§ Mr. ERNEST BROWNI regret on the last day of the Session having to call the attention of the House to the question of the taxation of unemployment grants in certain cases by the Revenue authorities. Hon. Members will agree that since there have been so many conflicting opinions and impressions about this matter, and since the Revenue statements are so technical in character that it is often difficult for the ordinary citizen as well as the ordinary Member of this House really to understand the actual meaning of a word which may have a technical meaning, it is desirable that the facts which some of us have had brought before us should be cleared up and that we should get a plain statement from the Treasury as to the view, not only of the Treasury, but of the Government, as to grants made to local authorities for the purpose of accelerating employment. First of all, while I have had a number of complaints made to me, I realise that for the moment the authorities do not universally apply the taxation of grants to all cases. But since there has been a certain judgment, which I must not discuss, it is obvious that the issue may be so potentially big that if what I think is the interpretation of what has happened in certain cases of small local authorities in Scotland is right, we may find an entire revolution in the proceedings of the Revenue, after proceedings in the Appeal Court, with regard to the imposition of Income Tax on these grants, and a procedure may be carried out which was far from the mind of any hon. Member of this House.
The answers that I have received from the Chancellor of the Exchequer and the Financial Secretary to the Treasury seem to me to be somewhat inconsistent, and at the moment, as far as my knowledge is concerned, it is mainly, but not altogether, the smaller authorities that are involved. Let me come to another statement of facts. I think the whole House 942 will agree that Parliament never intended that these grants should be taxed. It was never intended that money paid to local authorities for assistance towards work being carried out, should have 20 per cent. paid back to the Income Tax authorities. I know that there is a dispute as to whether this is being done or not. I am not assuming that it is so. I am only putting it that there is that impression amongst certain authorities. If it is so, I contend that it ought not to be so. If it is not so, we shall be very glad to have the position stated clearly and simply, so that the whole country may know that it is not the policy of the Government to tax these grants.
The demands vary in character. In one case at least they affect undertakings of a non-revenue producing character—only in one case. In all the other cases they affect undertakings of a revenue-producing character. That is a technical description. As far as I have been able to sift the matter there is no statutory authority whatever for the distinction drawn between non-revenue producing undertakings and revenue producing works. The matter seems to rest either upon a, Treasury rule or a Treasury minute, and has the effect of preventing certain authorities from doing works. It is obvious that if a Treasury grant is given to those who are undertaking works of a non-revenue producing character on what are better terms than grants to undertakings of a revenue producing character, it is easier to do the one than the other. It is in the main undertakings of a revenue producing character that are affected by these demands.
In addition to this distinction between revenue producing and non-revenue producing works, there is another distinction. There is a distinction drawn between grants made by the Unemployment Grants Committee which are of a capital nature and those which are by way of a calculation of interest paid annually, and it is in the latter case that the difficulty arises. Although interest is paid annually, the gift is really understood by the Unemployment Grants Committee to be of a capital nature. It is only a method of calculation whereby the interest is paid annually. There is a variegated nature in the Revenue demands. In some cases they demand, as they are entitled, a return of Income Tax on interest which has been deducted by 943 them when they are paying stockholders the annual returns on their loans. In same cases this is done with a distinction. It may mean trouble, as in the case where the authorities argue that a tax is levied on the actual grant paid in the shape of annual interest towards the scheme. Let me read to the House one or two extracts to show what confusion arises from the answers that I have received from Ministers. On 23rd June the Chancellor of the Exchequer said:
Income Tax law requires that annual grants of a revenue character made to local authorities or other bodies for the purposes of their trading undertakings should be taken into account in the same way as other revenue receipts in computing the profits of those undertakings for Income Tax purposes. This question in relation to unemployment grants has been before the Board of Inland Revenue on several occasions from 1923 onwards and they have always taken this view which is based on judicial decisions of long standing.There were certain supplementary questions. The Minister admitted that there had been some difficulty about it. He went on to say what appeared to me to be inconsistent:I may say that the point at issue is this, that upon the whole interest of the loan the Income Tax is deducted, but it is not the Income Tax of the local authorities but the Income Tax of the stockholders. What the right hon. Gentleman appears to have in his mind is this, that the local authority, having deducted the whole of the Income Tax upon the interest paid to these stockholders, should be able to keep that part which is due to the Inland Revenue, and, instead of the local authority getting less Income Tax, if they were permitted to keep that part they would be getting considerably more than 20 per cent."—[OFFICIAL REPORT, 23rd June, 1930; cols. 799 and 800; Vol. 240.]I have no complaint if and when such demands are made. It must be obvious that if the local authority does deduct Income Tax from interest paid to stockholders, that is the property of the Inland Revenue and ought to be returned. My complaint is that in certain cases the tax is actually being levied on the grant. Whatever legal decision may be given in favour of the Treasury in the matter, the House, I am sure, never meant that to take place. By way of proof, may I be allowed to refer to an answer given to me by the Minister of Labour? I asked for a return of all the circulars issued in relation to unemployment grants. I have received them all. I then asked whether in the negotiations with local authorities 944 it had been made clear that there would be a deduction of Income Tax on these grants. The Minister of Labour replied that the answer to the question was in the negative.So we have it from the Ministry itself that it was not intended by the Unemployment Grants Committee that Income Tax should be deducted. That is common ground between the Minister and myself. With regard to the big undertakings there had been a certain understanding arrived at between the municipal treasurers and the Treasury. I refer only to the third part of that. The grants are paid in three ways:—
The agreement arrived at is set out in the following terms:
- (i) A percentage of the wages bill connected with either revenue producing or non-revenue producing schemes.
- (ii) A percentage of the loan charges in respect of schemes of a non-revenue producing character.
- (iii) A percentage of the interest charges only where the scheme is revenue producing.
Authorities will be called upon to account for tax on an amount of interest equal to the amount of the grant, the balance of interest paid being dealt with in the general interest settlement. As a general rule the grants will be included as a trading receipt of the undertaking for which they are made when calculating the liability to Income Tax in respect of the profits of the undertaking.The decision of the Board was influenced by a certain case into the details of which I need not enter now. I asked the Scottish Office whether they had received any complaints from authorities in Scotland and the Under-Secretary of State for Scotland informed me that he had received complaints from Alva, Ayr, the county of Lanark, the Water Board of Airdrie and the Convention of Royal Burghs—which is an organisation representing all the burghs of Scotland. I may add that recently when there was a meeting between the heads of the Government and the representatives of the local authorities in the Guildhall, London, Sir Henry Keith, a very important officer of the Convention of Royal Burghs, raised this point. This is not a matter affecting only one small authority. In some cases it affects large undertakings of a statutory character such as Dundee Harbour as well as smaller ones like Fraserburgh. English 945 members must not however regard this as purely a Scottish question. It so happens that the case which is now being fought out and which is under notice of appeal, is the case of the Seaham Harbour Dock Company—an English case arising in the Prime Minister's own constituency, so that this really is a matter of great importance for Members from all parts of Great Britain.My argument is that if the particular grants to revenue producing undertakings were not paid as they are now paid, by way of percentage on interest annually, this question would not arise. Obviously a lump sum would go into the capital account of the undertaking and could not be reckoned as annual profit for the purposes of Income Tax. In my researches into Unemployment Grants circulars I have found, from Circular 16 that there are cases where the period of assistance does not exceed seven years and where the Committee may, at their discretion, if so desired, commute the annual interest payments for a single lump sum representing the present value of the whole of the interest payments. It is actually contemplated in the circular of the Unemployment Grants Committee that some of these grants which, according to our contention, are in the nature of capital grants may be commuted in the way I have described. Therefore it seems to me that we are on strong ground in arguing that these grants should not be reckoned as annual payments at all. This is simply a method of calculating the lump sum and for convenience the payments are made by way of annual percentage.
