HC Deb 27 June 1928 vol 219 cc590-642

I beg to move to leave out all the words from the word "pound" in line 19, to the end of the Sub-section.

I appreciate the kindly cheers with which hon. Members have welcomed me, and also the courtesy of the right hon. Gentleman the Chancellor of the Exchequer in agreeing to the postponement of this Clause. In moving this Amendment, may I call the attention of hon. Members—they may not have had time to read their papers this morning—to the remarks which fell only yesterday from one of the learned Judges of the High Court. He was considering a case in the King's Bench Division, stated by the Board of Referees in respect of a Tax appeal against a direction made by the Special Commissioners under Section 21 of the Finance Act, 1922. That Section, as some hon. Members may remember, was amended by the Finance Act of 1927, and the amendment in the Finance Act last year which the learned Judge had to interpret occupies no fewer than five pages of the law books. This is what the learned Judge said: It is a crying scandal that legislation by which the subject is taxed should appear in the Statute Book in that utterly unintelligible form. I am told by the Attorney-General—and I am rightly told, I am sure—that it is only in this form that the legislation can be got through at all. Then all I have to say is that the price of getting this legislation through is that the people of this country are taxed by laws which they cannot possibly understand. That is really my case for the Amendment. My Amendment raises the whole question of Super-tax for the year 1928–1929, and if it was carried would strike at the root of the proposals for Surtax foreshadowed in the Finance Act last year, and actually embodied in the Finance Bill this year. This matter was discussed on the Finance Bill last year but at a most unreasonable hour, as it would have been last night but for the courtesy of my right hon. Friend, and in a very short and perfunctory way. I think I may save the time of the Committee if I begin my case for this Amendment by-quoting a short passage from the speech of the Chancellor of the Exchequer when opening the Budget last year. He was then dealing with a number of changes of the Income Tax law which are sometimes euphemistically comprehended in the blessed word "simplification." That is a word at which all Income Tax payers, perhaps all tax payers, will be well advised to look askance in the future. This is what the right hon. Gentleman said: Last year we took an important step towards simplification. We reduced the four bases of assessment under Schedule D to the single basis of the preceding year. Now I am in a position to take several further steps. The first is the transfer of Schedule E, which deals with salaries, to the basis of the preceding year. The second step is more important. It is the second step with which we are concerned in this Amendment: What we now call the Super-tax for 1926 is charged at this moment on the same basis as the Income Tax for 1925. Viewed in this light, the Super-tax is nothing more than an additional Income Tax-for the previous year. I propose that in the future Super-tax shall be assigned to the year to which it rightly belongs, that is to say, the one prior to that in which it is paid. This assignment of Super-tax"— These are the particular words to which I want to draw attention— to a different year does not affect cither the basis on which it is assessed, the rate at which it is charged or the date at which it falls due for payment. That, of course, is perfectly clear and perfectly obvious. But the Chancellor of the Exchequer went on: But, although the change is one of form rather than of fact, it makes it possible to express the Income Tax and the Super-tax in the form of a single graduated tax on income—a tax which will rise in a smooth progression and by a harmonious curve from the lowest rates."—[OFFICIAL REPORT, 11th April, 1927; col. 83, Vol. 205.] And so on. I hope the Chancellor of the Exchequer, if he is good enough to reply, will tell us whether he adheres precisely to the statement I have just quoted. I hope he will not be tempted to take refuge in the oracular language used by the Attorney-General last year when discussing this matter. The whole question was passed over, I do not say in complete silence but with very inadequate debate last year for two or three reasons. In the first place, it was not until a very late stage in our discussions that the public outside and hon. Members inside the House began really to comprehend the precise nature of the change it was proposed to make. Some of us began by assuming when the Budget of last year was introduced that there was something like an error or mistake in the drafting of the Finance Bill, but we discovered that it was not a mistake but a grim reality which was being proposed. That was one reason why we discussed it so perfunctorily last year. Another reason was that attention was concentrated upon another aspect of Super-tax in respect of the reserves of limited companies, and the third reason was that the proposals were not to take effect until after they had been embodied in the Finance Act of 1928. But whatever the reasons may have been the fact remains that there was very little discussion last year, and we are now face to face with these proposals in a concrete form and they are to become operative when this Finance Bill is passed.

7.0 p.m.

Most hon. Members will agree that the longer the simplification process to which the Chancellor of the Exchequer referred is contemplated the less it is liked by those in whose interest it is proposed. At first sight the proposal seemed to be acceptable, because the underlying idea was to get, as I understand, Income Tax and Super-tax into the same year for assessment. Most of us would agree that that is a very desirable object, but then came the shock which was administered to us by the Budget Resolutions of this year from which, to the lay mind, it looks as though on the income of a given year both Super-tax and Surtax would be charged, that there was in fact to be a double Super-tax, and a long correspondence which has taken place in the press and articles by the Financial Editor of the "Times" in the columns of the "Times" have shown that there is a considerable section of the public who are not even now wholly reassured on that point as to the payment of double super-tax in a single year. I hope the proposal of this Amendment will give my right hon. Friend the opportunity of finally and explicitly reasuring the taxpaying public on this point.

Nevertheless, although those extreme fears may not be justified, there is a danger to a certain class of taxpayers, or, if not to themselves, to their heirs and successors, lurking in these proposals. The proposal reduced to its simplest terms is to impose upon all persons with more than £2,000 a year an aditional year's Super-tax or Surtax, but to impose it in such a manner that the tax will become rather of the nature of an additional Death Duty than an actual addition to Super-tax. In order to make that clear and to shorten discussion at a later stage, I may remind the Committee that Super-tax was first imposed by the Finance Act, 1909, and was assessed for the first time in respect of the fiscal year 1909–10. The liability for Super-tax was arrived at by taking as a basis the statutory income of the previous fiscal year, and that practice has been continued to this day during nearly 20 years.

Let me make this clear by an example. Liability to Super-tax for the year ending 5th April, 1927 is based on the statutory income of the previous fiscal year, ending 5th April, 1926. Let us assume an income of £10,000 a year. The Super-tax on that would be £1,131 5s. and that sum was due and payable on the 1st January, 1927, and the payment of that sum would clear the taxpayer's liability down to the ensuing 5th April, 1927. Assuming that the taxpayer died three months afterwards, on the 5th July, 1927, his sole further liability would be for the period between the 5th April, 1927, and the 5th July, 1927. That liability is established under Section 6 of the Income Tax Act, 1918. The liability would be restricted to payment of one-fourth of the year's tax, or £282 16s. 3d. That has been the position down to the present time.

Let us now take this new Surtax. How will that affect the taxpayer? I submit that the proposed change will materially affect the Super-tax payer in this way. Super-tax in respect of the fiscal year 5th April, 1929 will be assessed and payable on the 1st January, 1929, because that liability is based as at present on the statutory income of the previous year, which ended on the 5th April, 1928. After the 5th April, 1929, the name of this Super-tax will be changed to Surtax, and Surtax will be assessed on and in respect of the statutory income for the year ending 5th April, 1929, the same year, but will be payable, not on the 1st January, 1929, but on the 1st January, 1930. It will therefore be observed that the two assessments will be raised for the fiscal year ending 5th April, 1929, first of all, the assessment for Super-tax, which will become payable on the 1st January, 1929, based as at present on the statutory income of the previous year, 5th April, 1928, and also the assessment for Sur-tax, which will become payable on the 1st January, 1930. The change has the practical effect of throwing a year's liability for this tax into arrears. It may make no material difference—I frankly admit that it will make no material difference—to the Surtax payer during his life, as he will only make one payment annually, as he does at present in respect of Super-tax; but, on his death, his estate will be liable for the year thrown back under the new method of assessment.

I can only hope to make that clear by taking an illustration. Under the Super-tax, the existing method, a taxpayer's statutory income for the fiscal year ending the 5th April, 1926, is, let us say, £10,000. He is assessed to Super-tax in respect of that amount for the following fiscal year, ending 5th April, 1927, the tax being payable on the 1st January, 1927, and amounting to £1,131 5s. Assuming that he dies on 5th October, 1927, and that his statutory income for the previous year was unaltered, then his liability for Super-tax would, as I have pointed out, be restricted to the six months between the 5th April and the date of his death, and would be £565 12s. 6d. Under the new Surtax, assuming that the taxpayer dies on the 5th October, 1928, and that his statutory income for the previous year ending 5th April, 1928, is still £10,000, he will still have his liability for Super-tax to discharge, or rather his executors will, £565 12s. 6d., but his estate will he additionally liable for Surtax in respect of the same period down to the 5th October, 1928. Whether it will be liable to the full amount of Super-tax, an additional £565 12s. 6d., as some maintain, or to some lesser sum, as others maintain, is not for the moment material to my argument. My argument is that he will be liable for a substantial additional amount.

These examples show that the practical effect of throwing the Surtax back to the year ending 5th April, 1929, is that, in respect to the estate of a deceased Super-tax payer, both Super-tax and Surtax are in operation for that one year, and that liability for a proportion of the amount of both taxes has to be met in the year ending 5th April, 1929, and that, after the 5th April, 1929, a full year's liability, in addition to a proportion of the amount, as I have already explained, will be required by the Revenue officers. What that really comes to is that an additional year's Super-tax will be thrown into the coffers of the Exchequer, or, roughly speaking, an additional £60,000,000. Not, I admit, in any one year. Nevertheless, assuming that the rate re- mains as at present and that the aggregate income of Super-tax payers in the long run remains the same, an additional sum of £60,000,000 will, by the change effected in the Bill this year, be brought ultimately into the coffers of the Exchequer and extracted therefore from the pockets of the Super-tax payers or their representatives or executors.

What then is the sum of the whole matter? First of all, I admit frankly that the extra burdens will not be felt during the actual life of the taxpayer. But I contend that there is an additional burden, which, at current rates and on the basis of existing income, will amount in the aggregate to £60,000,000, which will sooner or later have to be provided by the general body of Super-tax payers. I realise perfectly well the dilemma in which the Chancellor of the Exchequer found himself when he was proposing his scheme of simplification. Either he had to drop a year's Super-tax altogether and be £60,000,000 out of pocket or he had to impose an additional Super-tax of that amount. I venture therefore to suggest that the equitable way of meeting the difficulty and solving his dilemma would be to allow, for a definite and limited period, the additional burden, which is thrown on the taxpayer's estate, to be deducted from Death Duties because the effect, as I have said, is an additional Death Duty. This may not be a scientific solution of the dilemma. I do not suppose that it is, but frankly I do not see how, apart from the new Clause that we shall presently propose, there can be any other solution which would at once tide over the period of transition without excessive loss to the revenue, and at the same time be equitable to the general body of Super-tax payers.


