HC Deb 30 June 1927 vol 208 cc708-28

The following Amendment stood on the Order Paper in the name of Sir BASIL PETO:

In page 7, line 35, to leave out the words "four shillings" and to insert instead thereof the words "three shillings and sixpence."


This Amendment was placed on the Order Paper by the hon. Member for Barnstaple (Sir B. Peto) in order to raise the question of the co-operative societies and the Income Tax.


I think that matter should be raised on the Question, "That the Clause stand part of the Bill." This is an Amendment purely for a reduction.


I desire to raise a similar point to that of my hon. Friend, but if you rule that it would be desirable we should raise the point on the Question, "That the Clause stand part of the Bill," I prefer to wait.


The Amendment raises the question of the difference between four shillings and three shillings and sixpence. If it be desired to raise the question of Income Tax generally, that must be raised on the Question, "That the Clause stand part of the Bill."


I desire to raise the question of the incidence of the taxation and the inequality which exists under the present system.


It would be possible to raise that point on the Question, "That the Clause stand part of the Bill."

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


I desire to raise the question of the co-operative societies and income Tax. There is a large body of opinion in this House and in the country which thinks it is unfair that a large body of traders should have any special privileges in regard to Income Tax. There is a great deal of difference of opinion as to the amount of revenue which is lost to the Treasury by this privilege to co-operative societies. The Chancellor of the Exchequer estimates that loss at £100,000 per annum, others estimate the loss at something in excess of £500,000 per annum, while the hon. Member for Hillsborough (Mr. A. V. Alexander) told us the other day that the co-operative societies under the present system actually pay more in Income Tax than other traders. It is apparent, therefore, that there is a great diversity of opinion as to how much co-operative societies do benefit by the privileges they possess, and I think it is quite clear that there is a case for an inquiry.

It is very difficult to estimate what the profits of the co-operative societies are to-day. That is largely due to the system of depreciation. The national programme of the co-operative societies encourages very liberal depreciation. The depreciation recommended is 2frac12; per cent. on buildings and shops, 10 per cent. on fixed stock and plant, and 20 per cent. on rolling stock. This depreciation is recommended to be on the original value of these buildings, shops and plants, and as the value of these assets in the accounts issued by the Co-operative Union is something like £47,000,000 it is quite clear that if this system is rigidly carried out, some £5,000,000 or £6,000,000 may be depreciated, which is much in excess of the amount by which the ordinary trader is allowed to depreciate his assets. Therefore, I feel that the Chancellor of the Exchequer should appoint a Departmental Committee to examine the profits of these societies, and issue a statement showing exactly what profits they are making as computed for Income Tax purposes, what tax they are paying at the present time, and what tax they would be called upon to pay if they were taxed in the same way as their competitors.

There is also a political aspect of this matter. At the present time, certain contributions are made to the Co-operative party, and it seems to me that it is quite possible in the future that further contributions may be made to the Labour party. It seems to me these contributions which are made out of the profits made by the co-operative societies and those profits ought to be taxed under Schedule D. If I make a contribution to the Unionist party, I have to pay Super-tax and Income Tax, and they ought to be called upon to pay Income Tax on their profits. I never can understand why co-operative societies do not readily agree with this view, because it seems to me that in the first place it is equitable and, in the second place, it affects them very little. If the Chancellor's estimate be correct, the only effect on the co-operative societies, would be that it would cost them one-tenth of a penny in the pound upon their sales.

I do not propose to go into the details regarding this taxation. I made a speech on the matter some two months ago, and went into the question rather fully. I would like, however, in order to avoid a certain amount of discussion to admit straight away that the dividends to the purchasers are not in my opinion profits which are subject to taxation, because they do in fact constitute a reduction in the purchase price. Secondly, it is quite clear that the interest which is paid on the capital invested by members of the co-operative societies is at present subject to Income Tax. The part which escapes taxation consists of the profits which are being put to reserve, and not distributed in any way and the amount represented by over depreciation, which does not at present appear as profits at all. In this connection one must remember that recently co-operative societies have been purchasing a considerable number of competitive businesses, businesses which before they were bought by the co-operative move-men had been paying Income Tax under Schedule D. The price one gives for a business must depend, not only on the profits of the business, but on the amount of the profits one is able to retain, and if a co-operative society can retain a larger share of the profits than any independent purchaser could retain, the co-operative society can always outbid anyone else.

