INCOME TAX.—(Mutual profits and withdrawal of exemption from certain societies.)

HC Deb 22 May 1933 vol 278 cc769-897

3.38 p.m.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

I beg to move, That—

1. (a) in the application to any incorporated company or society, whether incorporated in the United Kingdom or elsewhere, of any provision or rule relating to profits or gains chargeable under Case I of Schedule D (which relates to trades), or under Rule 4 of the Rules applicable to Case III of Schedule D (which relates to the profits of certain cattle dealers and milk dealers), any reference to profits or gains shall include a reference to any profit or surplus arising from transactions of the company or society with its members which would be included in profits or gains for the purpose of that provision or rule if those transactions were transactions with non-members;
2. (b) for the purpose of any such provision or rule the profit or surplus aforesaid shall be determined on the same principles as those on which profits or gains arising from transactions with non-members would be determined for that purpose;
3. (c) the exemption from Income Tax under Schedules C and I> conferred on certain societies by Sub-section (4) of Section thirty-nine of the Income Tax Act, 1918, shall cease;
4. (d) there may be included in any Act of the present Session such provisions as to Income Tax in relation to any such incorporated company or society as aforesaid (being provisions which it is necessary or expedient to include for giving effect to or supplementing the foregoing provisions of this Resolution) as Parliament may determine."

This Resolution is not one of those which can be called self-explanatory, and therefore I think I had better begin by saying that its purpose is to authorise legislation designed to carry out the recommendations of the Raeburn Committee upon Income Tax in relation to cooperative societies. It will have been observed, however, I think, by those who have read the Resolution carefully that it does not mention co-operative societies in terms, and that in fact, what the Government are doing is to deal with all incorporated societies or companies engaged in trade. In point of fact, although theoretically it will cover a considerable number of institutions which are not members of the co-operative movement, in practice, very few of them will be materially affected. I will refer to that at a later stage, but I mention it now because it is important to note that we are not here singling out co-operative societies for special treatment, but we are laying down general principles, and wherever those principles are applicable they will be applied.

The Committee will remember that, about a year ago, the Raeburn Committee was set up: to inquire into the present position of cooperative societies in relation to the Income Tax and to report whether any modification of that position is desirable and, if so, what alterations of the law are required for that purpose. Very early in their proceedings, the Committee considered the question of whether what is known familiarly as the "divi" in the case of co-operative societies should or should not be subject to taxation. It was argued in evidence before the Committee by traders that this "divi" was not really a trade discount at all, and that it did not bear direct relation to the actual purchase that was made by the member or the non-member as the case might be. The Committee took the same view that had been taken by the Royal Commission on Income Tax in 1920, and I may say that it was also the view of the Board of Inland Revenue themselves that this "divi" was in fact a trade expense for the purpose of Income Tax, and that it was analogous to a trade discount such as may be allowed by the ordinary trader. In paragraph 12 of their report, the Committee put that conclusion as follows: Our conclusion is therefore that, in relation to the society paying it, 'divi' is a trade expense: in relation to the recipient, it is a reduction of the cost to him of the goods purchased from the society, or an increase in the price obtained by him for the goods sold to the society, as the case may be. It follows that, if the cost or sale price of the goods enters into a trading account of the recipient, the amount to be brought in for Income Tax purposes is the cost price as reduced, or the sale price as increased, by the 'divi.' The Government are of the opinion that this conclusion is sound, and they fully accept it. The point that I particularly want to emphasise at this moment is that the reason given by the Raeburn Committee for holding that "divi" was not a taxable profit had nothing to do with the so-called principle of mutuality. The "divi" is not a taxable profit, because it is a trade expense. That has nothing to do with the question of whether a "divi" is earned by mutual trading or not.

In the following paragraph, the Raeburn Committee set out in a useful table a comparison between the position of the co-operative societies and that of the ordinary trading company in respect of Income Tax. If hon. Members have the report in their hands, they will see from that table, on page 6 of the report, that the co-operative societies are in the same position as the companies as regards Schedules A and B, on which they pay Income Tax, but that, as regards Schedules C and D, whereas the companies pay Income Tax, the co-operative societies are exempt. It is very important to bear in mind that this difference, set out in the table, between the cooperative society and the company relates only to undistributed income, because in so far as the societies distribute their income in the shape of interest on share Capttal, or interest upon loans, that interest is already taxed under the existing law, not in the hands of the societies, but in the hands of the recipients, according to their personal liabilities, whatever they may be.

In paragraph 16, the Committee set out the various sources from which this undistributed income may be derived, and they point out that the controversial problem revolves around that part of the undistributed income which is derived from trading with members of the cooperative society. There is no dispute as to any profits derived from trading with non-members. The co-operative societies themselves do not claim that such profits ought to be exempt from tax, and we never should have had the disagreement with them on that point. I think I should also say that, from such information as I have in my possession, although trading with non-members is a common practice, and although in such cases the "divi" is generally accorded to the non-member who makes purchases from a co-operative society, yet, taking the transactions as a whole, the proportion which trade with non-members bears to trade with mem- bers is so small as to be almost trifling in amount.