In the early hours of this morning, the Committee was torn by two opposite moods in respect to the Amendment which my hon. Friend has just proposed. On the one hand there was a great demand on this side that his Amendment and his speech should be made under the best conditions at a time when they could be fully reported and studied by the country, and on the other hand the Opposition protested that they were utterly unable to transact any further business unless they were fortified and refreshed by the guidance of my hon. Friend. As I said at the time, my reasons for suggesting that the Clause should be postponed until this afternoon were not of a personal but of a public and general character. There has been a great deal of misconception about the Surtax and the Super-tax, and there have been absurd conjectures on the subject in some quarters. I am glad to think that my hon. Friend did not foster the more absurd and unjustifiable of these delusions.

There is no question whatever of double tax being exacted from anyone in any way. There is, of course, no question of the Exchequer obtaining in any year an additional payment of Super-tax. I think it well that it should be known that my revenue from Super-tax last year was about £60,000,000, and I am expecting to get no more than that in the present year. Consequently these alarming accounts of the Exchequer by some devious method succeeding in obtaining two payments of Super-tax in a single year are utterly unfounded, and I am glad to have an opportunity of making that plain. Although both the Super-tax and the Surtax are imposed in respect of the year 1928, yet they are payable in different years, and are calculated on the income of different years. The Super-tax for 1928 is charged upon the income for 1027, and the Surtax for 1928 is charged on the income of 1928. No one in any circumstances would ever have to pay Super-tax or Surtax for a greater number of years than he has enjoyed a Super-tax or Surtax income, and no one would ever have a liability to pay twice in the same year.

Is not that quite fair? After all, it is only applying to the Super-tax or Surtax payer what has long been the rule with regard to the ordinary Income Tax payer. No one ever questions the fact that the Income Tax payer below the Surtax limit should pay his full Income Tax for the last year of his life. I am sure that there is nothing inequitable or anomalous in the step that we have taken. Neither is there any concealment about it. It is true that our discussion took place at a late hour last year, and for that reason I was anxious that the subject should not be reached at the same time this year. But there was absolutely no concealment of the fact that this would impose an additional charge on the taxpayer. I am not pre- tending that it does not do so. Of course it does, and is to that extent a new tax. That charge amounts to £1,000,000 a year approximately. That charge, as I explained, was put on the taxpayer as a counterpart to the remission given, I will not say to the taxpayers, but given to other taxpayers in reference to the calculation of income under Schedule E. A million pounds was lost by that, and a million pounds was gained by this. I explained both fully and plainly to the House last year that this was exactly what would occur.

I am not in a position to sacrifice revenue. The simplification scheme, which was studied with great attention by some of the highest experts of Income Tax law and procedure in this House, gained a very great measure of assent, although my hon. Friend has said that the more it was understood the less it was liked. I do not share his view. I do not know how much it will be understood, because even simplification in these matters is a relative term. But that it is a very great advance on what was in force before, and that it will gradually be found to open the door to easier processes of collection of the tax, I have no possible doubt. As I have said, I am not in a position to surrender revenue. If the House were to deny me the revenue that I obtain by this addition to the Surtax liability, amounting to £1,000,000 a year and falling to be collected after the death of the Surtax payer, and if I were left to bear the cost of the charge under Schedule E, I should be forced to propose a new addition, which I could only find in the circumstances by a regrading of the Surtax scale to produce an extra £1,000,000.

It would be much better if we adhered to the policy and the proposals which were fully laid before the House last year, and which, as is known well, were not left in any obscurity after the searching criticism by which they were beset in various quarters. I am sure it would be very much better to adhere to that method. I do not conceal for a moment that there is additional taxation. I said so last year. But I cannot surrender any revenue, and if I were denied this I should find it necessary to propose additional direct taxation. Finally, let me say that the Amendment of my hon. Friend does not remedy the evil of which he complains. It does not take away £1,000,000 a year from the Exchequer, but it takes in one holocaust no less than £60,000,000, thus completely disorganising the whole finance of the country, and rendering it utterly impossible to carry out any constructive policy to which we set our hands.


The right hon. Gentleman has said that no taxpayer would be taxed on any Super-tax income that he had not received. Is not there a change from the present system? Under the present system no Super-tax payer pays Super-tax until he has had a year of Super-tax income. That is to say, that in the first year during which he has had an income of £2,000 or over he does not pay Super-tax, but that income is the basis of taxation for Super-tax in the following year. It seems to me after what the Chancellor has said that that arrangement is now wiped out and that the Super-tax payer is to pay Super-tax backwards from the very time when he first had a Super-tax income, as contrary to the present system under which he does not pay in the first year. Let me put it in another way. If your income last year was £1,500 and this year £2,000, you do not pay Super-tax this year; you do not pay Super-tax till next year, when it is paid on the £2,000 that you have had this year.


It is no part of our case that there has been no change.


It was last year.


On the contrary, it was not so. My right hon. Friend is in error in that statement. I said last year: In the general scheme of simplification there are various aspects which must be considered together and balanced against each other. It happens in this particular aspect that there is a gain of revenue to the Exchequer, but in another aspect there is a counterbalancing loss. But on the whole, I contemplate, in consequence of the scheme of simplification, that the burden on taxpayers as a whole should be virtually unchanged."—[OFFICIAL REPORT, 30th June, 1927; col. 752, Vol. 208.]


I, in common with many other people in the House, understood it in the way I have suggested.


I also said last year, on Clause 41 of the Finance Bill, which relates to the Surtax: I fully appreciate the fact that while in certain directions the simplification scheme meant a loss to the Exchequer, in this respect there was a gain to the revenue of an almost exactly similar amount. Nothing could be clearer that that. It is not my case that there has been no change. There has been a change in respect of Surtax and Super-tax. An increased liability is imposed on the Super-tax payer, but that increased liability does not amount to double Super-tax, as is sometimes suggested; it does amount to the prolongation of a payer's liability for an additional year, collected after his death; it imposes a burden on him which costs in the aggregate £1,000,000 a year; but on the other hand, the revenue by other parts of the scheme is losing £1,000,000 a year, and this extra resource is necessary to us for the balancing of our finances.


On a point of Order. May I ask whether a decision on this Amendment—supposing that the Amendment is defeated—will in any way affect discussion upon a new Clause—(Relief to Surtax, payers)—which is to be proposed later. Will it be competent for us to discuss that new Clause if this Amendment is defeated?

The DEPUTY-CHAIRMAN (Mr. Dennis Herbert)

The proposed new Clause to which the right hon. Gentleman refers will be all right, regardless of what may happen to this Amendment.


The Committee listened with great interest to the very lucid speech of my hon. Friend the Member for York (Sir J. Marriott), and, having listened to it, I feel sure hon. Members understand all about the incidence of Surtax. I do not propose to develop any further examples of how the tax falls upon the taxpayer. The more one tries to explain the incidence of Surtax the more involved one becomes. I find myself that the only possible way of dealing with it is, with the aid of a pencil and paper, putting down the figures. If one tries to express those calculations in words, this Committee or any other body will have a very serious difficulty in understanding one's points. This matter was discussed last year, but I think few Members appreciated the meaning of the Surtax or how its incidence would affect the taxpayer. It is true that the hon. Members for Brighton (Sir C. Rawson), Great Yarmouth (Sir F. Meyer) and Tamworth (Sir E. Iliffe) all moved Amendments or spoke upon this matter, and so we cannot suggest that we were entirely ignorant of it, when the Budget of 1927 was before us. There is no doubt, however, that since that time the public generally, and Members of Parliament in particular, have learned a great deal more about the Surtax and what it means than they knew at that time. However much the Chancellor of the Exchequer may endeavour to explain favourably the incidence of the Surtax, and, however well my hon. Friend the Member for York may state the details of it to the Committee, the fact remains, and the public know it perfectly well, that every Surtax payer, or his estate, will pay one year's more Surtax than has been payable in the past. There is not the least doubt about that fact.

The Chancellor referred to the fact that he gets £1,000,000 a year extra from the Surtax, but I should like to know how he has arrived at that figure. On the basis of last year's figures, one year's extra Surtax means at least £65,000,000, which, of course, is spread over a generation, but that does not mean simply one sum of £65,000,000 spread over a certain definite period of years. It is spread over each generation, it goes on for ever, and if we take a generation as representing 30 years, it means over £2,000,000 per annum going into the Exchequer for ever, and not one payment of £65,000,000 spread over only one period of 30 years. That being the case, I am inclined to think that the Chancellor of the Exchequer last year did not realise that hidden away in the mazes of the amazing Bill presented to us last year there was over £60,000,000 which would accrue to the Exchequer over a period of, say, 30 years. I am sure the public did not understand it, and very few Members of Parliament understood it either. If the right hon. Gentleman did realise it, then it would have been his duty, in introducing the Budget, to make reference to this huge accretion of wealth which was to be taken from the pockets of a comparatively small number of taxpayers.

It is true that, with one exception, with which I shall deal presently, no Surtax payer will pay upon more Surtax income than he has enjoyed. At the same time he will pay upon one year more of Surtax income than he is paying on at the present time in connection with Super-tax. When the Chancellor of the Exchequer attempts to justify the extra payment by attaching it to the simplification of Income Tax, he touches me, personally, on the raw, because I have always taken, a very great interest in the question of the simplification of the Income Tax. I appreciate what the Chancellor has done in many directions in that respect, but to say that it is necessary for the purpose of simplification to charge the Surtax payers of this country on an extra year's Surtax income is audacious to say the least of it, and I am sure we shall all look askance and with the greatest suspicion upon any further suggestions for simplification which the Chancellor may introduce. The right hon. Gentleman goes further and says that it is necessary, not only for purposes of simplification to impose this extra taxation, but that it is also necessary in order to reimburse him for the loss which he is to make owing to certain adjustments of assessments under Schedule E.

We have heard a great deal about this loss which is to arise from the alteration in the method of assessment under Schedule E, but to my mind that loss is very problematical. Why there should be a loss I fail to see. I do not think there will be a loss, but the Chancellor of the Exchequer tries to associate these two things, and he says he is going to have a loss owing to the different methods of assessment under Schedule E, and that he is going to gain an equal amount from the extra imposition on the Surtax payer. As I have said, the loss, on the one hand, is problematical, while, on the other hand, the accretion of revenue from the Surtax will be largely in excess of what the right hon. Gentleman imagines it will be. There is no reason why the right hon. Gentleman should associate the taxation which he is taking from the pockets of a very small number of taxpayers with a charge upon the revenue which affects an entirely different class of taxpayers. He might just as well say that if he makes a reduction in the duty on tea, it is the Super-tax payers alone who ought to pay for it.