We may be told the law does not tax profits arising from a mutual transaction. I believe that is usually called the principle of mutuality. I submit that that law cannot apply to co-operative societies, because the mutuality has been so greatly diluted. There are 5,000,000 members of co-operative societies, which serve 15,000,000 consumers. That means that a third of the population of the country are served by co-operative societies to-day. We have been told that co-operative societies do not pay Income Tax under Schedule D. I do not think that is true in the case of every part of their enterprise. The co-operative movement has a colliery at Shilbottle. Up to 1926 mines were assessed under "Concerns, 3," of Schedule "A" on the basis of the five years' average, but under Section 28 of the Finance Act, 1926, mines ceased to be chargeable under Schedule "A," and have become chargeable under Case 1 of Schedule "D." Societies being exempt from Schedule "D," one might presume that they would escape assessment, but that is not so. In order to prevent this, there is a proviso to Section 28 whereby exemption under Schedule "D" is not extended to cover income transfered from "A" to "D" and I understand that to-day the mines are actually paying Income Tax under Schedule "D.'' What I desire to ask the Chancellor of the Exchequer is that not only shall one section of the co-operative movement be assessed to Income Tax under Schedule "D," but every section of the movement, in the same way as are other traders. I hope the Chancellor of the Exchequer will be able to give the House the assurance that he will appoint a Departmental Committee to go into the question and issue a considered statement on the matter.


I rise to support the arguments of my hon. Friend the Member for the Tamworth Division (Sir E. Iliffe). This question of the equitable taxation of co-operative societies has been before Parliament on many occasions, and those of us who feel that co-operative societies vis-aàvis the ordinary retail trade enjoy a preferential position think the time has come for an inquiry to ascertain the precise circumstances under which they carry on their trade in relation to the collection of the revenue. My hon. Friend the Member for Tam-worth has given a great deal of time and thought to the examination of this problem, and I think the facts he has submitted to-night must have made a considerable impression upon the mind of the Chancellor of the Exchequer. We are not asking for any particular penalisation of co-operative societies. As my hon. Friend pointed out, there is no suggestion of asking that co-operative societies should pay Income Tax on the dividends which in the ordinary course of their business they give to their members; but we feel very strongly that the co-operative society, which not merely confines its operations to its own members, but competes with the ordinary trader and canvasses for business as against the ordinary retail trader, should certainly be brought under the operation of the ordinary taxation system of this country.

In Birmingham, we have a very great co-operative society, and, within the limits of real co-operation, I have always been an ardent advocate of co-operation among the working classes of this country. In this particular case, however, and, indeed, in many others throughout the country, you have the example of this great enterprise acquiring large businesses which were previously carried on by private enterprise, absorbing them into their co-operative network, and then at once securing immunity from payment of the ordinary taxation which was incidental to the previous conduct of those businesses in private hands. I do not think that that, in competiton with the ordinary trader, is really a position which the co-operative society ought to occupy, and I think that my hon. Friend the Member for Hillsborough (Mr. A. V. Alexander), who in this House is the very respected and eminent protagonist of the interests of the co-operative movement, would, in justice to his own self-respect, like to feel that his great movement was not enjoying any particular advantage at the expense of the ordinary private traders in this country.

The co-operative societies advertise that you deal only with "co-ops"—I am using the ordinary vernacular phrase employed by co-operative societies—but at, the same time, you find in some of the provincial newspapers whole-page advertisements inviting people to deal with co-operative societies, and we have no means of ascertaining whether in point of fact bona fide membership of a co-operative society is established before such transactions are carried out; and that is something which a Departmental Committee of the quality suggested by my hon. Friend would certainly help to determine. I, as an old co-operator myself, on the side of productive co-operation, and, as one who gave many years of his life to preaching co-operation among farmers, am the last person in this House to say a single word that would be unfair to the co-operative movement, but when I find, in my own city of Birmingham, this great organisation constantly carrying on its work in conflict with the ordinary retail trader, who has to struggle with the payment of rates and taxes, and otherwise to discharge his obligations as a citizen, I think the least that might be asked from the State is that both sets of traders should be put exactly on the same level in relation to the collection of the revenue which maintains the whole administrative machinery of this country.

