HC Deb 30 September 1931 vol 257 cc475-81

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

Mr. PETHICK-LAWRENCE

We ought not to allow this Clause to go by without some explanation from the Financial Secretary in regard to it. This is a glorious example of a long sentence making 20 lines of the Bill with nothing beyond a comma. I have made several attempts to read it through and understand it. The first time I understood 10 lines of it and the second time 15 lines, but every time I got to the 16th line I forgot what was in the first few lines. Perhaps the hon. Gentleman can give us an explanation in sentences of five lines each and then we shall be able to judge whether we could allow the Clause to go through, or put up the strenuous opposition which we have put up against some of the other Clauses.

Major ELLIOT

I am more than complimented by the trust placed in me by my predecessor, and will do my utmost to justify it, all the more as I had to make several attempts at understanding this Clause before being sure I could grasp it, because there is some prejudice among draftsmen against points of punctuation. I understand they were invented long after draftsmanship became an art, and that the Parliamentary draftsmen have little desire to incorporate them. The point is simple. The object of the Clause is to relieve persons who are dealing in securities from liability for Income Tax in respect of profits made out of the realisation of securities when they are only making these profits by the acceptance of British securities under a conversion scheme. It is to facilitate a conversion scheme and to bring in a procedure under which these companies are not immediately liable to Income Tax if they accept these new securities. That is the object of the Clause. The provisions of the Clause are that, in a conversion of securities, in connection with which the Treasury direct that the provisions of this Clause should have effect, unless the taxpayer gives notice in writing to the inspector of taxes, the acceptance of the substituted securities will not be treated for Income Tax purposes as a realisation.

That, I understand, is the gist of the matter. It would, perhaps, be well if I did not go further into it, because, first of all, I might confuse the Committee, and, secondly, I might confuse myself. I have gone into this tooth and claw, and those are two good points which I have got hold of, and I intend to hang on to them. Anything further I am willing to discuss round a table with legal gentlemen, with accountants or with anybody else whom the companies desire to put up, but on so highly technical a matter I do not think I could usefully explain things further. The technicalities need to be expounded round a table, when the exact minutiae of the laws concerned could be gone into not merely with myself but with the technical experts on whose judgment and whose criticism I should have to rely.

Mr. REID

I should like to warn the Financial Secretary of one or two points which may be raised. Section 60 of the Finance Act of 1916 applies only to securities issued during the War or within six months after the termination of the War. I am not an expert on the subject, but I would like to know what securities issued under those conditions still exist and have conversion rights attached to them. So far as I know, all the conversion rights of securities to which that Act refers are exhausted. Another point is whether this Clause has any bearing upon matters which are under appeal. There is the precedent of the case which was recently before the Courts. Can we take it that there is nothing in this Clause prejudicing any appeal now pending?

Mr. HOFFMAN

This is most extraordinary procedure. I am quite sure that if we were in normal times, and the hon. and gallant Member who is at present Financial Secretary of the Treasury were sitting on these benches, he would try to keep the proceedings going all night, not merely in order to get two points and hold on to them firmly but in order to get at the whole sum and substance of the Clause. On many occasions he has twitted me because of some gentle interruptions while be has been talking irrelevancies about some Measure before the House, but now he comes here and asks us, humorously, it is true, to give him grace because he does not understand the Clause himself. He has got hold of two points. The Committee as a whole ought to be satisfied about this Clause, and I am not. I want to know, among all the ramshackle things done by that ramshackle crew on the other side of the House, what this ramshackle Clause really does mean. Is this some further jiggery-pokery on behalf of the Stock Exchange and financial interests in the city? It may be a ramp. I am sure that some hon. Members opposite will get the cramp within the next three weeks if they appeal to the country. Is this a prescription which has been given by the doctor on behalf of the city? Is this part of the doctor's mandate? [Interruption.] Perhaps the hon. and learned Member for South Nottingham (Mr. Holford Knight) can explain? We are entitled to know something more than that there are at least two points on which the Financial Secretary himself can firmly lay his hands. I am not satisfied, and I sincerely hope that either the Financial Secretary or some other hon. Member will give us an explanation of this Clause.

Mr. T. GRIFFITHS

I wish to ask one question. Can this be made the subject of an Order in Council? If not, why not? The Financial Secretary has failed to explain the reason for this Clause, and I think he ought to call in the Law Officers of the Crown. Why should it be left to an ordinary layman to try to explain intricate matters like this? [Interruption.] I see the hon. and learned Member for South Nottingham (Mr. Holford Knight). Why do not you get up?

The CHAIRMAN

Is the hon. Member inviting me to get up?

Mr. GRIFFITHS

I suggest that the explanation of the Financial Secretary is not sufficient. This is a very important matter. He is dealing now with those who have securities. How will this affect the ordinary investor when conversion takes place? Let us get the. Law Officers of the Crown here. The matter ought not to be passed over in this way. I have known the Financial Secretary to keep us here to two or three o'clock in the morning asking us to explain little things that are as plain as daylight to the ordinary man in the street. Now even we cannot understand this and the Financial Secretary states that he himself cannot. He has admitted that he has understood only eight lines of it. An hon. Friend of mine has just pointed out that he got through 15 lines of it and when he came to the 16th line he had to begin all over again because he had not understood what the first 15 lines were about.