I do not expect pity and I do not want pity for the Surtax payers, but I wish to remind the Committee that all Sur-tax payers are not rich men. The Chancellor of the Exchequer is not in his place at the moment, but I hope the Financial Secretary will convey to him what I am about to say. I have already had the privilege of discussing this question with some of the Chancellor's advisers, and it is possible that what I am going to say may not come quite fresh to him. We all must be able to bring to mind a great many men, particularly professional men with incomes of, say, £5,000 a year, who are obliged, for various reasons connected with their professions, to spend that income to the last penny. Perhaps there comes a time early in the career of such a man, before he has had time to accumulate any sort of capital at all, when he is unexpectedly removed by death. What is the result? In such cases this extra taxation is going to fall with extreme severity upon the very people who ought to be spared. Let us take the case of a man with an income of £5,000 a year who dies leaving an estate worth £5,000. That is not at all an exceptional case. It happens many times where professional men are concerned, particularly if they are in the early stages of their careers. This extra taxation falls upon this small estate as an extra Estate Duty and the figures when one comes to face them are appalling in such an instance. Under the new Regulations such an estate would have to pay the extra year's Surtax of £231 and the Estate Duty upon an estate of £5,000 would be £200. Accordingly, the imposition of this extra year's Surtax more than doubles the Estate Duty on such a small estate.

I appeal to the Chancellor to consider cases of that kind. I confess that I am not hopeful that he is going to accept the Amendment. In fact, he has already said he will not do so, but I wish he were here to listen to the appeal which I make to him now. I admit that the Surtax payers will have to face this new tax and, to a great many of them, it does not matter very much if their estates have to pay a few hundred pounds more after they have gone than those estates would have to pay to-day. But it matters in- tensely to the poor people to whom I am referring, who have had considerable incomes but have died leaving small estates. I do not think it is going too far to say that in such cases it will really be a persecution of the widows and children of such people, if they are called upon to pay more than double the Estate Duty to which these estates would otherwise be liable. I again express the hope that the Financial Secretary will convey my appeal to the Chancellor of the Exchequer. I know he has a soft heart for the poorer class of Income Tax payers. He proved it last year when he increased the earned income allowance, and he has proved it again this year in the larger allowances for children. I hope between now and the Report stage, he will consider whether he cannot remove this burden from the poorer class of people who will suffer very seriously from it.


It is not often that we on this side of the Committee enjoy the somewhat debatable privilege of agreeing with the Chancellor of the Exchequer, but there is not the least doubt that, if we apply our minds impartially to the problem before us, we must conclude that the right hon. Gentleman has a perfectly sound case on this occasion. The Committee will recall that in 1919 the Royal Commission on Income Tax reported at great length on this and kindred matters and it was perfectly plain that at some time Income Tax and Super-tax in this country must be run together in some sort of continuous process. Very few of us then believed that we should ever be spectators of the kind of controversy which is proceeding in the "Times" and other newspapers—not readily to be confused with Socialist thought—during recent months. Business men of great eminence have committed themselves to the view that there is to be a double payment in this year 1928–29 or later and another section of thought has concentrated upon what is described as additional Estate Duty involved in this transition.

On the first point, much of the confusion has plainly arisen from the fact that 1928–29 is the critical year, and that on the face of the legislation you get a kind of duplication of Super-tax and Surtax, but that is a mere appearance, because, as the right hon. Gentleman had no difficulty in pointing out, the payments are made for the last occasion under the heading Super-tax on the 1st January, 1920, and the new Surtax is in operation as regards payment on the 1st January, 1930. There is no difficulty at all upon that particular point, and certainly no question of duplication of this charge. The Chancellor of the Exchequer has not disputed, and we understood quite clearly last year, that a certain additional charge was involved in what was so far the disappearance of a kind of time lag in the operation of Super-tax in this country. Many have contended that there is some injustice or great wrong in that proposal, but if it true that you are counting back the period of years for which Super-tax or Surtax income was enjoyed, and if it is the case that no more tax is payable than is strictly related to that period of time, I fail to see where any injustice comes in.

But taking the point of the additional charge of the Chancellor of the Exchequer, even our political opponents in this country have pointed out that you cannot make a case for hardship or for any special consideration if a kind of additional Estate Duty is involved. Surtax or Super-tax papers, have no more right than any other class of the community, because they have provided by insurance against payment of Estate Duty, to plead that as against a change in the law, any more than any one of us could claim if we incurred certain losses because Income Tax was altered or any other tax was varied from time to time. That argument has been made abundantly clear in financial and other newspapers that do not in these matters share our main thought, and so, for our part, we quite fail to see that there is any valid ground for the agitation of recent months, much of which, certainly as regards the duplicated payment, has been entirely misconceived.

The hon. Member who has just addressed the Committee attacked the Chancellor of the Exchequer for confusing a scheme of simplification in Income Tax and Surtax with the precise proposals before us on the two heads which I have just tried to explain, but surely it is quite impossible to separate the two problems. Within recent years, and certainly since the time of the Report of the Royal Commission on the Income Tax in 1919, we have been trying to address our minds to a comprehensive policy of simplification of the Income Tax and Super-tax structure, and there is no hon. Member in this House who does not agree that this is very urgently required. Whether we are achieving it or not, is another matter, with which I will deal later, but the broad features of that change have included, as hon. Members know, a very wide extension of the scope of Schedule E and a transition from an assessment of the actual year, the current year, to the preceding year. That is entirely desirable, because very great administrative and personal difficulties attended the use of the current year for the purpose of tax, and you had a large element of estimate which led to all kinds of repayments and, from many points of view, duplication of administrative effort. We have widely extended Schedule E in these recognised and regular emoluments of income, and we have added to that this change to the preceding year. That is not questioned, I take it, by any hon. Member in any part of the House. Then the next great change has been this mingling of the Super-tax and the Income Tax into one continuous process, and that does not require longer discussion now.

The third change which has been attempted, and so far applied, has been the simplification of forms that is now coming into operation, providing one form with one return and, I should have thought, making matters very much easier for the great body of taxpayers in Great Britain. But while these changes have beer proceeding, while I think the Chancellor of the Exchequer is perfectly correct in regarding them as bound up with this discussion to-night, there is a very great weakness to which I think the Committee might very well give attention on an occasion like this. The hon. Member for York (Sir J. Marriott), in introducing his case for this Amendment—which, of course, could never be pressed to a Division, because it would abolish at least £60,000,000 of income during the present year—made reference to some very strong remarks, which are quoted to-day in the "Times" and other newspapers, by Mr. Justice Rowlatt either in the course of a judgment yesterday or in the course of a case in the Courts. That reference relates to Section 21 of the Finance Act, 1922, and Section 31 of the Finance Act, 1927, and, as the Committee will recall, the first of these Sections, and to some extent the second, was devoted to a plan for the purpose of preventing the evasion of Super-tax by a failure to distribute profits by companies on a fair basis, having regard to certain conditions which were laid down in the Act, and so to get at certain sections of people who were paying less than they should pay under the head of Super-tax.

The learned Judge quotes certain Sections of the legislation, including a Section of the Act of 1927, and repeats, in very much stronger language than any of us used on the Floor of this House, the practical impossibility of any layman and, I should add, a great portion of the experts, finding out what is meant by these Sections, or how exactly they are to be interpreted at the present time. Far be it from me to suggest that you can find an easy solution. If a personal word may be forgiven, no one could be Financial Secretary to the Treasury for even two months in this House without appreciating the very great difficulty of stating these Clauses in simple terms, or even making them clear to the House of Commons, because there is the huge Consolidation Act of 1918, and I imagine many Sections of this class have to be related to that, and unless they move in step our difficulties may be greater even than the difficulties of interpretation at present.

What is the suggestion that might be offered in this connection? I believe that there is a great body of opinion in this House, irrespective of party, which would urge the Government to proceed immediately, if they have not already tried it, to investigate the simplification of these Sections in Finance Acts in general, but more particularly as applied to Income Tax, Surtax, and other burdens. In short, is it possible to state in plain, clear, simple language the exact liability or burden which should fall on the taxpayer? Fundamentally, the taxpayer of this country is entitled to a statement of that kind, because we ought not to tax people in terms of legislation which no ordinary mind, apart altogether from the expert mind, can understand, and I defy even experts who have spent their lives in this work to give the same reading, or even connected readings, of certain of these Sections at the present time, to say nothing of all these rules in the great Act of 1918, which in themselves no ordinary mathematical and even philosophical power can always follow. How long is that to go on? I think we should undertake this task of simplification of terms at the earliest possible moment, and, accordingly, I should like to ask the Government to-night, in a final word on this point, whether they intend to appoint a Committee or to take other steps towards that very desirable end.


I should like to reinforce what has been said by the right hon. Member for Central Edinburgh (Mr. W. Graham) with regard to the necessity of a simplification of the language of our Statutes. I have not been unaccustomed during my life to giving inter-petations of Statutes, and I confess that the more one studies the finance legislation of this country the more one comes to the conclusion that not even the experts can give intelligent reasons for the opinions which they form as to the meaning of the language which has been used. I heartily sympathise with the unfortunate taxpayer who has to try to discover for himself what his obligations really are. The state of our legislation at the present time urgently calls for a remedy in this respect, and I gladly support my right hon. Friend in his suggestion that some attempt should now be made to simplify the language of the Statutes. The Chancellor of the Exchequer complained to-day of absurd interpretations which had been put upon the Clause which was added to the Finance Bill last year in connection with Surtax and Super-tax. I venture to say that he has brought a great deal of that trouble upon himself. I have no doubt that he can find passages in his speeches in which there were indications given that some new tax was being imposed, but at the same time the broad general trend of the initial speech which he made on this subject was to the effect that the change was only one of form, and not of fact.

I confess for myself that I was at that time quite unaware of what was being done and of the new tax that was being imposed, although I readily agree that some Debates did take place in this House in which cer- tain hon. Members drew attention to the fact that, in their opinion, a new tax was being imposed. The reply of the learned Attorney-General, as I recollect it, and as it has been recounted to-day, gives very little elucidation of the subject, and I defy anybody reading his reply to say that he acknowledges that a new tax was being imposed at that time. Accordingly, although one takes it now that that was the intention, and although passages from the Chancellor's speeches may be read to indicate in an obscure way that a view of that kind was being held, I am certain that we must all acknowledge that a large part of the business community were under the impression up to recently that no such new taxation had been imposed. You have only to look at the current numbers of the financial Press to find the surprise expressed by people accustomed to studying these matters very carefully and to watch out for any new taxation that is being imposed.

8.0 p.m.