Therefore, with great respect, I submit to the Committee and to the Chancellor of the Exchequer that the time has come when some impartial inquiry, giving every possible consideration to the bona fide interests of co-operative societies, on the original principle on which they were established, should be undertaken to examine to what extent the business is conducted without any loss to the revenue, while at the same time conforming to the ordinary principles which govern the trade of other people in this country. That, I think, is a perfectly fair proposition to submit to the Chancellor of the Exchequer. Of course, he pointed out to us that we have supplied him with a great deal of useful information, but it is one of the qualities of the Chancellor of the Exchequer that, while the information supplied to him is always of the most admirable quality, he very often does not accept it at all, and I am not quite certain that he accepted the whole substance of the valuable Memorandum which my hon. Friend and others presented to him on this subject. But, after the speech of my hon. Friend the Member for Tam-worth, I think the Chancellor will see the plain justice of the suggestion we are making to him, not that he should interfere in this Finance Bill with co-operative societies, but, that he should have an investigation carried out which will satisfy the whole community, including co-operators themselves, that they are not in any respect receiving special advantages from the State which place them in a preferential position in contrast with other citizens who have to pay taxes. That is the proposal we have submitted to the Chancellor of the Exchequer. That is the whole project put forward by my hon. Friend, and I very much hope the Chancellor of the Exchequer will see the propriety and, indeed, the justice, of acceding to the suggestion that has been made to him.

Marquess of HARTINGTON

My object in speaking on this Clause is not so much to deprive my right hon. Friend of all revenue from Income Tax and Super-tax, which would, I understand, be the effect if the Clause were negatived, as to call attention to the very real injustice which arises under the present system of collecting Income Tax and, if possible, to move my right hon. Friend to an act of clemency. I quarrel particularly with Sub-section (2), which perpetuates all the various enactments of the past with regard to the collection of Income Tax and Super-tax. I have taken the earliest moment of raising the question of the machinery of these taxes, because I think it is very important that before the Committee authorises the continuance of this machinery for another year we should have some statement from my right hon. Friend as to his intentions in the matter.

It is a matter of universal complaint, and it is even admitted by the Chancellor of the Exchequer, that the enactments with regard to the collection of Income Tax and Super-tax are drafted in such a way as to be almost completely unintelligible to the people who have to pay the taxes. I want, in passing, to protest against being governed in an alien language, in the language of a small body of men, aloof from the industrial and commercial life of the nation, who regard the main body of the citizens of the country as having one function and one function only, that of producing more and more revenue in ever-increasing quantities to satisfy their own ever-increasing demands. My right hon. Friend will possibly tell us that that is inevitable and that it is impossible to re-draft the various enactments relating to income Tax and Super-tax in such away that they will be easily understanded of the people. That may or may not be so, but there is a widespread suspicion in the country that the revenue authorities purposely keep these Acts in an unintelligible form because they realise very large sums indeed in excess of what they are strictly entitled to realise. If it is indeed the fact that it is impossible to re-draft these various enactments in plain English, most earnestly hope my right hon. Friend will give the Committee some assurance that the cost of discovering what they really mean shall be borne, not by some unfortunate individual taxpayer, as has so often been the case in the past, but by the main body of the taxpayers.

It has long been an injustice—I think that this has also been admitted by the right hon. Gentleman—that the taxpayer who feels that he is aggrieved may take his case to the General or Special Commissioners, and win his case, and again and again it has happened that the revenue authorities have appealed until it becomes impossible for the ordinary taxpayer to go on. There have been very many cases where the taxpayer has won his appeal, but has lost the benefit of it because he has been unable to face the risks and the costs of further litigation. Law costs entail an immense burden, and it is impossible for very many people to face the risk, and, as my right hon. Friend very well knows, even if the taxpayer ultimately wins his case and is awarded costs, the taxed costs do not amount to anything like the total expenses he is called upon to bear.