Under the present law, this undistributed income derived from trading with members is specifically exempted from taxation by Sub-section (4) of Section 39 of the Income Tax Act, 1918, which reads as follows: A society registered under the Industrial and Provident Societies Act, 1893, shall be entitled to exemption from tax under Schedules C and D, unless it sells to persons not members thereof, and the number of its shares is limited by its rules or practice, but no member of or person employed by the society shall be exempt from charge to the tax to which he would otherwise be liable. One of the proposals of the Government is to repeal, in accordance with the recommendations of the Raeburn Committee, that Sub-section and by the repeal of the Sub-section the protection which it gives to this particular class of undistributed income would be removed. Suppose it were removed, and suppose that this Subsection were repealed, what would be the position? The position would still be one of doubt as to whether this income would be taxable under the ordinary Income Tax law. The representatives of the cooperative societies held very strongly that it would not be taxable, and the Board of Inland Revenue agreed with that view that in law it would not be taxable. On the other hand, eminent opinions have been expressed to the contrary, and the Committee themselves state; that, in the absence of further legislation, the question could not be fiNaily decided until it had been taken into a court of law and settled there. However, a? the Raeburn Committee point out, the question whether the law in fact would exempt this income or not is not the end of the matter, because, by their terms of reference, they were required to recommend alterations in the law if they thought fit to do so, and, as a matter of fact, after an examination of the position on its merits, they came to the conclusion that the law ought to be made to provide quite plainly that the exemption should not extend to this land of income.

Before I enter into any discussion of the merits of that particular point, I think I ought now to give the Committee a short history of what has been the Government's action in this matter. Hon. Members may recollect that, when the Raeburn Committee was first set up, I expressed the hope, on behalf of the Government, that it might make recommendations which would be accepted as a final settlement of a very old and bitter controversy by both sides, that is to say, by both the co-operative societies and the individual traders; but, when the report was published, it became perfectly clear that the co-operative societies were not prepared to accept the recommendations. They said, on the contrary, that they would oppose them as strongly as they could, and the principal objection which they had to the recommendations centred upon this particular point—the point of taxation of the undistributed income derived from trading with members of the societies. The Government wanted to get a settlement, and they thought that, if they could get a settlement which would be accepted by the co-operative societies as well as by the traders, it would be worth while to leave this question of the taxability of this undistributed income as it was. If they could have got a settlement on those terms, they would have avoided arousing the susceptibilities of the co-operatives on this point, to which they attached so much importance, they would still have got a substantial contribution to the revenue, and they would have got a settlement which might be taken as the last word in this old story.

Accordingly, with the approval of my colleagues, I interviewed the representatives of the co-operative societies. I was severely criticised for doing so. It was suggested that my action was certainly without precedent, that it was very possibly, if not probably, unfair to the traders, and that it was, indeed, altogether wrong that the Chancellor of the Exchequer should discuss with taxpayers the way in which or the extent to which they should be taxed. Of course, I quite realised beforehand that criticism of that kind must be made if such an unusual course were taken. Nevertheless, I thought that the end would justify the departure from precedent, and I was prepared, myself, to justify it if the results had been satisfactory. At least it does show this, that, so far from pursuing a relentless attack against the co-operative societies, the Government were prepared to go to the extreme limit of propriety in their anxiety to get a settlement, if they could get a settlement. But I am sorry to say that my efforts were entirely in vain. In order to carry out the proposed compromise which I had thought might be the basis of discussion, the assent and the willing co-operation of the co-operative movement was necessary— indeed, it was essential; the proposal could not have been carried into effect without it. The effect of the proposal would have been to tax all income of the co-operative societies from investments, whether inside or outside the movement, and all profits derived from trading with non-members; but it would have left still exempt from Income Tax the profits derived from trading with members.

This proposal was not new to the societies, because it had already been examined in the course of the proceedings of the Committee. It had been referred to in evidence before the Committee, it had been discussed there by the societies themselves, and they had put forward a claim to the Committee that, if a proposal of this kind were carried out, they would be entitled to deduct tax from all their payments of share interest and loan interest. What would have been the net result? The net result would have been that the societies would have paid less than they are actually paying to-day. Moreover, although the view that they were entitled, or would be entitled, to deduct this tax from interest on share Capttal was not accepted by the Board of Inland Revenue, who, indeed, were very confident that it could not be sustained in a court of law, yet there was nothing to prevent the societies from transforming share Capttal into loan Capttal, and, if they had done that, there would have been no question at all about their right to deduct the tax. From that the Committee will understand that, in putting forward this proposal to the societies, under which the point to which I understood they attached the greatest importance would have been left untouched, I was obliged to attach to it a condition that they would not seek to deduct tax from interest on share Capttal and would not attempt to transform share Capttal into loan Capttal.

Then there was a further difficulty. When we came to examine the actual result of this proposal, it appeared that, owing to some technical considerations with which I think I need not trouble the Committee, the tax would in fact fall almost wholly upon the retail societies, while the wholesale societies would have got off almost scot free. There was only one way in which that difficulty could be overcome, and that was that the co-operative movement themselves should treat the taxation as a taxation upon the co-operative movement as a whole, and should themselves make the internal adjustments which would be necessary in order to allocate fairly the burden of the taxation as between the various societies, including, of course, both wholesale societies and retail societies. That is what I suggested to the representatives of the societies that they should do, and I pointed out to them that it would be well worth their while, seeing that the amount they would have to pay under this proposal would only be about two-thirds of what they would have to pay under the full recommendations of the Raeburn Committee.