There is a clear indication there of the fact that they did not realise what was being done, but I do not propose to follow that matter further. One sees how these unfortunate incidents occur, and I do not blame anybody nor cast any reproach at anybody about it. All that I say is that it is perfectly plain that this new form of taxation is a new Death Duty. That is really what it is in essence, and while I do not say that, if it had been definitely and clearly put forward in that form, I would have been found in the House to oppose it when the Chancellor of the Exchequer had given the weight of his opinion to the necessity of its being imposed, at the same time I desire to say very specifically that one form of taxation in particular which I regard with aversion is an increase of the Death Duties, not because I have any desire to save people who leave large estates from a certain amount of sacrifice to the State, but because I believe that economically it is bad, because it takes away from the country in general those resources which are necessary for the carrying on of the enterprise of the country. The more you take by way of Death Duties, the more you reduce the form of wealth from which employment comes. I would welcome any form of taxation more than that, because the extent of taxation by Death Duties has gone too far for the good of the State. It has gone as far as in reason it can go. With these rather inconsequent observations, I thank the hon. Member for York for the attention he has drawn to this particular Clause.


I cannot help feeling that it is one of the most difficult things imaginable to state in accurate and simple terms what is the difference between the law as it now stands and the law as it will become if the Chancellor's proposals are not amended in some sense. Turning over in my mind for the simplest way of stating it, I would suggest this, and my right hon. Friend the Attorney-General will tell me if I misstate it. Let us take a case which has been much in the public mind of late, namely, the salary of the Prime Minister, £5,000 a year. Let us suppose, in an imaginary case, that before the Prime Minister became such and received his £5,000 a year, he had been a man of comparatively small income. As I understand it at this moment, the position is this. Suppose he died in office and left, as he probably would, a very modest accumulation of wealth, there would be no further claim that could be made on his estate in respect of Super-tax, except, indeed, in respect of such portion of a year as had elapsed from the 5th of April down to the date of his death. Let us suppose that this imaginary Prime Minister died in harness on the 1st July. The result would be that, when his executor came to administer his modest affairs, he would find that all that remained to be done in the matter of Super-tax would be to pay one-quarter of what would have been the full Super-tax charge if he had lived until the following April. That is the position at this moment under the law.


The taxpayer is in a better position than that, because, in assessing the tax for that year, the quarter is taken as a whole year's income, and, therefore, he would pay at a lower rate.


I used to be moderately familiar with this subject, and some people were good enough to hire me to explain it, but I am a decayed lawyer now. Let us see what is the contrast. Let us suppose that the changes which are pro- posed are made in the law. What does it mean? It means that in the case of the supposed Prime Minister with a quite small income, apart from his high and responsible office, dying in harness, his executors have to pay Super-tax on the full amount of £5,000, notwithstanding that he died only a short way through the year. I am not arguing whether it is fair or not. There is a great deal to be said on both sides, but, unless I misunderstand it, that is the position. Under the law as it stands at present, when a man who is earning a Super-tax income dies, the only liability in respect of Super-tax falls upon his estate, under the words of the Act which the hon. Gentleman opposite thinks are still more favourable to the estate: In the case of the death of an individual liable to Super-tax during any year for which Super-tax is charged, a part only of the year's Super-tax shall be payable proportionate to the part of the year which has elapsed before the date of the death. I will not enter into the difficult point the hon. Gentleman has raised. That seems to me, in a simple illustration, how it really works out. I venture to say that there is an argument both ways, and I wish to state the argument as it appears to me on the other side. Let us suppose that this imaginary Prime Minister has been in office for throe years exactly, and has received the Prime Minister's salary of £5,000 in each year and, at the end of three completed years, he dies. As things stand under the law, this imaginary gentleman would not pay any Super-tax in the first of his three years as Prime Minister, because the Super-tax in that year, though, indeed it is charged in respect of that year, not of any previous year, is measured by inquiring what was the total income from all sources in the previous year. Consequently, my imaginary Prime Minister, being Prime Minister for three consecutive years, and then dying in office, would pay no Super-tax in the first year; in the second year he would pay Super-tax on £5,000, and in the third year Super-tax on £5,000, and, if he then dies, there would be no further liability to the revenue from his estate, subject to the Section which I have read. That may be fair, or it may Dot, but it is right to look at it from both sides.

I would respectfully make this one final observation: It is commonly said by various persons who expound this branch of the law, and, I am sorry to say, by lawyers, as well as by others, that Super-tax is a tax charged in respect of the previous years income. That is not true. It never has been true. It has never been the case that Super-tax is charged in respect of the previous year. When Super-tax was first imposed—and I was a member of the Government that imposed it—it was not retrospective taxation at all. It was charged then and there, but it was charged on a figure which was ascertained and calculated by going back into recent history, just as ordinary Income Tax was charged, in a given year and for a given year, and charged by adding together three figures which could be got in the previous years. It is, therefore, quite inaccurate to say that Super-tax is charged in respect of the income of a previous year. It is not. It is charged in respect of the income of the year of charge, and you measure that income by asking what is the income from all sources, which was originally a thing which was calculated for the purposes of rebate or exemption, and the figure which you have to work upon will be found to be a figure in the records and accounts of the previous year.

I think, therefore, that this result follows. It is undoubtedly true that the new proposal, as the Chancellor has quite frankly admitted to-day, does involve in certain cases a new charge. That seems quite undoubted. There may be instances, and I think that there are, in which the new charge is a particularly severe one. It is undoubtedly a severe thing to say to a man who, though he may have a Super-tax income, none the less is earning it in circumstances like the Prime Minister, or like a Judge: "We give you notice now that if you die at your work, fall down at your desk, or in your office, or in your Court, your widow will have another year's Super-tax to pay." The argument the other way is that, after all, there will, for the most part, be found to be this position: When Super-tax was originally imposed, though indeed it was not imposed in respect of a previous year's income, it nevertheless was calculated on a figure ascertained from a previous year, and, if you are going to lump these two charges together, to amalgamate them in the way which the hon. Gentleman just described, in some way or other the one stream has to catch up with the other. The subject is one which I have spent a good many years in considering. I am far from claiming that I have stated it correctly, but I have done my best to state it as clearly as I can.

The ATTORNEY-GENERAL (Sir Thomas Inskip)

Anyone who intervenes in this Debate must feel that he is guilty of a certain amount of temerity, unless he has the capacity which the right hon. Gentleman the Member for Spen Valley (Sir J. Simon) has to express the matters with which he has dealt with so much clarity, and, if he will allow me to say so, accuracy. I entirely accept the description which the right hon. Gentleman has given of the existing state of the law with regard to the payment of Super-tax in the case of a man who dies when his income is above the Super-tax level. The point with which my hon. Friend the Member for Tamworth (Sir E. Iliffe) interrupted the right hon. Gentleman, is one on which the new amendments to the law do act, so far as they go, favourably towards the executors of the taxpayer. The right hon. Gentleman was stating the existing practice perfectly accurately. The hon. Member for Tamworth was stating the effect of the law in the future. That is to say, that where a man has lived for six months of a new year, his executors will not pay half the duty upon the full year's income, but they will pay the duty upon the half year's income. Hon. Members will appreciate that there is a difference between paying half the tax at the rate on £10,000, and paying the whole tax upon £5,000. The latter sum is much less than the former sum. I hope that that will be a crumb of comfort which some hon. Members will consider worth noticing.

One or two facts have emerged in this Debate. One of them is that it is a misconception to say that in any particular year, or in the current year, or in the next financial year, two taxes will be collected, one by the name of Super-tax and one by the name of Surtax. I shall not be able to imitate the clarity of my right hon. Friend, but if I may attempt to indicate what is happening in this transition period, I should like to try. On 1st January, 1928, Super-tax payers were liable to pay their Super-tax. That was a lax charged upon the year 1927–28 and based, as the right hon. Gentleman has quite accurately stated, upon the income for the preceding year. That was a payment which the Super-tax payer has already paid or has been liable to pay. On 1st January, 1929, he will similarly be liable to pay his Super-tax, which will be Super tax for the year 1928–29, and again it will be measured by the income for the preceding year. On 1st January, 1930, he will pay again a sum which, if his income has remained constant, will be precisely the same amount as he paid on 1st January, 1929, but which will now be called Surtax instead of Super-tax: that is to say, it will bear a different label and will be measured not by reference to the preceding year but by the income of the year 1928–29. It will be, in effect—and I think this will help hon. Members to get a clearer conception of what the Surtax is—merely a deferred instalment of the Income Tax for which the taxpayer is liable whose income is above a certain level.


You said 1928–29. Should it not be 1929–30?


May I respectfully suggest to the Attorney-General that, unless I am wrong, he is a year out on the figures he has quoted to the Committee?


I think not, unless I have unintentionally misquoted them. Let me give them again. In respect of the year 1927–28 the Super-tax payer is liable to pay his tax on 1st January, 1928. That is right. [Interruption.] Yes, I am right. That is the year for which it is charged and he is liable to pay his Super-tax on 1st January, 1928. The basis or the measure of the charge is the income for the year 1926–27, the preceding year. Similarly, on 1st January, l929, the year for which he will be paying his Super-tax is the year 1928–29, but the measure of the tax for which he will be liable on 1st January, 1929, is the income of the preceding year, the year ending 5th April, 1928.


The Attorney-General has; described 1st January, 1929, as the last year on which Super-tax will be claimed.


The right hon. Gentleman is perfectly right. It is the last year of the Super-tax, the last date on which Super-tax will be payable. What I want to point out to the Committee is that on 1st January, 1929, there will be not two taxes payable, one for Super-tax, calculated or measured by the income of the preceding year, and one for Surtax, measured by the income of the current year, but there will be a payment of Super-tax in a way with which we have all been familiar based upon the preceding year. When you get to the 1st January, 1930, the year for which the tax is charged is, it is quite true, the same year, 1928–29, but, in fact, it is measured by the same year's income, namely, 1928–29. You get, therefore, in form, an apparent charge of Super-tax and Surtax on the same year—you get it in form, but it is in appearance only, because in fact one payment falls to be made on 1st January, 1929, and the next payment falls to be made on 1st January, 1930. When you have passed this transition year, that will be the last year in which the two taxes appear to be charged; but there is no 1st of January upon which two taxes have to be paid. It is only one tax in each of those two years, one in 1929 and one in 1930, and from 1930 onwards the payment will be called Surtax and it will be, in fact, a deferred portion of the Income Tax, payable at the appropriate rates, and in this year's Finance Bill at the rate stated in the portion of the Section which the hon. Member for York (Sir J. Marriott) desires by his Amendment to omit.