Last year my right hon. Friend received an influential deputation on this subject, which included, I think, some hon. Members of this House. With the dexterity which we are accustomed to expect from him, he sent that deputation away almost satisfied, but completely empty. The injustice was a severe one then, but if this year's Finance Bill goes through, it will be infinitely worse. My right hon. Friend in introducing his Bill claimed with what seemed to be some show of satisfaction, that he might say with safety, that few people would understand its language. I think that anyone who studies this Finance Bill will agree with my right hon. Friend that in that respect, at any rate, his claims for this year's Finance Bill are more than justified.

When he received the deputation last year he pointed out, in reply to their representations, that same injustice existed in other things. I think I have got his words: In all other fields of controversy where a person of small means fought against the large and rich corporations, I would urge in reply to that, first, that two wrongs do not make one right, and, secondly—and it is a very much stronger point—that in no other field of controversy is it one of the parties which itself has framed the legislation which is the subject of the dispute. That is my contention. Parliament may possibly have a right to frame unintelligible legislation if it sees fit to do so, but, I think, it can hardly be conterded that Parliament his a right to frame legislation which cannot be understood by the mass of the people who are affected by that legislation, and then to insist that the cost of finding out what it really does mean shall be borne by certain selected individuals.

I believe that my right hon. Friend can make a concession on this point without incurring any substantially increased burden of law costs. The dice are so heavily loaded in his favour now that the can afford to give away an ounce or two. I need not remind him that it is now the law that if a taxpayer feels himself aggrieved, and goes before the Special or General Commissioners, and they find against him on a question of fact, no further appeal is open to him.

That avenue is closed, and quite rightly. I do not quarrel with that. It is only when the question of the interpretation of the law arises that an appeal is possible, and it is obviously desirable where you have one of these very difficult and complicated questions of the interpretation of the law that an authoritative and final ruling should be obtained. That means a decision by the House of Lords. I do not complain: it is obviously desirable that these rulings should be obtained, but what is unjust is, that the very heavy cost of obtaining a ruling of this kind, which it is in the interests of the general body of the taxpayers to obtain, should be borne by an individual and not by the general body. I do not suggest, and I would not expect my right hon. Friend to accept it if I did, that the cost of all appeals should be borne by the revenue authorities. I do think it reasonable to suggest that where the Crown appeals from the decision of the Special or General Commissioners—and I think it is a specially reasonable suggestion in view of this year's extremely complicated legislation—the Chancellor should give us some assurance before we go any further that it should be the Crown that bears the cost of both parties.

It is not and cannot be just that the Crown should win cases—and it very often has done in the past—merely in default of the ability of some particular taxpayer to go to appeal and again to the House of Lords. The risk he runs in most cases vastly exceeds the amount which is at stake. Cases of the kind I have in mind are not fought to wring a few pounds from a taxpayer, but to get a ruling on a principle, and they are of benefit to the whole body of taxpayers and it is right that they should pay the cost.

It is more than 600 years since the English people assimilated their Norman conquerors and ceased to groan under the burden of being governed by an alien race in an alien language. As the paintings which have just been unveiled in St. Stephen's Hall may remind us at a time when we need reminding, it is more than 400 years since the sources and origins of our religion became available to us in the common tongue, and now, after all these years, we are again having to complain that our temporal and spiritual rulers are attempting to govern us in a language which we cannot understand. I hope that the right hon. Gentleman's Norman blood, which at this season of the year in particular, is even more in evidence than his kind heart or simple faith, will not induce him to refuse the rather small concession which I ask. I would remind him of the fact that there have been some rumours of discontent, that some sullen mutterings of the Saxon serfs, must already have penetrated his castle walls.


The argument of the Noble Lord appears to be a little obscure, but I doubt if it is relevant to the re-enactment of the Income Tax.