Unfortunately, as I think, the representatives of the societies were not prepared to consider this proposal, or, if they did consider it, they immediately rejected it. In their turn they put forward a counter-proposal. They said that, if the liability of any particular society in respect of non-mutual transactions, computed in a certain way, exceeded the payment which they would have to make under Schedule A, they would then be prepared to pay on this excess in addition to the payment under Schedule A. I had that proposal examined. I will tell the Committee what it is. We estimated that the revenue produced by this proposal would be about £120,000 to £150,000, against the £1,200,000 which was estimated to be produced by the Raeburn Committee's recommendation. The whole of the comparatively small revenue would be furnished by two societies of a special kind connected with finance, and, therefore, the whole of the rest of the societies —all the wholesale societies and the retail societies engaged in the distributive trades, that is, almost the whole of the societies about whose position in connection with Income Tax this controversy has raged, would pay no more than they do to-day. It must be obvious that that was a counter-proposal which the Government could not possibly accept. It was no compromise at all and, as the representatives of the societies stated that that was the furthest they were prepared to go, our discussions came to an end, and we told them that, Since we had not been able to reach agreement, the Government must now formulate their own proposals.

Let me come back again to this question of mutuality. I do not think anybody disputes the principle of mutuality in its simplest form. It is quite clear that a man cannot make a taxable profit by trading with himself. You can carry it a little bit further than that. If a number of people combine together to buy, let us say, a truck of coal, then the saving which each individual may make out of a transaction of that kind cannot be said to constitute a profit which is assessable to Income Tax. But when you come to these vast organisations which have been built up to their present size, you are dealing with something in a very different category, something that goes much further than the mere joint purchase or sale by a group of individuals. These societies have incorporated themselves into a separate legal entity, and the transactions of the members are not merely transactions with other members; they are transactions with this corporate body which has interposed itself into the picture. There is, I suppose, no higher authority on questions of Income Tax in this country than Sir Josiah Stamp, and it is interesting to read what was said by Sir Josiah Stamp and Sir William McLintock in a reservation which they made to the report of the Royal Commission on Income Tax setting out the special reasons for their agreement with the Majority Report. They said: The 'mutality' 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. In the case of an ordinary trading company, when we are considering the assessment of Income Tax upon its undistributed income, we do not stop to consider whether any part of that has been derived from transactions with its individual shareholders, although some part of it may well have been so derived. We do not stop to consider that. Income Tax is assessed upon undistributed income because that income is the property of this entity, the company itself. For my part, although I have no prejudice whatever against the co-operative movement—[HON. MEMBERS: "Oh!"]—and I am not viewing this at least from the political aspect, I can see no difference whatever in equity between the position of a co-operative society and an ordinary trading company.

Mr. LUNN

Does the Prime Minister say that?

Mr. CHAMBERLAIN

The Government, having decided to accept the principal recommendation of the Raeburn Committee, is neither attacking nor denying the principle of mutuality. What we are doing is to define the area within which that principle is operative, and we are excluding from that area the undistributed trading profits of all incorporated trading societies or companies.

I said I would return again for a moment to the question of what other societies or companies might be affected by these proposals in addition to the co-operative societies. Take the position, for instance, of working-men's clubs, many of which are registered under the Industrial and Provident Societies Act. It has been held by the Court of Appeal that a company carrying on a social club on the usual mutual principle does not carry on a trade or business.

Mr. WALLHEAD

Is that Sir Josiah Stamp's opinion?

Mr. CHAMBERLAIN

It was the Court of Appeal. Therefore, one may say, generally speaking, that these clubs are exempt so far as their surpluses are concerned. Under the proposals of the Government they will be liable on their investment income, but here, again, broadly speaking, that liability will be off-set by the relief which they will be enabled to claim upon the payment of interest to lenders or depositors with the clubs. The principal societies which are affected will be the mutual insurance companies or societies, but I must point out that, so far as those companies are concerned which deal with life insurance, their investment income is already liable to taxation under the existing law, and their position is not affected, and, with regard to the rest, they will pay Income Tax in exactly the same way as the non-mutual insurance companies pay to-day under the existing law. FiNaily, there are a number of professional and trade protection associations which are often incorporated and organised on the mutual principle, but, as a rule, these bodies are not engaged in trade, and, unless they are engaged in trade, they will not, therefore, come within the scope of this provision.

In conclusion, I want to put this to the Committee. We are told that these proposals constitute penal legislation against co-operative societies. I defy hon. Members opposite to make good that charge. There is nothing in what we are doing here which will put these co-operative societies in a position of disadvantage as compared with the trading companies which are carrying on exactly the same kind of business, and I say that, although there may be doubts about the present position of Income Tax law, we have to consider that that Income Tax law was designed to deal with individual trading, and that if there has arisen a doubt, because the law designed to meet individual trading has not been found completely to cover these newer and different forms of trading, then we must look to the main equities of the case. When we look to the main equities of the case, we are simply putting the co-operative societies in exactly the same position as the trading companies—no more and no less. I say that that cannot be considered as penal legislation. I say that the proposals of the Government ought to be accepted by the ordinary traders as a final settlement of this question, because it takes away what they have considered to be the privileged position of the societies, and that the co-operative societies themselves will be well advised if they accept this principle, that the traders who are carrying on identical activities ought to make identical contributions to the national Exchequer.

4.13 p.m.

Sir STAFFORD CRIPPS

The right hon. Gentleman has given us a careful review of the Government's position, and has stated with complete fairness, as we should expect from him, the arguments that have been put forward by the Government and the co-operative societies during the course of the negotia- tions which have taken place. He ended up by saying that he challenges us to show that this is in any sense class legislation. [HON. MEMBERS: "Penal!"] Penal or class legislation. [HON. MEMBERS: "No!"] I regard the two as the same, and I should have thought that most hon. and right hon. Members in the House would regard it as penal. [HON. MEMBERS:"NO!"] I am surprised to hear that there are any hon. or right hon. Members who do not consider class legislation as penal.