I put these five questions to the Minister. First, are the revenue departments construing the Acts in these cases in the manner which Parliament designed? Second, is it the Inland Revenue contention that all unemployment grants are taxable on the standard rate? Third, do the demands impose tax on the grants, or on the moneys deducted by the authorities for Income Tax from sums paid to stockholders? Fourth, was it ever contemplated by those who negotiated the unemployment grants that they were liable to Income Tax? Fifth, is it the policy of the Government and of this House that such grants should be taxed? These are questions which go to the root of the matter and I hope that we shall 946 be able to get a clear answer to them. As regards actual cases, perhaps the House will allow me to read a sentence from the Secretary of the Seaham Harbour Dock Company which puts the matter very clearly.
The outstanding fact is that the Government asked the Dock Company and other bodies of the same character to proceed with work before it was absolutely necessary in order to relieve unemployment, and they made a grant towards expenditure to be used for purposes of wages. The Seaham Harbour Dock Company received £7,500 against an expenditure of about £155,000. Having spent this sum upon wages another Government Department comes forward and demands £1,500 out of the grant on the ground that it is income and is subject to tax.I have already given the Financial Secretary the names of other authorities concerned and he will have had time to go into the details from the Scottish point of view. The burgh of Alva received an unemployment grant with regard to a certain gasworks which is a revenue-producing undertaking and they complain that they are actually being taxed not on the sums of money which they retained as Income Tax deduction when paying interest to stockholders but on the grant itself. They say,The town council received some years ago an unemployment grant in connection with the erection of vertical retorts at their gasworks. The grant was 50 per cent. for 15 years of the interest on the expenditure. This was agreed to as being £9,261 13s. 2d. and the grant was fixed at the yearly sum of £221 7s.May I again point out here that if the sum had been paid as a capital sum this question could never arise. Their statement proceeds:The Inspector of Taxes at Dunfermline District has now made a claim for Income Tax at 4s. in the £ on the grant of £221 for the years 1928–29 and 1929–30 and appeals have been lodged against these assessments.The statement goes on:The loan that was got to meet the cost of erecting retorts was £9,500, and that sum is being repaid by 20 yearly instalments of £475 each.When the Minister gave me the answer that they were not taxing the grants, but the income on stockholders' interest, I wired the Town Clerk, as I thought I would have to raise the matter on the Adjournment, in the following terms:Are revenue authorities deducting tax at the full rate on grants paid you by grants 947 committed or on amount deducted by you as tax from payments to stockholders.I received the following answer:Wire received. Revenue authorities seek to deduct tax at full rates an sums received from grants committee.I have since received from the Town Clerk an abstract of the accounts and I find on page 25 the following figures:It is on that sum of £2,802 that tax is being levied, and my contention is that these figures prove clearly that the tax is not being levied, as was suggested, on the sums deducted from the payments to the stockholders, but is actually being levied on these grants, which are being treated as profits of the year to the undertaking. Let me turn to another case of an undertaking which is of a non-revenue-producing character. The Financial Secretary may not be aware that statutory water boards in Scotland have their grants given to them by the Unemployment Grants Committee not as revenue-producing undertakings, but as non-revenue-producing undertakings, and the complaint of the Water Board of Airdrie to which I would draw attention is as follows:
£ s. d. "Balance brought down from Revenue Account for current year 2,534 8 10½ Bad Debts recovered during year 28 12 9 Unemployment Grant (including sum due at 15th May, 1929) 221 7 0 Showroom 18 10 7½ Total receipts 2,802 19 3 My Board have been objecting to the claims made by the Inland Revenue for some time and we obtained the assistance of Sir Henry Keith to call attention to the subject at the Conference in the Guildhall on 17th inst. In our case the grants were for the years 1924–5 to 1926–7, and the claim was not made or intimation received until the 17th December, 1929,which is, of course, nearly five years after the original grant was made. I will read a copy of a letter sent to the inspector of taxes:I beg to enclose herewith the undermentioned assessment notices dated 17th ultimo (C2) for Income Tax in respect of interest paid out of Unemployment Grants:948 The total is £473 9s. In that case it seems obvious that the demand is being made for a tax on the actual grant and not, as suggested by the Treasury, for the Treasury's own money. My hon. Friend the Member for East Fife (Mr. Millar) put a question on Wednesday asking the Chancellor of the Exchequer
- (1)…. on £402, £90 9s.;
- (2)…. on £1,222, £244 8s.;
- (3)…. on £688, £138 12s."