As I said, I was afraid I should not rival the clarity of the right hon. Gentleman the Member for Spen Valley, but I am sure I have stated accurately the facts as to the dates when the payments fall to be made and the years for which the payments are charged, and everybody may be quite certain that there will not be two payments on next 1st January or on the 1st January, 1930, but only one payment on each 1st January. The great advantage, as I think everybody will admit, which the change has secured, is that instead of everybody having to make two returns of his income, one for Income Tax and one for Super-tax, these returns having to take into consideration different measures of income, one for the current year and the one for the preceding year, in future everybody who has to make a return and whose income is above the Super-tax level, will make only one return in which the measure of the income will be one and the same. The liability to pay will be in two parts. There will be on one 1st January the liability to pay his Income Tax, and there will be the liability to pay the deferred portion of the Income Tax, in the name of Surtax, on the succeeding 1st January.

It is that fact which makes for justice in charging a man with so many years of Surtax as there are years for which his income is above the Surtax level. There is no justification for making an Income Tax payer pay Income Tax for every year for which he has an income upon which tax is leviable and letting off to the extent of one year a man whose income is above the Super-tax level. Take the case of the imaginary Prime Minister who has an income of £5,000 a year for three years. He has to pay Income Tax upon £5,000 for three years. When you are regarding the Surtax as merely the deferred portion of the Income Tax chargeable upon the £5,000, is it just to say that he should only pay Surtax upon two years' in come out of the three years? The man whose income is below Super-tax or Surtax level, below £2,000, pays his Income Tax on three years. We have already enacted that, similarly, the man whose Income Tax is at a higher rate, because his income is above a certain level, shall pay his whole Income Tax, whether he pays it in one or two parts, for the same number of years as the years for which he enjoys the income which is liable to Income Tax, part of which we call Surtax. That is the result of the legislation of 1927.

My right hon. Friend the Member for Hillhead (Sir R. Home) says that a great many of us did not appreciate the effect of what was done in that year. I should very much doubt whether in relation to most of our Finance Bills the public become aware of exactly what is done until some great debate has taken place, or some notable litigation has called the attention of the business public to the facts of the situation. At any rate, what we are doing now is a step in the direction of the simplification of the Income Tax returns. The only ques- tion which has been raised is whether we are right in saying that in the future the Surtax payers shall pay the Surtax on every one of the years for which they have been drawing Surtax incomes.

I do not think it would be respectful to the Committee to leave the matter referred to by the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham) unmentioned. No doubt the learned judge to whom he referred made remarks which will find an echo in every heart with regard to the perplexity of Income Tax legislation. I am sure the right hon. Gentleman will be the first to admit that this is not the sin of any particular Government or of any particular party. I have been looking at the Finance Act of 1924, and I find there the same ingenious legislation. All this perplexity is due to the fact that you cannot take a Section or a group of Sections of the Finance Act and repeal them and re-enact them from start to finish with the new Amendments in them. That would give facilities for proposing Amendments which would probably make the passage of the Bill impossible. These perplexities are due to the exigencies of Parliamentary time which compel us to adopt expedients which are bound to cause difficulties in all our Finance Bills. I am informed that a Committee is sitting to consider the drafting of Finance Bills, and if any hon. Member feels that he can make suggestions which would be of assistance to the Chancellor of the Exchequer, I am sure such suggestions would be welcome. We all desire that the result of our deliberations shall be as simple as possible, having for their object the benefit of the public, and the benefit of all who are taxpaying members of the community.

Question, "That the words proposed to be left out to the word 'rates' in page 9, line 21, stand part of the Clause," put, and agreed to.


I beg to move, in page 9, line 19, to leave out the word "and" and to insert instead thereof "(b)."

On the last Amendment, we have had the views expressed of two Attorneys-General, two Financial Secretaries to the Treasury, and an ex-Chancellor of the Exchequer, but nevertheless I think it is wise at this juncture to clear up one or two points. It has been suggested that in this Clause there might be some misunderstanding and that after charging the standard rate of 4s. there might be a charge of 4s. 9d. up to the maximum of 10s. I think in view of what was said by the learned judge yesterday, it would be well to have that point cleared up. My Amendment will have the effect of splitting up the first paragraph into two divisions (a) and (b).


I am afraid that is not possible because in the Amendment which we have just disposed of we have passed the point at which that could be done, and really the question of the letters in parentheses is not within the competence of the Committee and will be dealt with by the printer.


I beg to move, in page 9, line 21, after the word "following" to insert the word "higher."

I understand that the Government are willing to accept my Amendment which will make the point clear and tend to prevent litigation in the future.


Parliamentary counsel advised us that the Clause already safeguards the important considerations which the mover of this Amendment has in mind. On the other hand, I wish to say that we are quite ready to accept the Amendment which he proposes to insert in a modified form.

Amendment agreed to.

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


The Committee will realise the importance of this Clause when I point out that, according to the White Paper which was issued to the House when the Budget was introduced, it produced in the year which has just elapsed no less a sum than £260,500,000 in respect of the Income Tax, and £60,500,000 in respect of the Super-tax, making together £311,000,000, which represents 37 per cent. of the £843,000,000 which is the amount of the full revenue for the year. Under these circumstances it is quite legitimate to discuss this Clause though not at any inordinate length.

Any menace to the yield of the Income Tax is bound to have the very serious consideration of the Chancellor of the Exchequer. The question whether the vast growth of co-operative trading in this country does menace the annual yield of the Income Tax, which is really the main prop of the finance of this country, was raised last year by my hon. Friend the Member for Tamworth (Sir E. Iliffe) and other Members. My hon. Friend raised it on its broadest basis, but the reply of the Chancellor of the Exchequer on that occasion was, I think I am right in saying, confined exclusively, and without any qualification at all, to the comparatively small question of whether there is, and if so to what extent, a loss of revenue which could be collected under the existing Income Tax law in respect of the trade done by the co-operative societies.

I would like to deal with that smaller question first, because the reply of the Chancellor of the Exchequer last year was almost confined to figures worked out by the Treasury, and it purported to show that, even on the most extreme interpretation of the existing law, there was no greater loss of revenue than £100,000 in any of the years that he was considering, and that to collect that revenue of £100,000 would cost an extra £250,000. Those figures have been challenged, and I think I am entitled, on this smaller point, to point out to the Chancellor of the Exchequer and the Committee why I disagree altogether with that estimate.

The Treasury figures, which he said showed this small difference of £100,000, were arrived at by taking the result of the trade of the co-operative societies for the four preceding years, 1922–25. I would ask, why four years? Before the three years' average was done away with, the three preceding years were the basis of calculation of the tax payable on profits in all industry and private enterprise in this country. The Chancellor of the Exchequer said that his figures included the year 1922 for the reason that he thought that 1926, owing to the general strike, would prove to be a very unfavourable year for co-operative as for other trading, and so he thought it fairer to go back a year. In including the year 1922, however, he included a year which was rather peculiar so far as cooperative trading was concerned, because it showed a positive deficit between what is called surplus and the total of dividends and interest, instead of an excess, as in the case of the three following years, of between £2,000,000 and £2,750,000. The figure that he gave to the Committee last year was also based upon an estimate of £1,000,000 reserved for depreciation, and that is an estimate which I am entitled to compare with the actual figure given in the accounts of co-operative trading, which, for the year 1925, was £1,983,000.

With regard to the anticipated bad year of 1926, I find, now that we have the accounts, that in 1926 that figure rose to £2,319,000. On the three years' average—the ordinary average for calculation of Income Tax under Schedule D—the surplus for discount and interest was £2,228,000, as against the Chancellor's figure of £1,700,000; and the Income Tax on that basis which is lost, instead of being £100,000, is £205,000. If we take the year 1925 alone, which is now, of course, the basis on which we have to calculate so far as any individual enterprise is concerned, we find that the corresponding figure, instead of being only £1,000,000, representing an Income Tax of £205,000, would be £2,000,000, and the Income Tax on that would be over £400,000. According to the accounts of the co-operative societies for 1926, the surplus for that year, which the Chancellor of the Exchequer anticipated would be such a bad one, went up by another £1,000,000, being £23,709,000. That is what is now called the surplus, and used to be called the profit, of co-operative enterprise in the year 1926.

I thought it necessary to trouble the Committee with these detailed figures because the whole of the Chancellor's reply last year to the case made by my hon. Friend the Member for Tamworth was based on the figures to which I have referred, and was in effect that it is a mere trifle that is escaping the Treasury, and that it would cost two-and-a-half times as much to collect it. I have ventured to show, on the figures of co-operative trading as given in their accounts, that the figure is not so trifling even on that narrow basis: but that is not the case that I want to put before the Committee at all, and it is not the case to which I desire an answer from the Chan- cellor of the Exchequer. The case that I want to put before him is that there is a gigantic and growing volume of trade, not only distributive trade but productive industry, which, if it were in the hands of private enterprise, would be producing a very large proportion of the total Income Tax which is collected by the Exchequer, and I will quote, in aid of my contention, two previous Chancellors of the Exchequer, the late Mr. Bonar Law and the present Secretary of State for Foreign Affairs. It is quite true that Mr. Bonar Law, speaking in the House of Commons on this question in 1917 the words that I am going presently to quote, was speaking in a Debate on the Excess Profits Duty, and that when the Foreign Secretary was speaking in 1920 words which I shall also quote, he was speaking in a Debate on the Corporation Profits Tax; but I maintain that the main proposition which they put forward, in words which cannot be excelled for clarity and which stand as an exposition of the problem, as I see it, which is before the Chancellor of the Exchequer, is absolutely true irrespective of what tax happened to be under discussion at the moment in the House of Commons. Mr. Bonar Law, on the 17th July, 1917—I ask the forgiveness of the Committee for these two quotations of some length, and will read only the vital parts of what was said—said this: I believe these societies "— that is to say, the co-operative societies— have done a great deal of good in the country, but they are doing an exceedingly large share of the retail trade of the country, and, although they do not make profits in the ordinary sense, it comes to this, that that immense share of the trade is done without paying the share to the revenue which is borne by other traders. I think that is something that ought to be remedied."—[OFFICIAL REPORT, 17th July, 1917; col. 277, Vol. 96.] The Foreign Secretary, speaking on 27th July, 1920, said: I am actuated by no hostility to the movement. I grant every one of the advantages claimed, and rightly claimed, for the individuals who take part in the movement, and for the country in consequence. But the effect of the movement is to withdraw from taxation a great deal of revenue which formerly contributed a large share. It withdraws from the field of taxation, perfectly legitimately, because Parliament does not tax business transacted in that form, a great deal of business which formerly contributed a share to the revenue. It thereby casts a heavier burden on those who do have to contribute. The greater the success of the movement the more intolerable that position becomes for everybody else, the more impossible it becomes for the revenue authorities, and the more certain it becomes that in some form or another the Co-operative Societies must contribute their share to the common necessities of the State. Quite apart from the fact that the matters under discussion at the moment were the Excess Profits Duty in one case and the Corporation Profits Tax in the other, the proposition put forward by two previous Chancellors of the Exchequer on this grave question, this threat to the national revenue, is one that the Chancellor of the Exchequer to-day must consider, and I believe in the future he will have to find a solution of it. In the seven years between 1920 and 1926 the co-operative societies have had a trade of almost exactly £300,000,000 a year and an average profit of almost exactly £21,000,000, and in the three years between 1924 and 1926 they have increased their reserves by very nearly £2,000,000 a year. The reason I quote only three years is that the earlier years of the seven were vitiated by excursions of the Co-operative Wholesale into rubber speculation and agricultural production, on both of which enterprises enormous losses were incurred. These excursions on a gigantic scale, certainly a scale which was not required for anything in their retail trade, would not have been made if it had not been anticipated by those who controlled that branch of our industry that profits would have resulted. On the principle of mutual trading, under which they escape assessment, under Schedule "D," there is no limit, as I understand it, to the amount by which these reserves can be increased tax free and the object of the movement—it is very important always in considering these broad questions to know where they are going—has been very clearly laid down by Mr. Lander, a director of the Co-operative Wholesale Society, who said: I make no secret of the fact that we are out absolutely to do away with the private individual in trade and production. It is quite clear that with that handicap to private trade, which really acts—I do not say it is, but it acts—as a subsidy to co-operative trade, there is no possible reason why that ambition should not be realised, and in that connection I should like to trouble the Committee with a quotation from the "Co-operative News" of 18th February, 1928. It is headed "Russia's Triumph. Co-operation and Private Trade." Just as these days are not good for individual private trade in our country, neither are they flourishing days for private trade in Russia. During the last year, so we are informed, more than 64,000 private stores have been obliged to close as a result of competition on the part of co-operative stores. During the same period 8,465 new co-operative stores have been opened. The decline of private trade goes on more rapidly in the country districts than in the cities. Hon. Members will notice the tone of jubilation in this citing of what is going on in a neighbouring great country, where co-operative enterprise is being carried on on even a larger scale and individual enterprise is even more discouraged—I grant that—than in this country.