The first matter which, of course, will come to the recollection of the Committee is that this is not by any means a new question. It is one which has been debated in various places both in the courts and in this House at different times. Nor is it a question of obtaining revenue. The right hon. Gentleman, quite frankly, has not put forward any claim that this was necessary as a revenue producing tax. Therefore, what the Committee is considering is not the necessity for imposing some taxation for the purpose of augmenting the Budget revenues, but the imposing of taxation for the purpose of either penalising or equalising the position of the co-operative societies. This is in our view a definite attack upon a very old established type of social organisation which has been fostered and encouraged by every party in the State over the last 80 years, and provision has been made throughout that period that so-called mutual trading should be treated in a different way from any other form of trading. This attack in our view is clearly—I do not think anyone denies this—an attack launched by private enterprise upon the whole system of mutual and co-operative trading. Let me quote an article from the "Grocer" of 8th April last: If the principle for which private enterprise has contended can be established in the next Budget, the way for development will have been opened. The developments, of course, are the hope that the "divi." will be the next thing to be taxed by the right hon. Gentleman. This attack is launched particularly by the small private enterprise trader. Whatever may be the merits of that attack, the first question that we want to ask the Government is: Where did they get their mandate for this at the last General Election? I do not think that even they will suggest that this comes within their free hand policy, because I have never heard it suggested that this is in any way going to cure unemployment. That, at least, is one thing that has not been said in its favour. On the other hand, it is a tax that is going to affect definitely the present position of a certain class of people, that is, co-operators. Whether their position is deservedly altered or not, it is going to be altered. There is no doubt at all about that. Where, we ask the Government, did they get their authority from the electorate to alter the position of co-operators as a result of their being put into power? I see that the Prime Minister is here. His long and distinguished career in the support of co-operation is well known to every Member of the House, not only his speeches but his writings, which have been uniformly in support of this great principle of social thrift which is embodied in the co-operative societies. I understand from a current report that was published at the time that he was asked a question on 13th October, 1931, at Dawdon, as to whether it was the intention of the National Government to tax the co-operative societies, and in answer to that question he is reported to have said: Not so long as I am a member of the National Government. I gather that he agrees that that is an accurate report of what he said. If that is so, I do not know whether he has an agreement to differ, and if he is going to be free to vote against the Resolution. If he is, we shall, of course, be interested to hear that development of the policy. But let me for a moment assume that he intends to go into the Lobby in support of the Resolution. Then there is only one way in which he can possibly carry out the pledge that he gave at the last general election, and that is not to be a Member of the National Government any longer, because we give him credit for having put up a strenuous fight in the Cabinet. That may be the reason why this matter has been delayed in coming before the House. Having failed in that strenuous fight, having led the country to believe that the National Government would not tax co-operative societies, it is impossible for him to remain a Member of the National Government if this tax goes through. The whole idea of the tax is contrary to any mandate that the National Government ever had.

Now let me turn to the Raeburn Re-port. That Committee had a most unfortunate initiation. The Chancellor of the Exchequer in his last year's Budget speech stated that under the existing law co-operative societies enjoyed a privileged position. That is what one might call prejudging the issue. To announce in those words the appointment of a Committee to inquire into that very fact must necessarily have prejudged the entire issue. This Committee, we believe, is the first one that has ever been appointed to consider the taxation of a particular section of the community alone. All former inquiries with regard to Income Tax have been into the general question of the application of that tax. Here, for the first time, you have singled out a particular class of people in order to say whether they shall have their position altered or not under the existing law. The Committee held their inquiry and heard the evidence—which, unfortunately, was printed so late that very few Members can have had an opportunity of reading it before this Debate—and they produced a report which is the basis, of course, of this Resolution. There are two most striking features in that report to which I should like to draw attention. First of all, there is paragraph 24 which says: We wish also to make it plain that we have regarded as irrelevant to our inquiry any representations as to the economic, social or political value of activities of the co-operative movement. I have always understood that the whole history of legislation upon this matter up to this very day had been entirely determined and conditioned by the social and economic value of the activities of this class of society. It has been stated in the House over and over again that it was that feature which determined—and indeed it is obvious that it must have been—the continuance of the principle of mutuality. Not only that, but the whole basis of adjustment of taxation in, for instance, the Income Tax is one which depends very largely upon social values. Take such a thing as the remissions that are given with regard to families—family allowances—under the Income Tax, a matter which is entirely conditioned by the social influence of that tax. So we say that this report is quite without value as a guide to policy for this Committee in that it has left out the very vital factors which are essential to this Committee in coming to any conclusion, unless of course one is to be frank and say that the object of the committee was merely to devise a means of satisfying the desires of the private trader. If that is all that they are inquiring into, they could well leave out of account the social and economic values of the co-operative societies.

