gallant Member for Leith (Captain W. Benn), while expressing extreme sympathy for the cause of education, would seem to me to be content to leave these institutions exposed in every respect to the unmitigated wind of retrospective taxation.


No; we proposed a new Clause.


On this particular point I have not, of course, acted without taking careful counsel with those who are especially conversant with these matters, and I am advised that I am not acting in arty improper or unusual or unconstitutional way, within these very narrow limits, in making the declaration which I have made. Of course, however, if I should be found to be wrong, the machinery exists by which I can be called to account, because the Comptroller and Auditor-General would report the matter to the Public Accounts Committee, and the matter would have to be argued there. So there is an effective procedure which will enable this matter to be tested in the probable event, as I expect, of it being found that I have exceeded the administrative restrictions which in certain cases are necessarily imposed upon the holder of this office. In these circumstances I think it will be in the general interest, and in the interest of the progress of our business, if the House would come to a decision upon the new Clause and support the Government in their resistance to it.


I do not think the House will be satisfied with the right hon. Gentleman's statement. I have certainly supported the Clause in every way I could, but I am a little alarmed at what has happened in regard to the matter. The right hon. Gentleman has told us he has not acted without consultation with experienced people. I do not imagine he would act without taking very careful advice, but it is one thing to have the advice of an official and a very different thing to have authority. The officials of the Treasury, I know, are most able and experienced men, but even they can make mistakes, and it is little consolation to us, and to education authorities, to be told that the year after next, when the Accountant-General makes his Report, it may be that this so-called concession the Chancellor is making to-day will prove to be nugatory, and we shall then be dependent on whatever Government may be in power to put right a thing which ex hypothesi is wrong. I should like to ask, is this authority based upon any Statute? Can the right hon. Gentleman point to any Statute, or anything else save the opinion of an unnamed official or officials, which justifies him in saying he has this power to say to a particular class of taxpayers, "Although the highest Court in the land has recently decided that you are liable to pay Income Tax on a certain fund, I say you need not pay it?"

Question put, "That the Clause be read a Second time."

The House divided: Ayes, 142; Noes, 244.