Marquess of HARTINGTON

I have only three more words to say. There have been rumours that the burden of the Income Tax and the complexity of the enactments by which the tax is collected have caused complaint. I believe some murmurs of discontent have reached the right hon. Gentleman's ears, and I would urge that a wise concession now might not only save him a great deal of trouble but would remove a really severe injustice.


The moving peroration to which we have just listened must, I regret, to some extent leave me unmoved. The question of the costs in such cases has often been discussed, and debated; and as my Noble Friend reminded us, I received a deputation on this subject only a year ago. It is not the fact that it is the practice of the Inland Revenue to wear down the poor appealing tax-payers by carrying them on from Court to Court until their funds are exhausted. When test cases are taken up and encouraged in order to arrive at a general decision on a point of law. The Board of Inland Revenue have the discretion, and frequently use it, to pay the costs of the other side in whole or in part, but in regard to cases which are not test cases, but which are controversial disputes designed to settle a case as between the Crown and a particular party rather than arrive at an interpretation of the law, it seems to me to be a very moderate claim that costs should follow the judgment. In ordinary cases the Crown does not pay costs whether it wins or loses, but in the Income Tax sphere it does pay them if the judgment goes against it. But to pay costs in all cases would surely be to foster and incubate litigation against the Crown to an extent which, though it might be highly satisfactory to many of our hon. and learned Friends who are present, would, I am sure, result in a vast amount of needless disputation in the Courts, and a very considerable addition to those burdens of the general taxpayer in regard to which my Noble Friend has so feelingly descanted.

When my Noble Friend speaks of the importance of writing the Income Tax laws in a tongue understanded of the people, I am entirely in accord with him, and I am setting up, as I mentioned in the Budget speech, a highly expert Committee of lawyers, who will have the fullest assistance which can be rendered them by gifted laymen, for the express purpose of consolidating and re-writing this immense tangle of Income Tax laws which has grown up, year after year, in the last three or four generations, and which rolls on like a snowball from Session to Session with ever-growing additions and complexities. It is believed that that Committee might, in the course of the next five years, make a considerable inroad on this subject, and I have arranged for its work to be expedited as much as possible, and for interim Reports to be issued in order that we may simplify as far as possible our legislation. But I should like to point out that though we might simplify the statement of the purpose of a Clause in the Bill from the literary point of view, and make it very easily apprehended by the ordinary reader, yet when that came to be interpreted in the Courts it might lead to far greater difficulties of interpretation and argument than arise when the recognised and highly respectable jargon and rigmarole of a great profession is employed.

I come to the other question which has been raised, and here I must endeavour to compress into a few sentences what is an immensely interesting and important topic. I have given close attention to this allegation that the co-operative societies do not pay their proper share of the Income Tax, and I have used the full machinery of the Inland Revenue to explore that subject. In the result I have been convinced that they pay very nearly the full tax that could be exacted from them under the law, and I will explain exactly how this arises. I do not want to keep back the hon. Member for Hillsborough (Mr. A. V. Alexander) who is preparing to make a vigorous speech, but I hope that if what I am saying expresses, to some extent, the views he is going to express, he will not think it necessary to go over that ground a second time. The public accounts of the trading co-operative societies show that, as a result of the year's working, they had about £21,000,000 in hand. Of this £21,000,000, they paid away £14,000,000 as discount on purchases. This sum of £14,000,000 is usually described as "divi." This "divi;" which is a very well-known phrase—


It is understood by the common people.


It is well understood as "divi." This "divi." cannot possibly be charged to Income Tax. It is a trade discount which is immune in every sphere of our taxation schemes from Income Tax. Income Tax has never been charged on trade discounts, and to do so would upset the whole of the long-established trading methods of this country. If it were attempted to charge Income Tax on trade discounts, obviously the attempt would be defeated by the simple process of selling the article at a cheaper price. So much for £14,000,000. If, however, it were decided to alter the law in regard to trade discounts, then, although you might charge the individual co-operators with their "divi." for the purpose of Income Tax, it would be found that in nearly every case they are below the Income Tax level, and nothing would come of it. It is calculated that from the whole process only £100,000 would be recovered, and to achieve that £100,000 it would be necessary to overturn the long-established system by which trade discounts are immune from Income Tax.