Then we come to paragraph 20, which is the vital paragraph in the report, for by it the committee lay down their argument under which they destroy completely the whole principle of mutuality as it has been understood in this country, and one must examine a little carefully the argument by which they proceed. They say: Co-operative societies may have originated in associations approximating to a simple combination of the mutual type, but the position of societies to-day is, in our view, essentially different. The essential difference that they point out is that A society which is registered under the Industrial and Provident Societies Act is an incorporated body and it is clear from judgments of the courts Since the Royal Commission reported in 1920 that an incorporated body is a legal entity apart from its members. That, I should have thought, was clear before. But the importance of the paragraph is to remember this. Ever Since 1862 this House and the country have encouraged the incorporation of these bodies. They have passed successive Industrial and Provident Societies Acts, the very purpose of which was to bring about incorporation of these bodies, and now, after 60 years of incorporation, are we to turn round and say, "Because you are incorporated we are going to tax you; we should not do it if you were not incorporated"? We really are coming down to a rather mean excuse if we are to salve our consciences in that way. Let me proceed with the paragraph: The existence of this entity seems to us to be a matter which cannot be ignored in considering whether there is true mutuality of trading or not. That very point was considered carefully 44 years ago by some of the most eminent jurists in the country. It came forward in a case that was discussed in the House of Lords—the Mutual Life Assurance of New York versus Styles—as to whether it would make any difference that the individuals were incorporated so far as this principle of mutual trading was concerned, and so little sensible was it to put forward such an argument that the Attorney-General of the day, Sir Richard Webster, abandoned it in the House of Lords as being something that it was impossible to argue. May I cite one passage from the speech of Lord Herschell, who sets out admirably the reason why it is so? He says: The Attorney-General further conceded that the fact that the persons thus associating themselves together for the purpose of mutual insurance had been incorporated was immaterial, and that the case might be treated as though it were an association of individuals unincorporated. I think that the Attorney-General was correct in thinking it immaterial that the persons thus associated had been incorporated and that a legal entity had been created distinct from the members of which it was composed. And yet 44 years later that is made the one and only argument in order to support this attack on co-operative societies. That argument of Lord Herschell was fully concurred in in other words by Lord MacNaghten, Lord Bramwell, Lord Watson, and in 1922 by Lord Cave, when Lord Chancellor, in a succeeding case. So that it is obvious to anybody, that, without that authority, there can be no real distinction, so far as mutuality is concerned, as to whether the people are trading mutually, or, as it were, in a sort of partnership, or whether they happen to have been incorporated for the particular purpose of mutual trading, because under the Industrial and Provident Societies Act it is not a company incorporation; it is an incorporation for the purpose of mutual trading. That is the specific purpose for which they are incorporated. So that the second point we have to make against the Resolution is that the report of the Committee is based entirely upon a legalistic fallacy.

Sir BASIL PETO

In view of the argument which the hon. and learned Gentleman has just put before the Committee, how comes it that these incorporated entities are able to enter into contracts for carrying out all kinds of work which have nothing whatever to do with mutual trading?

Sir S. CRIPPS

A company of individuals unincorporated can do exactly the same thing if they wish to do so. In- corporation makes no difference as far as that is concerned, nor does the principle of mutual trading extend the business to non-members. It has been held in a recent case, the Municipal Mutual Insurance Society, where the business was partly non-mutual and partly mutual, you can divide the business so that taxation is payable on the non-mutual trading while the non-mutual trading is exempt from Income Tax. Even whether incorporated or not, the effect of incorporation makes no difference whatever to that aspect of the case. As I was saying, that policy was one which was disposed of many years ago, and is not, in our opinion, a sufficient basis for now turning round and differentiating against the cooperative societies by taxation.

I turn for a moment to a consideration of the present legal position of the co-operative societies. It is a complete fallacy to suggest, as some people do, that the co-operative societies are not now taxed. They are taxed. Income Tax is paid by the societies under Schedules A and B. The profits distributed to individual members, as the right hon. Gentleman has said, are taxable in the hands of those individual members, and the dividend, on the principle of the Rae-burn Report, is not excluded because of mutual trading. It is excluded, because for any trader it would be excluded, as a trade expense, and that is made perfectly clear in the Raeburn Report. So that at the present time the co-operative societies are fully taxed under the whole of the existing law and under any principle that can be applied short of the abolition of mutual trading. That is why the right hon. Gentleman has to come here to-day and say: "I must abolish mutual trading." In the course of his argument, when he was recounting the negotiations with the co-operative societies, he pointed out that if the protection, as it is called, of Section 39 (4) were merely removed without anything further, the co-operative societies might actually be better off, because they would be able to write off Schedule A against non-mutual trading in Schedule D, and in that way they would, in fact, get a remission of taxation and would not have to pay a greater tax. The result is that the right hon. Gentleman has been driven into doing away with this principle of mutuality in order in any way to be able to tax the co-operative societies more than they are taxed at present.

It is the doing away with the whole principle of mutual taxation to which we want for a moment to ask the Committee to bend their attention. Is it in the interests of the State to reverse the policy which has been followed for so long of allowing mutual trading to pass without taxation? That is to say, to take the view, which is not enshrined in any Act of Parliament but which has been in the common law of this country, that profit cannot arise from mutual trading. Is there any argument, or is it in the interests of the State that at this moment that policy should be reversed? One realises that in the interests of particular parties that may be considered to be a desirable thing. In the interests of the small trader, apparently, it is considered to be a desirable thing. But we say that this mutual trading, as has been said over and over again in this House, is one of the finest means of encouraging thrift in society, and, as such, is something which must be, and should be, encouraged.

Mr. HOWARD

Not at the expense of the Exchequer.