whether some decision will be announced soon; and whether, in view of the uncertainty prevailing as to whether future grants will be made subject to such deduction, he is in a position to make any further statement on the subject?The answer was as follows:Mr. Pethick-Lawrence: As the hon. Member is no doubt aware, I have explained in previous answers what I am advised, is the liability under the Income Tax law in this respect, and I see no ground for proposing any modification of the existing statutory provisions. This view of the legal position has recently been confirmed by the High Court in a case which is now under appeal to the Court of Appeal."—[OFFICIAL REPORT, 30th July, 1930; col. 523; Vol. 242.]That seems as if the Treasury were taking a purely legalistic view of the matter, and I raise it so that the Minister may have a full chance of making this perfectly clear to Members, to the authorities and to the country. Only this week I have received a batch of figures and facts, which I have not yet had time thoroughly to analyse, from a certain company in the North of Scotland. I have also received letters from other authorities since I first raised this question in the House, so that it shows there is at least very grave misunderstanding on the part of the smaller authorities, and the reason why the larger authorities are not clamant is because, in making up their accounts, they have a very different way of showing these sums, into which I need not go.May I once more say that if the Treasury hold that the actual grants given are liable to Income Tax, they may be legally right—that remains to be proved—but I am quite sure they are morally wrong, because it was never understood, either by the Unemployment Grants Committee, by the Department of the Minister, by the local authorities, or by anybody else, when they entered into negotiations to accelerate works in order that the unemployed might get work, that such a deduction would be made. I shall be very happy if, when the Financial Secretary has concluded his statement in 949 reply, it is shown that these authorities are under a complete misapprehension and that it is not the policy of the Government to levy the full rate of Income Tax on unemployment grants.
§ Mr. SCRYMGEOURMay I refer to the case of the Dundee Harbour Trust, which on a former occasion I submitted in question form to the Minister? The situation there in my view, with a Trust like the Dundee Harbour Trust, is on the basis of a non-profit making concern, and it should come within the category of those concerns to which the Secretary of State for Scotland made reference at his Conference concerning unemployment in Edinburgh. He there made the statement that these non-profit making concerns would be entirely immune from having Income Tax imposed upon such grants.
§ The SECRETARY of STATE for SCOTLAND (Mr. William Adamson)That is entirely inaccurate.
§ Mr. SCRYMGEOURI cannot settle that point for the present, but I submit that, like the water board to which the hon. Member for Leith (Mr. E. Brown) has referred, the harbour trust at Dundee is not a profit-making concern. They have had a very strong plea put forward by their clerk, in detailed form, to the Treasury, and they are anxiously awaiting the decision concerning this question. They would not, of course, make any protest on the score of any Income Tax required on interest derived from money provided by loan, but they are concerned about this deduction of Income Tax upon that which ought to be exclusively provided for the great purpose of the Government in regard to aiding unemployment, and on their behalf I feel anxious that we should get the matter cleared up satisfactorily for all concerned.