11.0 p.m.

A sum of £14,000,000 taken from £21,000,000 leaves £7,000,000. That £7,000,000 can be accurately described as the societies' profits. Of this £7,000,000, they distribute something like £4,000,000 every year to their shareholders as interest on shares. When an ordinary company pays a dividend to its shareholders, income Tax is deducted, as everyone knows, at the source, and the shareholder gets a lesser sum. In the case of co-operative societies, a different process prevails. So many of their shareholders are below the Income Tax level that it would be an infinitely more costly business to deduct the Income Tax at the source and then have all these small repayment claims from millions of people. Instead of that, the tax is not deducted at the source, but individual shareholders in the co-operative societies are forced to include their profits in their Income Tax returns, if they pay Income Tax. If they do pay Income Tax the tax is recovered accordingly. So much for the £4,000,000, which, taken from £7,000,000, leaves £3,000,000. Now on the £3,000,000, or actually a little more than £3,000,000, which remain to be accounted for, Income Tax if charged at the standard rate would amount to £650,000. As a matter of fact, the slightly different system by which co-operative societies are taxed, for reasons I have explained, yields, mainly under Schedule A, £550,000 a year. So that under the present system of taxation they pay within £100,000 of what the strict working of the ordinary law would exact from any other similar trading body. Now, in order to obtain this £100,000 by which the taxation paid by these societies falls short of the total, it would be necessary to impinge upon the principle of mutual trading which rules at the present time over a very wide sphere, and it would not be worth while to renounce that principle and to antagonise a very large body of citizens for a comparative small result. I have done my very best to test these figures and I do not think they could be challenged. Therefore, I do not see what an inquiry could do. The Inland Revenue and the Government are quite impartial in this matter. They have no reason to conceal any fact whatever. One can, indeed, feel sympathy with the traders who find themselves oppressed by the immense collective power of these co-operative bodies, which unite all the force of massed capital, and whose shareholders do not pay Income Tax individually because they are below the Income Tax level. Nevertheless, full and impartial administration of the law would only disclose a difference of £100,000.

I do not see why this great body of co-operators themselves do not come forward to make an endeavour to bridge this gap. I do not see why this should bring a laugh, because it is hardly worth while to have this criticism levelled at them that with all their immense wealth they are not contributing the normal amount of taxation to the revenue. It would be more in accordance with their dignity and prosperity if they were, in some way or other, by consultation or otherwise, to bring their taxation up to the exact level of ordinary trading concerns, so that the Inland Revenue should be able to say that they took no part whatever in discriminating between different trading bodies in the country. I have tried to place before the Committee the outstanding features of this important question, and I hope that the Committee will see that the Government must decline to accept the proposal to set up an inquiry which could yield no result.


I can assure the Chancellor of the Exchequer that he need not be alarmed either by the length or the vigorousness of the speech that I shall make this evening. I thank him for his very clear statement of the principles which the Government have decided to adhere to in regard to the taxation of Co-operative Societies. There were one or two things, however, at the close of his speech to which I am sure he will expect me to make some reference. It is a curious thing to find a Chancellor of the Exchequer standing up in the House when the question of obtaining revenue to meet expenditure by means of taxation is discussed to invite one section of the community to make a voluntary contribution. That is rather a new method of raising direct taxation, and he will hardly expect that a body of five-and-a-quarter million people in this country, most of them of the working-class type and most of them with a standard of life which can bear no more taxation, will welcome with enthusiasm the suggestion that they should make a voluntary contribution when successive Chancellors of the Exchequer in the last few years have reduced the Income Tax from 6s. to 4s. in the pound. It is a method of taxing the subject which cannot be accepted.