Sir S. CRIPPS

The hon. Member completely misses the point, because if is not put forward that the tax is necessary in order to bring in the necessary Budget receipts. It is idle for the hon. Member to suggest that that is the argument. It only shows, I think, to what extent representatives of the private traders will go in order to try and justify what they might quite straightforwardly say was an attempt in their interests to cripple the co-operative societies. The two social and economic objects which it has always been desirable to encourage as regards co-operative societies, are, first of all, to provide a means for the encouragement of thrift among the less prosperous members of the community—people who do not have bank accounts but who could be encouraged in this way to make small savings—and, secondly, to enable the same class of persons to get the maximum of consuming power out of the small wages or salaries which they earn.

I will give the Committee two figures in order to demonstrate with what extraordinary success this has been carried out by the Co-operative Society. If we take the 11 years, 1921–1932, which were the years during which this country has called upon the thrift of the poorer classes to a greater extent than ever before owing to unemployment, we find that in 12 large selected industrial areas a sum of £42,728,000 was paid out by the co-operative societies, helping the unemployed and the small wage earners and preventing them becoming a charge upon the State, and, if one takes all over the country instead of those selected areas, a sum of over £400,000,000 has been paid out by co-operative societies in that period. I do not think that anybody could want any better evidence of their power and utility as thrift encouraging societies. I am sure that the right hon. Gentleman the Minister of Health has been very grateful to them for what they have saved him in Poor Law assistance in various districts owing to this distribution of savings and dividends. The actual increase of consuming power it has given is on the average about JO per cent. That is to say, the dividends payable by the co-operative societies enable them to buy on the average about 10 per cent. more than from the small trader. I gather that that is what the small trader complains of. If one imagines that that is spread over the consuming power of some 6,000,000 persons or families, one can appreciate the vast extra purchasing power which is given to these people.

It has been acknowledged over and over again in the course of the Income Tax law that thrift is something to be encouraged by taxation. One has only to take the point of life insurance premiums. It has been the policy for many years now to give allowances for life insurance premiums, and in 1929–30 that allowance cost the Exchequer £4,339,000 in loss of Income Tax. But that was a figure which everybody agreed the Inland Revenue could well forgo in view of the advantages to the social structure of the State which were gained by that encouragement of thrift. We say that when it comes to taking £1,200,000 in order to penalise thrift there can be no argument at all in favour of such a niggardly policy.

It is perhaps unnecessary to go back into the Debates of this House in order to refer Members of the Committee to the statements which have been made with regard to the taxation of co- operative societies. But there was one Debate, to which I should like to refer the Committee, very shortly. In July, 1921, the question was debated as to whether the co-operative societies should be excluded from the incidence of Corporation Profits Tax, and on that the Government were defeated, and the cooperative societies won, very largely owing to the extremely able arguments by the right hon. Gentleman the Secretary of State for Dominion Affairs, which appear in most convincing and flowing language in columns 2119 and 2120 of Vol. 144 of the OFFICIAL REPORT. And from what one sees in the papers, he has apparently repeated the arguments in the Cabinet, though with not so much success as he did in the House. We should welcome the repetition of that speech on this occasion to wind up the Debate, and, if he does it, I can assure him that it will have the same powerful effect as it had on the last occasion, that is, the defeat of the Government. On that occasion the right hon. Gentleman the Member for Hillhead (Sir R. Home), who was the Chancellor of the Exchequer, made some observations as regards the question of Income Tax and the co-operative societies. Those appear in column 2116, and I will give a few sentences from them. He said: In those circumstances, may I turn to the justification of the Corporation Profits Tax?…I cannot agree with what the right hon. Gentleman the Member for Paisley (Mr. Asquith) said, that in the history of our taxation the co-operative movement has always been recognised as being outside taxation under Schedule D. It is already taxed upon the annual value of the property which it either holds or occupies, but it has never been recognised as liable to taxation under Schedules C and D. I put it forward that the explanation is to be found in the fact that Income Tax is not properly leviable upon any but individual incomes. If you were to levy Income Tax upon the profits of the co-operative societies as such, you would really be taking an Income Tax from an aggregation of individuals. It would be a false use of your Income Tax Acts to apply the Income Tax in that sense to a co-operative society.—[OFFICIAL REPORT, 19th July, 1921; col. 2116, Vol. 144.] That is precisely what the right hon. Gentleman is proposing to do at the present moment. As regards what we think is the policy behind the action which is being taken, it is obvious from what the right hon. Gentleman said about taxation only falling upon two special societies and not falling upon the generality of societies and therefore being acceptable, that the object is to get some tax which is going to cripple to some extent the present competitive power of the co-operative societies, a competitive power which has been created under the care and tutelage of Parliament for a very long period of years. Having decided that these societies should be incorporated and that the principle of mutuality should apply to all their dealings, now there is to be a reversal of that policy and a reversal entirely at the request of the private traders. The right hon. Gentleman himself says that he has no political view about this matter. It is not his political view which is being put forward but the political view of the private trader. It is what the hon. and learned Member for Central Nottingham (Mr. O'Connor) the other day told us was necessary in a Capttalist state, that you should encourage all you can the profits of the private trader. This proposal is, no doubt, a step in that direction.

The typical private trader is taken as a trader with about £500 a year profit from his trade. This proposed tax will save him as a taxpayer about 1s. 6d. a year, if he is lucky. That will not put him in a very advantageous position as regards competition. I wonder if Members of the Committee realise what is the position at the present moment of the gentleman who has £500 a year profits. If we take both direct and indirect taxation the man with £500 a year profit is by far the lowest taxed individual in the whole State. The figures worked out by the Royal Statistical Society in 1931, applied to the Budget taxation of this year show that whereas up to £200 a year the taxation on the profits amounts to about 10 or 11 per cent., in the case of an income of £500 a year the taxation is only 7.8 per cent., and it rises as the income goes up to £1,000. Therefore, the small trader at the present time so far as Income Tax is concerned is in the most favourable position in the State, and yet it is at his behest that the right hon. Gentleman is going to strive to make it less possible for the co-operative societies to compete with him.