I want to turn now to one other aspect of the question. I turn to the balance sheets, and I look to see what is the capital of the Co-operative Societies with which this great trade is carried on. It is obvious that you cannot carry on a trade of £300,000,000 a year unless there is a vast capital invested in the industry. I hope my hon. Friend opposite, if I may call him so—we have co-operated in many causes and cases together—will not think that in anything I say I am animated by any spirit of opposition to his movement. I say that perfectly genuinely. I am in favour of everything that can legitimately bring the consumer and the producer closer together and cheapen the cost of living to our people, and I see that great broad principle in the co-operative enterprise. But I am trying to point out to the Chancellor of the Exchequer what is the veal problem from the revenue point of view. Supposing their ambition as set forth by Mr. Lander were realised, how is the country going to be run? Co-operative enterprise shares with all other enterprise all the advantages of a stable Government, on which we spend vast sums every year, not only for the police, for the Army and the Navy, for all the civil expenditure, in benefits of one kind and another to better the lot of the working classes, both while they are working and after they cease to be able to work—all the expenditure, naval, military or civil, is shared alike by every citizen be he a co-operator or be he not. I naturally ask myself where did this capital come from?


Surely the hon. Member is getting a little wide of the question whether the profits, if any, of these societies are to be taxed. He appears to be going into their general financial and economic position.


Of course, I will obey your ruling, Sir, but, if you will allow me to finish the sentence I was uttering, you will see that it has a direct bearing on this question of Income Tax. The capital, according to last year's accounts, is £160,000,000, and I maintain that the whole of that capital has been accumulated—from the history of the movement it must be so—tax free. It has been collected without paying legitimately, as the Foreign Secretary said, under our present law any contribution towards the taxes of the country.




Well, that is my view, and the hon. Member can state his presently. I would like to point out that these societies are free to depreciate this capital account to any extent they like. They have not to incur the investigation which is naturally applied to any other industry and to private enterprise under Schedule D. The hon. Member for Tamworth (Sir E. Iliffe) pointed out last year that their present programme is a depreciation of 10 per cent. on the original cost of all fixed stock and appliances. Therefore, all that can be put aside without any investigation or any objection on the part of the Income Tax authorities. On that basis, on the 10 per cent. of the original cost, it is obvious that the capital as far as fixed stock and plant are concerned can be extinguished in ten years.

May I ask the Committee while on this Income Tax question to compare the position of an individual owning a distributive industry exactly similar to many all over the country in co-operative hands? The individual who wishes to set aside £20,000 in a certain year for the development of his business has to pay on that £20,000 both Income Tax and Super-tax. Before he can apply anything to the development of his busi- ness, he has to pay a sum to the Exchequer which will leave him with only between £11,000 and £12,000 to devote to the development of his business. But if a co-operative society running an exactly similar business wishes to put aside £20,000 for the development of its enterprise, it can devote the whole of that £20,000 to that purpose. Really, competition on those lines is impossible, and cannot last long. When we consider the nature of the businesses which are carried on by the Co-operative Societies in this country I think the Committee will realise what a vast question this is. I am not going into the details of these businesses. The hon. Member for Hillsborough (Mr. A. V. Alexander) knows them far better than I do, and he knows that they cover everything from the production of soft goods and furniture to insurance, shipping and tea plantations. They include banking, contracts for bridge-building and even fire brigade stations, and, in fact, anything and everything undertaken by private enterprise.

9.0 p.m.

There is one enterprise of the Cooperative Wholesale Society in regard to this question of mutual trade under which this vast enterprise escapes its contribution under Schedule D to which I should like to refer. I am told—and I find it in a communication to the "In-come Taxpayer," which, I believe, is the organ of the Income Taxpayers' Protection Association—that the Co-operative Wholesale Society has branches in all the Colonies in West Africa—perhaps the hon. Member for Hillsborough will refer to this when he replies to me—and that these branches do exactly the same business in selling to the native and white populations goods and provisions and buying the produce from the natives as do all the private enterprises in those Colonies. Those branches compete in exactly the same trades with the African and Eastern Trading Corporation and other companies, and yet they enrol no members in those West African Colonies, and they do not do business with members in those Colonies but with the general public. I want to know whether that is the fact. If it is, it really has a very important bearing on this question of mutual trade, because the Chancellor of the Exchequer, in dealing with this question has always assumed that there is no branch of the Co-operative enterprise which is not covered by this principle of mutuality, which was established long ago and before this problem ever arose.

The fundamental facts of the situation are these. I gave the Chancellor of the Exchequer only yesterday a list of 9 additional private enterprise shops and businesses, all of them in London, that have been taken over quite recently by one branch of the Co-operative Wholesale Society, and, in all, I have furnished him with the names of about two dozen. That number is small. They were mainly in Liverpool and in London. But all over the country the same thing is going on, and they are taking from the people who now bear the main burden of the taxation in this country, businesses which have hitherto been contributing their share to the revenue. The question that I really want to put to the Chancellor of the Exchequer is: How big has this problem got to get before it is necessary to deal with it? I do not want any suggestion of legislation particularising any kind of industry. I do not want to suggest anything which would show any animosity to the system of co-operative trading, but I feel bound on this Income Tax Clause to point out broadly to the Committee that there is a problem, that it is a growing problem and a problem of vast dimensions, and that in effect it means that the more the Co-operative enterprise grows under our existing system of taxation the greater the burden that will be thrown upon every industry, whether productive or distributive, in this country. Therefore, it is naturally to the Chancellor of the Exchequer that I must appeal, and ask him whether he has looked at the question from that point of view, and what is the answer? It is not a question of whether the sum of £100,000 or £400,000 escapes taxation now, but whether it is necessary to review the whole position in the light of the ambition of the Co-operative Societies themselves, gradually or rapidly, to absorb the whole of the trade, both distributive and productive, in this country.


No one can doubt that my hon. Friend has made a serious, temperate and substantial contribution to the discussion of this subject. The question has been raised in this House very often, and my predecessors, for the last 10 years at any rate, have been called upon to deal with it. The hon. Member quoted what was said by the present Foreign Secretary, but whatever may have been the words used by the Foreign Secretary, no action which he took was different from that which has hitherto been maintained under the present administration. My hon. Friend dealt practically with two points—the loss of revenue which results from the spread of the co-operative movement and the undue protection of that movement, compared with the private trader. I have had prepared a Memorandum which has been circulated freely, setting out the Treasury computation of the tax that is paid in accordance with the law by the cooperative societies, compared with that which would have been paid if they had been taxed on the same basis as private traders. This paper shows that the total advantage to the co-operative societies over the ordinary trader or over the ordinary company in matters of taxation amounted in the aggregate only to £100,000 a year. Naturally, that statement was extremely disappointing to those who feel themselves under the pressure of very acute competition from the co-operative societies, and who point out the high contributions which they have to pay to the national revenue.

The Inland Revenue computation has been criticised on the ground that the average of four years puts the figure too low; that the inclusion of the thin year, 1922, vitiates the comparison, because in 1922 the societies did very badly. Since then we have had the figures for 1926, and the Chief Registrar of Friendly Societies has published them. These figures do not in any way upset the computation of £100,000 as being the difference between what the co-operative societies pay now and what they would pay if they were treated in accordance with the method by which the profits of private traders are assessed. On the contrary, the new figures show that the gain to the revenue would be slightly under £100,000 a year. I will give the figures. In 1926, the distributive trading societies, wholesale and retail, had a surplus of £22,800,000, less "divi" amounting to £17,100,000, leaving a balance of £5,700,000. From this should be deducted interest amounting to £4,000,000, leaving a net surplus after payment of dividend and interest of £1,700,000. Add to that depreciation, which we estimate at £1,000,000, and Income Tax at £550,000, making about £1,500,000, and we arrive at a total of £3,200,000. The tax on £3,200,000 in the ordinary way would be £640,000, whereas the tax paid by the co-operative societies is estimated at £550,000. Therefore, the difference on these figures amounts to £90,000.


Does that figure include the payments of individual shareholders?


I do not think it does, but that is not an appreciable contribution. I am aware that criticism has been directed against the figure of £1,000,000 which is added for depreciation. My hon. Friend the Member for Tamworth (Sir E. Iliffe) is going to submit later that that figure is too low. He has brought forward figures from the Co-operative Year Book which show that as much as £2,000,000 should be added. We have not been able to be convinced by these figures. The £2,000,000 includes the growth of the insurance fund of the co-operative societies, which does not represent profit. However, a departmental investigation on the question of assets and depreciation is now proceeding with the object of ascertaining whether the £100,000 difference between the tax paid by the co-operative societies and that paid under similar circumstances by private traders is too low or not. That investigation is not likely to be finished before the autumn. Anyhow, I do not believe that the result of the investigation, although it may modify to some extent the details, will alter the broad general position.