I would also ask him to remember that so far as the gap to which he referred in submitting the estimated figures is concerned there is a strong view in the Co-operative Movement that there is no such gap at all, and I would ask him to consider it for a moment or two. In the first place in regard to the Inland Revenue figures I want to point out that though the hon. Member for Tamworth (Sir E. Illiffe) and the hon. Member for Moseley (Mr. Hannon) appear to have given great attention to the subject, their figures are not to be relied upon. All they do is to take figures in the mass from the annual returns made to the Registrar, covering only the figures required by the Registrar, and then draw certain conclusions, whereas the Inland Revenue upon whom the Chancellor relies have the advantage that as a result of the Corporation Profits Tax legislation of 1920–21 Somerset House has had for at least two financial years all the detailed Balance Sheets of all the Co-operative Societies in the country. They, therefore, base their estimate on the actual details of the trading Balance Sheets which they have actually examined. If you take the position to-day, we pay far more under Schedule A than is estimated by the Chancellor of the Exchequer. He has admitted quite clearly and fairly that if he attempted to assess Societies under Schedule D at the source he would find great difficulty arising in regard to people who are below the taxable limit, who would immediately claim rebate. But supposing the Chancellor, either by consent or by imposition, levied a sum of £100,000 upon the Movement for Income Tax under Schedule D, how could he refuse the right to any individual member of the Movement who felt himself over taxed to claim that rebate? Consequently there would be no gain to the Exchequer.

With regard to the request for an inquiry, the matter, of course, has already been fully examined, and the Report of the Buxton Committee of 1905 and the Royal Commission of 1919 are largely agreed in principle. The Buxton Committee stated that the private traders had failed to make out any case for a change, and that certainly the revenue would not gain in any way by an assessment. That provision, I believe, still holds good.

In view of the request made to me by the Chancellor of the Exchequer I do not propose to traverse again the ground that he covered, although there were many things in the speech of the hon. Member for Tamworth and the hon. Member for Moseley that ought to be answered. If, however, these points are raised by them again, I reserve the right to reply to them.


I am extremely disappointed with the statement of the Chancellor of the Exchequer. As far as it has been possible to analyse the balance sheets of the co-operative societies, the conclusion has been come to that £100,000 was profit. It is well known that the turnover of the co-operative societies is now bordering on £300,000,000. I have in my hand the balance sheet of the London Co-operative Society, which represents only £5,000,000 out of that £300,000,000. It is interesting to note that in this last half-yearly balance sheet, called the Fourteenth Report, there is shown a profit of £250,000 in the half year, which means £500,000 on the whole year. Out of that sum they are only distributing in the half year £140,000. Having made provision for the interest on the capital, they anticipate a profit in the half-year of £68,000. If that is the anticipated profit shown on the balance sheet of the London Co-operative Society on a turnover of £5,000,000, that shows that the sum involved is out of all proportion to the statement of the Chancellor of the Exchequer that there is only £100,000, spread over this large turnover in the country. I will proceed just a little further in the analysis of this £68,000.


I do not want to curtail the hon. Member's part in the discussion, but it might help and save time if I pointed out that those reserves are within the principle of mutuality outlined by the Chancellor of the Exchequer. The question as to whether a profit is a taxable profit does not depend upon the use to which it is put, but upon its source and the manner in which it is made. The whole of the surplus, whether distributed in discounts or placed to reserve, is the result of the mutual trading of the members.


We challenge the principle of mutuality in this Debate. I desire to point out, in an endeavour to arrive at what are the anticipated profits, that on this very balance sheet there is a capital account of £1,600,000 for land, plant, and buildings, and during the period of the London Co-operative Society's activities they have reduced this sum by 33 per cent. I quite admit, from a financial point of view, that may be a very wise policy for the co-operative societies, but what I desire the Chancellor of the Exchequer to observe is that any ordinary private trader is not allowed, for the purposes of Income Tax, to write down his plant, land and buildings in that way. Every item that he writes down—his plant, buildings and stock—is brought into account for purposes of Income Tax, and if this policy is pursued for another 10 or 15 years, there is every indication that the increasing activities of the co-operative societies, with their swelling and increasing profits, will enable those societies ultimately to write off all their capital account. That might be all very well, but, speaking as a trader, and recognising that the primary purpose of the co-operative movement is to send every trader out of business, it is important to remember that the cooperative societies are allowed, under the present system of taxation, so to put to reserve in writing down their assets and using the additional capital for the development of their business, that they are building up a system which the Chancellor of the Exchequer will be compelled to take into consideration. In his speech last June the right hon. Gentleman said that he desired to secure the taxes of the country with the minimum political disputation. That suggests that he does not want to disturb the members of the co-operative societies, on the ground that it would stir up a lot of trouble. If this system is developed until the turnover is doubled, and there is every indication that it will, then the right hon. Gentleman will have far greater difficulty in dealing with this problem in the future than he has to-day. We feel that an inquiry into the items to which I have referred would reveal the fact that the reserves and undistributed profits are largely in excess of the figure given the Chancellor of the Exchequer by the staff at the Treasury. He would recognise, if he analysed the figures—


