§ I come to the vexed question of the liability of co-operative societies to Income Tax. In my speech last year I stated that the Government's desire was to see an end put to a very long-drawn-out controversy, and we hoped that the appointment of a Committee to investigate the whole affair might lead to something in the nature of a final settlement. Well, the Committee have reported. They rejected the view that was put forward in some quarters that the dividend, or "divi," should be taxable, and recommended that it should be treated as a trade expense similar to the discount given by ordinary traders, but they expressed their agreement with the majority of the Royal Commission which reported in 1920 that the gains arising from trading with members—the so-called mutual trading—should be made chargeable to Income Tax. The effect of their report was, broadly, that the undistributed income of the societies should be taxed at the full rate, while the distributed income should continue to be taxed in the hands of the recipients. It. was estimated that, as a result of those recommendations, if they were put into operation, there would be an increased revenue of £1,200,000 in a full year. After the report had been presented, I saw the representatives of the co-operative societies—[HON. MEMBERS: "And the traders."]—and I saw representatives of traders, too. The deputation which came to see me, I found, were, very strongly opposed to that recommendation of the Committee, which dealt with what is known as the principle of mutuality. They told me that they regarded this principle as one which ought to be considered sacrosanct, and they said that if the recommendations of the committee on that point were carried 49 into effect, it would be regarded by their members as a penal measure directed against their movement.
§ After consideration of these observations, as the Government were still anxious to obtain a final settlement of this matter, I met the representatives of the co-operative movement again in order that I might see whether it was practicable to arrive at some solution which would, as far as possible, meet their views on the subject of mutual trading, and at the same time substantially remove the grievances of traders who object to the special position which the co-operative societies enjoy under the Income Tax Acts. At the meeting which I held we did not find it possible there and then to arrive at any such solution, but the discussions are still proceeding and I am still hoping that it may be possible for us to reach an agreement before the introduction of the Finance Bill. At the same time, I want to make it clear that in the opinion of the Government the matter cannot be allowed to rest where it is. Some provision will have to he inserted in the Finance Bill and, in due course, I shall ask the Committee to pass a Resolution which will enable us to put into the Finance Bill such provisions as may ultimately be found expedient. In the meantime, in order not to prejudice the possibility of our arriving at a satisfactory settlement, I am not proposing to table a Resolution to-day.
§ Sir BASIL PETOCan the right hon. Gentleman tell us if there is any precedent for discussing with the taxpayer whether he ought or ought not to be taxed?
Mr. CHAMBERLAINI do not think we need any precedent for action of this kind. I cannot help thinking that the whole House would be glad if we could come to a settlement on a matter which in the past has created bitter feeling on both sides and which is really a dispute over a matter which ought to be finally settled, once and for all. For my purpose, of course, it is necessary that I should insert some figure in my Estimates, and accordingly I have set down the sum of revenue of £750,000 for this year, but I would ask the Committee to regard that sum as purely provisional, pending the final proposals of the Government.