What is the broad general position? It is, undoubtedly, that under the law as it stands at present, and as it has stood for many years, those enterprises which are owned by people who are below the Income Tax limit—owned by a large number of persons of whom few are liable to Income Tax—have undoubtedly an advantage, an inherent advantage, over those which are owned by people who are not below the Income Tax limit. This advantage, enjoyed with all the formidable power of massed capital on a vast scale, constitutes a formidable menace to the ordinary trader; but I do not see how you can make any greater change in the way in which the Income Tax laws of this country are administered than if you were to invade the primary rights, the primary advantages of those who are themselves in such a small way that they are beneath the Income Tax limits. Those rights appear to be, and they are, of a primary and fundamental character, and I do not see in what way they can be altered by or impaired by any extra burden being thrown upon their possessors in respect of their interest in co-operative societies.

The fact remains that people who have not risen to a certain standard of income are immune from Income Tax and if they choose to band themselves together into societies, Parliament has long considered that their immunity was in no wise to be impaired. That is really at the bottom of the grievance, but for my part I cannot see that any Parliament would be well advised to make an inroad upon these primary immunities and liberties of the small person who has only the most restricted forms of investment open to him, and who is below the Income Tax level. There can be no doubt about the severity of the competition. On the one hand, you have these very small investors immune from the Income Tax burden, and on the other hand you have this immense machine which manifests itself so vastly in every walk of our national and economic life. They are not the only competitors which individual shopkeepers have to face. There are the great multiple shops which are spreading throughout the country and which constitute almost as serious a form of competition as the co-operative movement. My hon. Friend dwelt upon the loss to the revenue which occurs when a private establishment is purchased by a co-operative society.

There must be a certain diminution of tax when property hitherto owned by wealthy persons who are paying Income Tax on a high and progressive scale passes into the hands of a large number of persons who are below the Income Tax level altogether. That is inevitable but the loss is not as great as is supposed. The purchase price will be invested, and the tax will be paid upon the income which is produced by the purchase money. In the second place the co-operative societies pay their tax fully under Schedule A. I frankly say that I am not prepared to advise the Committee to make any change in the working of the law. These matters have grown up slowly. They represent very serious features in our national life, and it seems to me that the inherent right and privilege of the small investor to be immune from Income Tax cannot be restricted or diminished despite the fact that this competition with individual traders has risen to very formidable dimensions. We will pursue investigations into the comparatively small point as to the amount which should be charged for depreciation, and that should be concluded by the autumn. In other respects, I am advised, and, as far as I am able to form an opinion I have come to the conclusion, that there are no grounds at present for making any change in a deeply founded and strongly buttressed system.


May I ask one question? Is it not the fact that the small shareholder in a limited liability company is taxed at source, while the member of the co-operative society is not?


There you enter into the field of mutuality, and if you were to attempt to tax mutual trading concerns on the same basis as you tax shareholders in a limited company, you would be undertaking a very profound alteration in the whole of our present Income Tax law.


I desire to make one or two observations on the question of co-operative societies and Income Tax. I do not propose to dwell on the broad question; I dealt with the matter fully last year, and the Chancellor of the Exchequer has explained to the Committee that the estimate of £100,000 as the loss in revenue which I challenged last year is to be investigated and that in due course we shall be told the result of that investigation. I do not propose to pursue that question at all this evening. I want to say a word or two on the question of mutuality. During the Debate last year the Chancellor of the Exchequer said: It would not be worth while to renounce the principle of mutuality and to antagonise a very large body of citizens for a comparatively small result. I think the right hon. Gentleman overrates the difficulty with regard to this matter. The Royal Commission on Income Tax in 1920 went into the question very fully and they reported to this effect: We have taken the view that a registered co-operative society cannot be regarded merely as a group of individuals; it is as much a separate entity as any other body of persons. The same question was also dealt with by Sir Josiah Stamp and Sir William McLintock in a Minority Report. They said: Where the aggregation of individuals serving each other is very large and they are for the most part unknown to each other, commercial methods and tests must prevail, and the element of mutuality becomes less dominant and too diluted to justify alone a plea for exemption from taxation. There is a further paragraph in the same Report to this effect: The mutuality nexus between the individual's position as part owner of a business and his position as a purchaser is so slight and remote, and of so little significance as a practical factor, that it can be disregarded for taxation purposes in favour of a completely objective view of the business as a whole. Under such a view it is difficult to discern any difference between its activities and those of an ordinary business. The purchasers buy their goods at a certain net cost and do not fall to be objectively distinguished from other purchasers; the shareholders receive certain incomes in respect of their shares, and are not to be differently treated from other shareholders: the entity itself is charged upon its retained trading profits put to reserve, just as a company would be, without regard to the status of its shareholders. This view leads, therefore, to the position set out in the recommendations as consistent with the logic of facts in the present development of the co-operative movement. I entirely agree with those views. I am certain that a large body of the members of co-operative societies regard their co-operative societies in the same way as they regard the ordinary shops. They desire to buy in the cheapest market and they do not necessarily buy all their goods in the co-operative shops. They may buy groceries, but not coal. They may buy bread but not milk. It is the rebate in the price which really attracts them, not the principle of mutuality. I do not suppose that many of them really know much about the aims and objects of the co-operative movement, as such. The mutuality principle to my mind as a practical factor is really non-existent. The Chancellor of the Exchequer said something about the fear of antagonising a large section of the community in order to obtain a small addition to the revenue of the country. Antagonism should not be an obstacle in securing equity in regard to taxation, and that argument is very unlike the right hon. Gentleman because he certainly has the courage of his convictions, and I am sure that we have only to convince him that a wrong is being done to large sections of the community and we shall find that the recommendations made by the Royal Commission in their Report will be put into operation and co-operative societies taxed on exactly the same basis as ordinary traders.

It must be remembered that the opposition on the part of co-operative societies, which is quite natural, does not necessarily come from individual members of the societies. The British public do like a straight deal. As a matter of fact, very few members of the co-operative societies take an active interest in the doings of their societies. I read of a case in London only a few weeks ago in the "Co-operative News" when they were electing the office bearers of their society, and only 2 per cent. of the members took sufficient interest in the societies to record their votes.


May I point out there is hardly 2 per cent. of the Conservative party in the House at the present time?


That shows they have the utmost confidence in leaving the matter to me. There is, in fact, a considerable lack of interest on the part of members of the societies, and their interest is in buying in the cheapest possible market, which is only natural. We had the other day the President of the Co-operative Congress using these words: The apathy of the great majority of our 5,000,000 members, as reflected in their indifference to the welfare of their own societies, is a very unhealthy sign. I do feel that if this investigation to which the Chancellor has referred does, in fact, establish that there is a considerable loss of revenue, the Government will implement the recommendations made by the Royal Commission on Income Tax and treat these co-operative societies in the same way as ordinary traders. If that is done, it will do some- thing to refute the suggestion made by a director of the Co-operative Wholesale Society a short time ago when he said in his speech—also reported in the "Cooperative News"— One thing is certain and that is that the Government dare not tackle the cooperative movement. There is one other point which was raised by the Chancellor, and that is in connection with the purchase of businesses. If I understood the Chancellor aright, he said the loss of revenue to this country was not great, because the vendors received a certain purchase consideration, and they invested the purchase money and paid tax on the interest they received. I think that was the view expressed by the Chancellor, but, with all respect to my right hon. Friend, I do suggest that that view is not altogether sound. In fact, I think it was borrowed from the co-operative movement itself. If a business is purchased by a private individual or firm, the vendor is taxed on the profits of the investment of the purchase price, and the purchaser is taxed on the profits of the business. If it is not purchased by a co-operative society but by an ordinary individual, the vendor who gets the purchase money is taxed on the interest he receives from the purchase price, and the business goes on paying Income Tax just as if it were in the hands of a private trader. Whether the business is purchased by a co-operative society or by a private individual or company, the position of the vendor in each case is exactly the same, but the position of the purchaser, if the business is purchased by a private individual as compared with a co-operative society, is certainly different. If it is purchased by a private individual, the business still pays Income Tax under Schedule D, but if it is bought by a co-operative society it does not pay Income Tax under Schedule D any longer.

I suggest to the Chancellor, if his argument is really sound, that if all the businesses of the country were to change hands, the revenue would increase because, the tax on the investment would be actually added to the tax on the business. But, of course, it is absolutely unsound. If it were sound, it would be a good thing to pass some law for the compulsory sale and purchase of all the businesses in the country and our tax- able revenue would increase very quickly indeed. It is unsound, because, after all, what would happen? One proprietor of a business would really be substituted for another. There is only one way to increase the taxable revenue, and that is either to increase the profits of the businesses of the country or to increase the dividends from investments abroad. We shall never get an increase of revenue merely through businesses changing hands. That is what I understood the Chancellor to suggest. I regret that he is not in his place, because I should have liked to hear his views in regard to that. I hope the Government will take seriously into consideration this question of fair treatment as far as traders in this country are concerned, and will at an early date decide to carry out the recommendations of the Royal Commission and treat the co-operative societies as though they were ordinary traders.


I wish to say very little to-night, because the Chancellor of the Exchequer has really made a very adequate reply on this subject. The hon Member for Barnstaple (Sir B. Peto) made a profession during the course of his speech that he had no antagonism to the co-operative movement in this country, and was anxious not to interfere with their principles. It is extraordinary that nearly the whole of his speech could have been repeated by any number of my hon. Friends on this side, almost verbatim, from the documents published by the National Traders' Defence League. As he went on, step by step, one could almost hear the voice of Mr. Robert Walker, or see the extracts from the publications of which he has been so prolific a producer. The National Traders' Defence League has for years past conducted a campaign right through the country on the basis that the co-operative movement, instead of being a steadying and stabilising influence, in the words of the right hon. Member for Hillhead (Sir R. Horne), is in fact a social menace. It is only a few weeks ago that Mr. Robert Walker and His friends placarded the whole district of Harringay on the opening of a new co-operative branch telling the public to be aware of the co-operative menace. This gentleman was one of the prime movers in the co-operative boycott in the 'nineties. For the hon. Member for Barnstaple, however genuine he himself may be, to come along to the House and raise the question, and say that he is not antagonistic to the co-operative movement, and does not desire to interfere with its principles and then bring forward no arguments except the case put forward by Mr. Robert Walker, needs a little explanation.


Perhaps I may ask the hon. Gentleman whom he thinks would be the proper defender of private retail trade if it were not the principal organisation of the retail traders of this country? Naturally they produce the figures.