Major ELLIOT

I think the difficulty would be greater if we got skilled gentlemen, learned in the law, to explain this matter which, after all, is one which we desire to understand ourselves. We are largely laymen in this Committee, and if we cannot grasp it obviously it will prove to be a fertile field for the gentlemen of the robe. I have been able to make something of it here, and now I will try again. In the first place two specific questions were asked by the hon. Member for Down (Mr. Reid). He asked, first of all, to what securities this Clause would apply since Section So of the Finance Act of 1916 did not apply any longer. That Section 60 was extended or amended by Section 47 of the Finance Act, 1921, and it now extends to a much wider range of securities. His second point was as to what reference this Clause had to any case at present under appeal. He is dealing, I think, with the judgment given by Mr. Justice Rowlatt on the 8th June last, when he decided in favour of the Crown. It is true that the Westminster Bank has given notice of appeal to the Court of Appeal, but the Treasury fear that whatever happens as a result of that appeal, the position of future conversion operations might be prejudiced. They want to make it quite clear that dealers in these securities shall not be affected by this question of the profits arising solely by accepting British Government securities in pursuance of a future conversion scheme. Therefore although the judgment has been given in favour of the Government they are not anxious that this judgment should stand in the way in the case of future conversions. I hope I have now answered the questions put to me to the satisfaction of hon. Members.

Mr. REID

I think the answer given by the hon. and gallant Member is satisfactory. The only point I was anxious about was whether any of these people concerned would be prejudiced but presumably some arrangement will be come to.

Major ELLIOT

The bank has appealed against the decision, but from the Treasury point of view the position remains unaltered, and what I have stated would apply to any future conversions. I will now deal with the point put by the hon. Member for Central Sheffield (Mr. Hoffman) and other hon. Members opposite, who have stated that, in their opinion, I have not made the position sufficiently clear. I think in all these cases the position can be explained in non-technical language, and I will endeavour to do so. First of all, this Clause is concerned with enterprises whose business consists in dealing in securities such as insurance companies and finance houses and so on. As in the case of the Rowlatt judgment dealing with the acceptance of securities in exchange for national war bonds, it was held that there was a realisation and that they would be liable for Income Tax. The point is that the question of profit or loss for Income Tax purposes will not in future arise until the actual realisation of the substituted securities, and it will then be determined by reference to the cost of the original security, and taking into account the amount of any cash bonus received in connection with the conversion. I think the Committee is quite right in insisting upon this matter being made clear, and I am desirous of making it as clear as possible. The difficulty which arises can best be shown in dealing with the actual case of the Westminster Bank and the Crown which was considered by Mr. Justice Rowlatt on 8th June last. That dealt with the acceptance of securities in exchange for national war bonds, in which case the Income Tax became payable. Obviously, during those operations companies might find themselves particularly struck by these matters, and it was agreed not to make the liability chargeable upon a hypothetical realisation but on the actual transaction. I hope I have got the Committee with me so far.

Mr. PETHICK-LAWRENCE

I would like the Financial Secretary to the Treasury to give me two assurances. In the first place, I should like an assurance that we are not losing any Income Tax by this transaction. In the second place, can the hon. and gallant Gentleman tell us that, if Section 60 of the Finance Act of 1916 directly applies in these cases, it applies as amended by the Finance Act of 1921. Perhaps if the hon. and gallant Gentleman cannot give me an answer now he will undertake to consider these points before the Report stage. On previous occasions, it has been thought convenient in the actual text of a Bill where a previous Act has been cited to insert the words "as amended."

Captain CROOKSHANK

Is this Clause the draftsman's contribution to the national emergency and does it represent, in accordance with the general practice, a 10 per cent. cut in lucidity?

Captain RONALD HENDERSON

What would happen in the case of securities which are transferred with a cum dividend right?

Major ELLIOT

The hon. Member for West Leicester (Mr. Pethick-Lawrence) has asked whether I can give an assurance that this provision will involve no loss of revenue, but is merely a technical rearrangement. I can give that assurance. In the second place, the hon. Gentleman asked me to consider, between now and the Report stage, whether I would insert the words: Section 60 of the Finance Act, 1916, as modified by Section 47 of the Finance Act, 1921. I shall certainly be glad to look into that point and to take any steps which would elucidate the matter. With regard to the observation of my hon. and gallant Friend the Member for Gains-borough (Captain Crookshank), as to whether there has not been a 10 per cent. cut in lucidity, I would say that I think there is a 10 per cent, cut in punctuation. The difficulty in all these cases, as we know from our own professional experience in one form Or another, is that very often an attempt to clarify a provision by putting it into popular language opens the door to all sorts of confusion when the technical gentlemen apply their minds to it. I remember that, when the late Lord Balfour was bringing in his Education Bill, he was not satisfied with certain of the draftsman's efforts, and he drafted several of the Clauses himself and sent them back to the Parliamentary draftsman. He received in reply a note from the Parliamentary draftsman saying: This appears to be an excellent popular pamphlet upon the objects of the Bill. I do not wish to go further into the details of this Clause, because. I think I have made clear to the Committee, as I understand it, the main object of the Clause, namely, that dealers should not find themselves immediately involved in liabilities for Income Tax—the question of dividends and so on is merely one factor—but that the whole question of realisation should be postponed to a point where there is a real and not a hypothetical realisation.