§ Mr. WOMERSLEYI hope the Financial Secretary to the Treasury will be able to reassure my hon. Friend that his apprehensions on this question are not founded in fact. It is a fact that the Revenue are charging tax on these accounts, and I submit that it is entirely wrong, because it is not in accordance with the promise made to the local authorities. Last year, the present Secretary of State for the Dominions, when he was Lord Privy Seal, received a deputation from the local authorities dealing 950 with the question of these works for the relief of unemployment, and he was specially questioned with regard to the percentage that would be allowed. He gave figures of the capital value of the grants that would be made. Alderman Davy, ex-Lord Mayor of Manchester, who was a member of the deputation, which I attended myself, said to the right hon. Gentleman:
I am not quite clear with regard to the 62 per cent. and the 48 per cent.The right hon. Gentleman, in speaking to this deputation had remarked that the grants, so far as non-revenue earning schemes were concerned, worked out on a capital basis at 62 per cent., and at 48 per cent. for another kind of grant. The right hon. Gentleman said:You may take it that it works out as follows: Non-revenue producing schemes involving the employment of transferred labour, approximately 62 per cent. of the entire cost.Now we come to revenue-earning concerns, with which we are specially dealing this morning, and this is what the right hon. Gentleman said:Revenue producing schemes, whether involving the employment of transferred labour or not, about 25 per cent. of the cost; and wages schemes, whether involving the employment of transferred labour or not, in the best circumstances about 60 per cent. of the cost. That is really reducing to a capital figure the amounts allocated covering the whole period. That is the object of reducing it.I take it that the right hon. Gentleman meant to show to the local authorities, if they brought forward their schemes, how much actually they would receive by way of capital grant. If we turn to the terms and conditions laid down for these grants, we find that in the case of public utility companies they have to show to the Committee that they are not earning a dividend higher than a certain percentage. That was put in so that there would not be any profiteering out of any grants given for the employment of persons out of work: In the conditions under which grants may be made, it is stated:In cases where dividends are not already limited by statute the Undertaking will normally be required to submit to such limitations as to the distribution of profits etc., during the period of assistance as may be necessary to secure in the opinion of the committee that no undue advantage is taken of such assistance. Each case will in this respect be considered separately upon its merits.951 If there have been the deductions to which my hon. Friend has referred, I hope that this is not the method the revenue authorities are employing where these undertakings are earning more than would be a statutory profit if they were subject to Parliament in that matter. The proper way for that to be done would be by the Unemployment Grants Committee when making the grant to put this stipulation into any grant agreement they might make and thus see that there was no such thing as profiteering at the expense of the taxpayer. I do not think any hon. Member in this House would desire that any undertaking, whether municipally owned or a public utility undertaking, should get a profit out of this matter.It must be borne in mind that these grants were made for two specific purposes: one, so that works which otherwise would not have been undertaken would be put into operation at once and thus provide relief for the unemployment problem, and the other and very important one for people having to manage these schemes of relief, to make up for a certain amount of inefficiency in the labour that is employed. We all realise that it is necessary, when you take men who have been engaged in other occupations to do work in which they are not usually employed, to recognise that they cannot be as efficient as men regularly carrying on that work. That was an argument put forward by a deputation with which I attended to the Lord Privy Seal, and it was made quite clear that it would be impossible for these works to be carried out on an economic basis. I maintain that the grant was made, not with the idea of giving profits to any one, but to balance what otherwise would be a loss to those authorities. If it is a fact that these deductions are being made, let me say to the Financial Secretary that he is going to strike a very heavy blow at anything being done on anything like a large scale for the relief of unemployment by local authorities and public utility concerns.
These revenue-earning projects are to my mind the schemes that should be encouraged more than any other. Non-revenue-earning schemes are absolutely 952 hopeless compared with those of revenue-earning concerns because they will not find continuing employment once they are completed. Anything that may be done in this way by any Departments of the Government will be striking at the efforts which are being put forward to try and reduce the unemployment figures, and, if it is a fact that these deductions have been made, either by someone in the Department who has not had proper instructions or by direct instructions from the Treasury, I hope the hon. Gentleman will consult with the Chancellor of the Exchequer and see that it is stopped at once, for if it is carried on it will dishearten every local authority and public utility concern from undertaking any work whatever.
§ 1.0 p.m.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. Pethick-Lawrence)I certainly do not complain that my hon. Friends opposite and my hon. Friend on this side have raised this this question. It certainly is very important that the matter should be made quite plain. It is naturally complicated and in my opinion it is its complication that has given rise to the misunderstanding which seems to prevail in all sections of the House. The hon. Member for Leith (Mr. E. Brown) who raised this question told us that the larger authorities as far as he could make out have made no complaint, because, he said, they have a different way of making up their books. I should have thought that probably suggested the answer to the whole of his complaint—that this is really a book-keeping trouble. When an authority makes up its books in one way the action of the Treasury becomes perfectly intelligible and easily understood. If it makes up its books in another way then the action, which is a perfectly reasonable one, appears to be unsound. The hon. Member for Leith told us that if the concerns were simply handing over to the Inland Revenue a deduction which was made to the stockholders he would be perfectly satisfied. I suggest that this is in fact what is being done.