I think it would have been better in the circumstances—though I do not desire to attribute any wrong motive to the hon. Member—if the hon. Member, if he wished to show that he felt no antagonism, had dissociated himself from the arguments of the National Traders' Defence League in this matter, which were to stop the growth of co-operation altogether, and if possible to make it go on a downward track, and to leave the general trading field entirely to the concern of private enterprise. The position put by the hon. Member for Tam-worth (Sir E. Iliffe) requires less answer, because the Chancellor has stated the case so clearly. But the hon. Member kept on saying during his speech—he said it at least three times—that what we ought to do was to adopt the recommendations of the Majority Report of the Royal Commission of 1920. It is true that the Royal Commission of 1920 in their Majority Report included such a recommendation. But the hon. Member for Tamworth did not go on to tell us what was the qualification of that recommendation. They said: The tax paid by the societies and their members under the legal provision which governs their case does not greatly differ from that which would be payable under the ordinary Income Tax law. So they say there would be almost no difference in the yield of revenue.


I do not think it matters very much what the difference is. I do not think there should be any difference. Co-operative societies should be treated in the same way as ordinary private traders, and there would then be much more rest amongst the shop- keepers of the country. It would be a very desirable step for the Government to take.


But that is a very different case from the case usually put up. It is not the case that was put up by the hon. Member for Barnstaple. His opinion is that we are getting such enormous advantages from our privileged position that it is increasingly difficult for private traders to compete. I notice that he nods his head when I say that. If there is any advantage at all to the co-operative societies in their present position under the law, it must be because the private trader and because the joint stock company engaged in the distributing trade actually pass on the Income Tax in the price of their goods.

A great deal of play has been made with the growth of co-operative societies by the purchase of businesses en bloc. He said that cases of that kind mean that much trade is withdrawn from the former field of revenue for the State. In one sense that is true and in another it is not. A considerable amount of tax still remains to be paid under Schedules "A" and "B." A considerable amount of taxation will also be paid by the individual on his share interest. The hon. Member does not seem to realise that no member of a co-operative society is in a different position under the law, as regards Income Tax, from any other citizen in the State, and that after you have taken over the business of someone else into co-operative hands a good deal of what is termed "profit," paid out in share interest at the rate of 5 per cent., is taxable in the hands of the individual recipient, and that the tax is collected. In the Income Tax forms which are sent to citizens special provision is made for them to return what they have received from the cooperative societies by way of share interest. So that, first of all, when businesses are taken over there is a yield still to the State under Schedules "A" and "B," and a yield still from taxation of share interest in the hands of the individual member of a society.

There is another side to the question of revenue besides the immediate yield from Income Tax. There are two sides always to a Budget. Anyone who examines the facts knows that a gradual change from private enterprise to cooperative ownership means that sooner or later—generally sooner—the charge upon the State in many directions is immediately reduced. Let me give an illustration. We have in the City of Sheffield two large and flourishing cooperative societies which do a business of between £2,000,000 and £3,000,000 a year. In that city in the last six years we have suffered from unprecedented depression and unemployment. We have had to come to the Government and borrow £1,000,000 for the relief of the poor, not on capital account but on current account. What would have been the position if it had not been for the existence of the co-operative societies? We have paid out in that city, in withdrawn share capital, in dividends upon purchases, in interest upon share capital, in that period, nearly £3,000,000 sterling.

Had it not been for the existence of the societies and the practice of the mutual principle, the Minister of Health and the Treasury would not have been asked to lend £1,000,000 to Sheffield, but a considerably higher sum. Indeed the whole charge upon the public, not only by way of national revenue but by way of local revenue, would have been considerably raised. There is really something in the statement made years ago by the right hon. Member for Hillhead (Sir R. Horne), who said that the practice of the cooperative movement in this country is a stabilising and steadying influence in the life of the nation. It is something which does in fact actually save the Exchequer again and again from expenditure which would otherwise be necessary.

The hon. Member for Barnstaple wanted to know whether or not we did in fact trade with non-members. There is a little depot on the Gold Coast for dealing with some of the native workers who are engaged in our enterprises out there, where we are collecting raw materials for manufacture in this country. I have not now all the information that the hon. Member seems to require, but I am quite willing to give him the information. There is no reason to hide anything. Examination after examination has proved conclusively that of the whole turnover of the co-operative movement not more than 1 per cent. is with non-members. Of course the trade with the non-member soon ceases, because directly the non-member begins to understand the advantage of self-help and mutuality in the movement he becomes a member It is no use for anyone to talk about the apathy of members in the cooperative movement. Although we criticise our own members in order to stir up their enthusiasm, there is far less apathy amongst them than there is amongst the shareholders of joint stock companies.


How much do people have to pay to become members?


A shilling.


If they pay 1s. they get the rebates?


The practice differs in the different societies, according to their rules. Some societies have quite open membership and others charge a small entrance fee to cover the cost of the book of rules and things of that kind; but all entrants must have a certain amount of share capital before dividends are distributed. There is very little to be said for the hon. Member for Barnstaple on this question of apathy. We are perfectly satisfied with the statement made by the Chancellor of the Exchequer. The hon. Member for Tamworth challenged the Chancellor really to "go for" the co-operative movement and to be courageous. Let me warn the hon. Member. Let me warn him that if the Government were to do that, they would not be the first Government to suffer in such an attempt. I am putting it quite plainly. There are 10,000,000 voters inside of, or attached to the co-operative movement When the present Secretary of State for Foreign Affairs refused to remove the Corporation Profits Tax which had been placed on co-operative societies, and when the right hon. Gentleman the Member for Hillhead sought to retain that tax in 1921, the only Government of modern times with a majority as large as the present Government's were defeated on the Committee stage of their own Finance Bill. If hon. Members really want to see what will be the result of collecting the opinions of the 10,000,000 voters, inside of and attached to the cooperative movement, I invite them to try it and I am quite certain of what the result will be.


How many of those 10,000,000 voters belong to the Conservative party?


I should not have troubled to intervene had it not been for the suggestion of the hon. Member for Hillsborough (Mr. A. V. Alexander) that the political power of the cooperative movement is being used to secure something which is unjust. That is an idea which ought to be opposed. The hon. Member seemed to invite support for the co-operative movement on the ground that it is a stabilising influence in the State. That argument might be advanced with equal force in regard to limited liability companies. Limited liability companies afford opportunities to people of small means to invest their money in exactly the same way as members of the co-operative movement do when they not only pay a 1s. member-ship fee but invest their spare capital in the shares of the co-operative movement and receive dividends accordingly. The grievance of traders all over the country is that the co-operative movement bases its claim from immunity from Income Tax on the ground of mutuality. But the claim to the principle of mutuality breaks down when one investigates the business methods of the co-operative movement. Mutuality does not exist. The principle on which the co-operative movement was first founded was that the profits should be divided among the members, but that is not done.


Who gets them?


If the members of the co-operative movement received all the profits, the organisation would not be able to put by every year from £1,000,000 to £1,500,000 of reserves. That is patent to anybody.


Is not that sound finance?


Whether it is sound finance or not, it shows that the claim to mutuality breaks down when the financial methods of the movement are investigated. The co-operative movement if it adhered to the principles which its members preach, could easily get more capital for the extension of the movement in the same way as other businesses get capital—by an issue on the market. It gets its capital, however, by withholding from the members a large proportion of the profits. With those profits huge reserves are formed and the co-operative societies are buying up businesses all over the country and enjoying the advantages of capital which has never paid any Income Tax and on which they do not pay any interest. They are paying high prices for businesses which no ordinary retailer can pay.


On a point of Order. Is it in order for a private Member to move, "That the Question be now put"?


An hon. Member would be in order in claiming to move the Closure, but whether if the hon. Member moved it now it would be accepted by the Chair is quite another matter.


On the point of Order. There are many Members of the Committee who like to take part in these discussions, and who sat throughout the night, but they object to listening to discussions which, after the statement of the Chancellor of the Exchequer, are quite futile when it will be necessary to spend hours afterwards on other matters.


I think that observation comes with a very bad grace from the hon. Member. We are kept here night after night listening to observations which are quite irrelevant, and when a question of some importance to the shopkeepers of the country comes up, it ill befits the hon. Member to endeavour to burke discussion. I wish to say on behalf of the mass of retail traders in the country that they will continue to agitate against and to express their disapproval of the preferential treatment which is being given to the co-operative societies. This treatment is being given, primarily, on the ground that it is undesirable at this moment to irritate the members of the co-operative movement. It is done for purposes of expediency. The hon. Member who represents the cooperative societies here has thought fit to use a kind of threat to the Chancellor of the Exchequer, and has challenged him to take a course which we think would be equitable and fair. The hon. Member says: "We have 10,000,000 members who will use their power against the Government." It is absurd to suggest that all the 10,000,000 members are of the same political school of thought as the hon. Member for Hillsborough. All over the country people make purchases from the co-operative society for reasons which are quite apart from political reasons.


They all resent unfair taxation.


Many members of the co-operative movement would heartily welcome a readjustment of the incidence of taxation which would result in the cooperative societies paying their fair share, because those members are Conservative in thought, and they sympathise with what is fair to the trader. It is the allurement of the bonus which appeals to a large number of people. [HON. MEMBERS: "The dividend!"] Call it what you like, it is that little sum which comes to them every month, or every quarter, which is the inducement. It has been suggested that the Income Tax on the retail trader is passed on to the consumer, but up and down this land the retailer sells just as cheaply as the cooperative movement, and there is no benefit to the consumer on that score. The idea that when the advantages of mutuality enjoyed under the co-operative system are realised, everybody is going to join the movement, is the greatest fallacy in the world, as I shall prove in a few words. If the 10,000,000 members claimed by the hon. Member spent all their weekly earnings in the co-operative stores, the profits of the co-operative movement would immediately be quadrupled. That is the strongest proof that, with all the allurements of the "divvies," the customers of the co-operative movement buy the major portion of their commodities from and distribute their spending power among the retail traders of the country.

When it is said in this House and in the country that the people are realisms; the advantage they enjoy under the cooperative movement and that ultimately all will buy in that way, it is a complete fallacy. The great mass of the people are to-day spending their money with the retail trader in preference to spending it with the co-operative movement, as will be seen by adding up the earnings or the earning power of the 10,000,000 people who are said to be members of the co-operative movement. If they spent their total annual earnings in the movement, the movement would become so large that the Chancellor of the Exchequer would be compelled immediately to take it into consideration, because there would he a very small amount of Income Tax coming in from the retail distributors of the country. That argument dispels the whole idea that the cooperative movement are putting into the pockets of the people something that the retail traders cannot do.


I hope we may now come to a decision on this question.

Question, "That the Clause, as amended, stand part of the Bill," put, and agreed to.