The question which the Committee have to ask themselves is this: Are we going to try to force people to trade with the small private traders who desire to trade with the co-operative societies? Unless that is the object, this taxation is of no purpose whatsoever. It is only if it is desired by the incidence of this taxation to make it more likely that people will go to private enterprise traders that it can be of any assistance to those who are behind this movement. We look upon the proposal purely as a partisan attack by private enterprise on the co-operative movement, and I do not think it is possible for anybody to justify it on any other basis. The private enterprise trader must remember that once you do away with the principle of mutuality the co-operators will be able to go into non-mutuality trade just as fully as any other trader, and it may be that in the end that will not be an advantage to the private enerprise trader. Be that as it may, we do say that this proposal is contrary to any mandate which the Government have got, that the basis of the Raeburn report is legalistically unsound, that it is unsound from the point of view of policy, because policy was not considered, that this is not the time to reverse the thrift policy of this House, which has been in force for over 80 years, and that there is no excuse for the right hon. Gentleman bringing forward the Resolution.

4.48 p.m.

The PRIME MINISTER (Mr. Ramsay MacDonald)

I am really not getting up in order to carry on the merits of this Debate, but to make a statement which I expected the hon. and learned Member's speech would give me a better excuse for than it has done. He was good enough, and I appreciated it, to send me a note this morning that he was going to make certain personal references to me and that it would be advisable for me to be present. I was very glad to receive that note. I thought that the hon. and learned Member would make some statement regarding what is known as the pledges given by me at Seaham, which are now widely broadcast from one end of the country to the other. If I do intervene at all after the very mild, the very proper and the very accurate statement made by my hon. and learned Friend, it is only that hon. Members of this House will have to meet it in their constituencies. The statement was made by me in October, 1931. My position regarding "divi's" is perfectly well known. I withdraw nothing, not a word, not an argument and not a conclusion, and had any attempt been made by this Government or any other Government with which I might happen to be associated, to tax "divi's," I should not have remained a Member of that Government. All that was perfectly clear in the circumstances in which the statement by the was made in the middle of the election.

In one of those very heavy and hectic meetings which I had to face, I was asked by a lady in the audience a question, which I think my hon. and learned Friend quite accurately put and to that I gave an answer which he quite accurately quoted. Hon. Members must remember the time and the place. There had been a good deal of bill distribution, especially of a leaflet from the Women's Cooperative League, in which reference was made to taxation. It was signed by Mrs. Barton and by Miss or Mrs. Priestley, Vice-President. The only reference to taxation in the leaflet—a leaflet which really constituted the interest of the cooperative women, it was a women's meeting I was addressing—was as follows. After some words in the heading: The return of a so-called National Government means a Tory Government. The leaflet proceeded: If a Tory Government is returned, cooperative dividends will be attacked. If women wish to have further co-operative dividends"— Will hon. Members note the significance of what I am now going to read: if they do not want their movement unduly taxed"— It was not a question of being taxed but of being unduly taxed: they must return a Government that will help the co-operative movement rather than injure it. A question was put to me, and I said that I was not in favour of taxing the co-operative societies. My hon. and learned Friend saw and confessed in his speech to-day that, as a matter of fact, the co-operative societies were taxed at the time. Two years after that statement was made this agitation has been renewed, and they find that the statement made which quite obviously referred to a new section of taxation and not merely to the continuation of the old taxation was not a very good foundation for their case. They felt it so definitely that they proceeded to change the words that I used, and on the 13th March, 1933, a leading co-operator, whose speech appeared in the "Daily Herald," said: In Seaham Harbour in October, 1931, the Prime Minister said that co-operative societies should not be further taxed. Again, they found that that was a little too insecure. [HON. MEMBERS: "Why?"] They found that that was a little insecure, and they wanted to make it perfectly certain that this statement was not merely made in reply to a question at the latter part of a meeting, but they thought that they would like to get something better, something, for instance, that suggested not merely an answer to a supplementary question but an original answer. [Laughter.] Yes, I know that they are very unhappy about it. They wanted something that would make it appear as an original answer to a question that had been very carefully considered. Therefore, one of the latest editions of the version of this pledge, for which we are going to be made responsible, is in a leaflet issued by the Co-operative Union Limited, for the purpose of asking cooperative members to: express their resentment at this attempt to over-tax working-class savings by signing the great protest petition at your co-operative stores. What is the version of the pledge in this leaflet? It is as follows: The Prime Minister declared in his election address that no Government of which he was the head would tax co-operative societies further. That is the rake's progress. I hope that hon. Members in the course of the discussion of this controversy, and honest cooperative members who receive these leaflets and are asked to do what they are asked to do in these leaflets, will remember how this has been added to and added to in order to get a reasonable case, and that they will understand what is the value of this agitation.

5.0 p.m.