§ Mr. E. BROWN rose—
§ Mr. PETHICK-LAWRENCELet me develop my argument.
§ Mr. BROWNI want to make it clear that I do not accept that statement. I should want more evidence.
§ Mr. PETHICK-LAWRENCEThe hon. Member does not accept my version of what he said.
§ Mr. PETHICK-LAWRENCEWhat is the position? I will deal first with Dundee. The hon. Member for Dundee (Mr. Scrymgeour) did not give me notice he was going to raise the case of Dundee to-day and therefore I have not gone with meticulous care into the facts. I understand that the Dundee authorities have put up to the Treasury the facts of the case and that the Treasury is investigating these facts and according to what they find they will act when the time comes. Hon. Members in all parts of the House must realise that the Treasury is bound to carry out the law, and if according to the law as we interpret it the case of Dundee comes on one side we shall act in that way. If it appears to come on the other side we shall act in that way. If the local authorities are dissatisfied with the Treasury interpretation of the law they can take it to court as I understand is the case in which one particular matter owing to appeal is sub judice.
Now let us take the case of the three revenue-producing undertakings to which the hon. Member for Leith referred. He was good enough to give me notice so I have had opportunity of investigating them—the Burgh of Alva, Airdrie Water Board and Fraserburgh Harbour Board. In all these cases the undertaking is borrowing money from stockholders and paying them interest on that borrowed money. In the case of two of them I think it is the Alva Burgh and Fraser-burgh, the Treasury had undertaken to pay 50 per cent. of these interest charges. In the case of the Airdrie Water Board the grant is 65 per cent. Is it suggested that the grant from the Exchequer shall be 50 per cent. and 65 per cent. of the gross interest, or 50 per cent. and 65 per cent. of the interest less tax? I should have thought it was perfectly clear that when the Treasury undertakes to pay 50 per cent. of the interest charge it will be 50 per cent. of the interest less tax; 954 otherwise, the local authority is relieved, not of the 50 per cent. and 65 per cent., but of a very much greater proportion. Let us take an imaginary case. Supposing the Treasury were to have said—and I believe there are such cases—it would pay 100 per cent. of the interest charge. What does the hon. Member suggest there? Supposing the actual gross interest is £1,000 a year. The local authority does not pay £1,000 a year to the stockholders; with Income Tax at 4s. in the pound, it pays £800. Does the hon. Member seriously suggest that the Treasury, having agreed to pay 100 per cent., will hand to the local authority £1,000 and allow it to keep £200 as a special bonus for the local authority?
§ Mr. WOMERSLEYIs not the right method for that £200 to be paid as Income Tax to be deducted, and not for the Treasury to take it from the amount they pay to the local authority?
§ Mr. PETHICK-LAWRENCEIt does not seem to matter very much what you call it, so long as the £200, which is the tax on the £1,000 paid to the stockholders, in some way or another finds its way into the Inland Revenue. That is all that we are saying; but owing to the method of book-keeping adopted it appears as if it were a deduction from the grant. If hon. Members will go into the matter they will find that is the case, and they will find, according to the contention they are making, that if the Treasury were to undertake to give a grant of 100 per cent. the local authority would actually be pocketing the tax which it deducts. There are no other means by which the tax deducted from the stockholders' interest shall find its way into the revenue, unless the Treasury, in providing the grant, deducts Income Tax upon it. When the hon. Member asks me whether the House of Commons intended that Income Tax should be deducted from grants I can only say that the House of Commons intended that the Income Tax law should be carried out, and when grants are made in relief of interest to be paid, quite clearly the local authority cannot make a profit out of the Income Tax deducted from the amount paid.