I have given prolonged study to this very question, and have endeavoured to make sure that the figures were accurate.


I am delighted to hear that the right hon. Gentleman has examined these figures. The traders of the country are certainly not satisfied with the figures mentioned by the Chancellor, and assuming that it is only £100,000, which I challenge, the right hon. Gentleman has not been unmindful of sums less than that amount, and he is developing a system by which he desires to make those who have escaped pay their proper proportion of Income Tax. This desire for increased revenue and the necessity to bring into the net all those who have escaped, should be extended to the members of the co-operative movement, and, having regard to the enormous burdens which the traders of the country have to bear, it is unfair that any section should be able to develop a system of trading without paying their quota to the revenue. In view of the exigencies of taxation, and the development of this movement, the Chancellor of the Exchequer will be compelled in the future in equity to all concerned to bring into our taxation these reserves and undistributed profits.


I should like to follow my hon. Friend in the eloquent appeal he has made to the Chancellor of the Exchequer, but at this late hour I will not do so, as I have had the opportunity of expressing my views to him on a former occasion. My only object in rising is to call the attention of the right hon. Gentleman to the fact that the statutory allowances for repairs and maintenance claims will expire in April, 1928, unless Parliament otherwise determines, and I should like to know whether the Chancellor proposes to deal with this matter before next April. The Budget will not have been introduced by then, and an awkward situation may arise if by April of next year Parliament has not otherwise determined. These statutory allowances will automatically cease. I ask the right hon. Gentleman if he will be good enough to take the matter into consideration in the meantime.


My hon. Friend has been good enough in connection with this Finance Bill to give me an opportunity of referring to a great many points, and I have profited by his action to look into them. I do not, however, recollect that this was one of the subjects which he suggested to me in any of our talks, nor, I think, has attention been drawn to it in any other way. This would appear to be a somewhat recondite and highly technical matter, and perhaps he will agree that should any statement upon it be necessary, it can be deferred until the Report stage is reached.


I am only anxious that the matter should be placed on record.


There is, I think, one observation to be made in reference to the unintelligibility of Income Tax legislation to which the Noble Lord the Member for Western Derbyshire (Marquess of Hartington) has called such well-deserved attention. The Chancellor of the Exchequer has said that it is impossible in the present state of Income Tax law to deal with other than legal phraseology for the purposes of such legislation. If I may say so, without assumption, I think he is quite right. He said further that it is not impossible to interpret such terms in a more literary and intelligible form. I have no doubt that is done year by year by the able officials of the Inland Revenue but, he added, that the more intelligible form would be useless for the purposes of legislation. While that is no doubt true, the suggestion I have to make is that the more intelligible and literary form would be of great use to Members if given in a White Paper. I think it is universally admitted that Income Tax legislation has become utterly unintelligible tı the ordinary person. For purposes of illustration, let me refer to Clause 26 of this Bill. The average citizen may read it through, right side foremost or back side foremost, and yet be totally unable to attach any meaning to it. It is little short of a public danger that we should be called on to legislate about things that we cannot understand, and it would be to the advantage of the public, if it is possible to make them intelligible to the House, by giving us first aid in the form of a White Paper, that it should be done. There may be a question of the time not having arrived for such a precedent, but the suggestion is worthy of consideration.