I have no doubt that I have not succeeded in convincing the hon. Member, because it is difficult to carry through an argument based on figures across the 955 Floor of the House, but I am quite sure that if he will sit down with an accountant and work it out, and if the smaller local authorities who have made this complaint will also go into it with accountants, they will find the position to be as I have stated. The position is this, that where a grant is made it cannot be used as a means for the local authority to obtain the tax for their own benefit. The tax deducted from the money paid to the stockholders should find its way into the Inland Revenue, and that is the intention and effect of this method which the Treasury employs. As I say, it is difficult to have an argument based on figures across the Floor, but let me give a hypothetical ease which the hon. Member can follow, and which he will be able to read afterwards in the Official Report. Let us take the case of a local authority with a revenue-producing concern. It obtains from the Government a grant of £1,000, representing 50 per cent. of the interest which it has to pay, the total amount of She interest being £2,000. Let us suppose that, apart from the £1,000 which it receives from the Government, it has trading receipts of £10,000 and that its trading expenses amount to £7,500. Its total receipts will be: trading receipts £10,000, Government grant £1,000; total £11,000. Its trading expenses are £7,500 and the interest on the loan £2,000. These last two items together make £9,500, leaving a net profit of £1,500. If, as is done, the Government grant of £1,000 is included in the receipts, tax is paid on £3,500. This represents the tax on £2,000 which is collected by deduction from the interest, plus the tax on £1,500, which is the net profit on the undertaking. If, however, the grant were not to be included the tax would be paid on £2,500 only. The tax on £2,000 is recovered by the local authority, and is borne by the recipients of the interest, leaving the undertaking to bear interest on £500 only, although its net profit is £1,500. This is a very complicated matter, but the point I would try to leave with the House is this: In all these matters the Treasury is merely endeavouring to carry out the law. The hon. Member said it was not the business of the Treasury to be legalistic. If he means by that that we are endeavouring to press She law unfairly and improperly, I deny that that is the case.
§ Mr. E. BROWNI meant legalistic in this sense—putting an interpretation on things which was not put when the Act was passed and has not been put in the courts, but which is put because it occurs to some very clever man in the Revenue Department that a certain interpretation can be read into a word, although it was never intended by Parliament when it passed the word.
§ Mr. PETHICK-LAWRENCEI do not think I have attempted to misrepresent the use of the word "legalistic" by the hon. Member, but I think I ought to tell him that the Treasury, in taking this view, feel that they are taking what is the common-sense view when once the full implication of the Income Tax law is understood. It is perfectly clear that if the Treasury were to take a different view the local authority would be obtaining the tax collected from the stockholders, which tax was deducted on the assumption that it was tax to be handed over—
§ Mr. PETHICK-LAWRENCENo, I cannot give way any more. I have given way a great many times.
§ Mr. BROWNI am very sorry to worry the hon. Member, but really this is our only chance. He must realise that Members have to take the chances they get. When they cannot get answers they really must ask for this courtesy. I have given the hon. Member every courtesy in the matter. Six weeks ago I sent him particular cases, and in return he puts to us a certain number of hypothetical cases, of which we have never before heard. What is wanted is to get the Government to agree that in no case are grants to he included in the estimate of profits for assessment to Income Tax. This would not interfere with the rules which is presently acted on, and is quite a proper one, that the Government gets at least all Income Tax deducted from interest on loans. If the profits apart from grants exceed the amount of the gross interest paid, Income Tax is payable on the amount of the profits. That also is quite proper. The object is to grants being included in profits and Income Tax paid in respect thereof.
§ Mr. PETHICK-LAWRENCEI am endeavouring to give an interpretation of what is taking place. If the Govern- 957 ment were to forego this claim it would mean that we should not get Income Tax on the net profits of the undertaking and we should only get a part of it. I am sorry I cannot make it any plainer, but I hope if there is any other point in doubt, it may be dealt with by carefully examining the situation in view of all the facts.
§ Mr. WOMERSLEYI understand the answer given by the Financial Secretary to mean that the Inland Revenue do not require any more from the, undertakers than they have deducted from the stockholders.
§ Mr. PETHICK-LAWRENCEThat is so.
§ Mr. SCRYMGEOURMay I point out that the Secretary of State for Scotland has not made any statement in regard to the classes of grants referred to at the Conference in Edinburgh.
§ Mr. W. ADAMSONSo far as I am concerned I cannot give any undertaking, but I promised to convey to the Treasury what was said at the Conference.
§ Mr. SCRYMGEOURThen you made no definite statement on the subject.
§ Mr. ADAMSONNo, I did not make a definite statement.