Mr. O'CONNOR

The hon. and learned Member for Bristol, East (Sir S. Cripps) in the course of his observations endeavoured to make a somewhat legalistic defence of the opposition of the Socialist party to the present proposal, and one of the points he made was that the Government had no mandate for carrying out the taxation of the co-operative societies. At any rate, that cannot be said about my position, or about the position of a great many individual Members on the Government side. Not only was it a pointed question referred to many of us, but many of us were in the position of being opposed tooth and nail by cooperative candidates and that being so the question necessarily became an issue during the General Election. Let me tell my hon. and learned Friend that as far as my constituency was concerned this issue, which was a permanent issue throughout the election, was decided in favour of the taxation of co-operative societies by a Majority of 18,000. When you get, as in the case of the Prime Minister, the documents to which he has referred, the personal attack made upon him during the course of the election—an attack financed by the co-operative societies—when you find in many other constituencies the whole attack against the system of stability for which the National Government was standing, directed and financed by co-operative societies, then I say that the Government had a mandate for dealing with this question.

But the hon. and learned Member for Bristol, East went a great deal further than his brief in his observations. He said that the proposals of the Government were not made with the object of raising money. I wonder where he derived that impression? Certainly not from the report of the committee, because they say that it was represented to them by the revenue authorities that some suitable method should be found for obtaining from the co-operative societies their appropriate contribution towards the revenue of the State. They inquired into it. When the hon and learned Gentleman speaks of the great growth of these mutual societies during the last 60 years, he must not forget that it is essential not only to see that the proper revenue is obtained, but also to safeguard the revenue of the future, and that a type of taxation which might be appropriate at one time is wholly inappropriate when these great organisations carry out a considerable proportion of the trading of the country. The hon. and learned Member also complained that the Chancellor of the Exchequer, when he spoke of setting up the Raeburn Committee, stated that the co-operative societies were in a privileged position. He described that as unfair. But his own speech began with the same assertion. He began by saying that for 60 years it had been agreed that mutual trading should be treated in a different way from other trading. Obviously, that means that they have been treated in a privileged way. The whole burden of his argument was that a privileged position had been established and that we should not interfere with it.

The same criticism applies to his argument that we are singling out a class, or a section, of the community for taxation. Of course, a section of the community is being singled out, because that section, under the present law, occupies a privileged position, and, if any part of the community occupies a privileged position, which the hon. and learned Member admits is the case, it is obvious that in dealing with this privilege you must be attacking a section of the community. The hon. and learned Member also made many of the typical kinds of false pleading which occur in the arguments of the co-operative societies themselves, such as that they are already taxed; they do pay already under Schedules A and B. But what trader does not? He omitted to point out that every other trading organisation pays under Schedules A and B. For my part, I have never been able to understand the contention of those who submit that in present circumstances these huge trading organisations should be exempt from taxation.

I want to examine their legal position for a moment from another angle. First, the suggestion that they make a profit is assailed. It is considered more appropriate if you say that they do not make a profit but a surplus. These are all bodies which are registered under the Industrial Provident Societies Act, 1893, and they secure their exemption from taxation under Schedule D. In the Schedule to that Act it speaks of profits, and describes the surplus they obtain as being a profit. If you examine the specimen rules of the societies, which are prepared by the Registrar of Friendly Societies, you will find that the question of the distribution of profits is one of the matters which is dealt with by the rules of each society. If you take the rules of an important co-operative society in my own city, the Nottingham Co-operative Society, you will find that one of the matters which the shareholders have to consider when they meet is the distribution of the profits. Let us therefore get away from any question of describing the surplus as not being a profit. A profit has been described over and over again. It is obvious that a surplus of revenue over cost is properly described as a profit.

Mr. COVE

Are what the hon. and learned Member calls profits distributed on the basis of the amount of money invested in the share Capttal or on the basis of the purchases made by each individual?

Mr. O'CONNOR

That is exactly the point to which I am coming—it is essential to the whole argument for submitting these profits to the form of taxation now proposed. Let me consider the matter from two or three points of view. You have a mutual organisation. One of the things which distinguishes it from an ordinary corporation is that its share Capttal is not limited. It is that characteristic, among others, which frees it from taxation under Schedule D, but, of course, it has to abide by the rules prescribed by the Registrar-General of Friendly Societies. A number of people band themselves together in an incorporate body, which is entitled under the Act of 1893 to registration as a friendly society. Consider some of the transactions into which this incorporate body can enter. It can sell its goods to non-members. In that case it sells them at a price which yields a profit, and if they sell only to non-members and at the end of the quarter or half-year, when it makes up its balance-sheet, it finds that it has a balance in hand, the whole of that balance has been made by trading with non-members. That is one case. What happens to the profits which are made; which are not made as a result of mutual trading at all? The profit goes to the shareholders of the co-operative society, and at their quarterly meeting they are entitled as shareholders to decide how that profit is to be applied. The shareholders can decide, not the people who have created the profit, how it is to be applied. They might decide that a portion or all of it shall be returned to the non-members who have created the profit, or they might decide, and certainly would have to decide under their rules, that a portion must be put to reserve. Upon what principle can it be said that trans- actions of this kind, involving a profit made with people not members of the society, is not a profit which is susceptible to Income Tax under Schedule D? There is no principle of law or common sense under which such profits ought to be excluded.

Take a second case, the ordinary case, in which the society trades with members and non-members. It makes a profit, that is to say, at the end of the quarter it balances up and finds that it has received in money more than it has spent to buy the goods which it has sold. That is properly a profit. How is that profit divided? If it were the case that this profit, having been ascertained, goes back to the people that made it, there might be a good deal in the contention of mutuality which has been put forward. But that is not the case. What happens is entirely different. A profit which arises from transactions with members and non-members is ascertained at the end of the quarter, and at that time it is the property, not of the people who have made the profit, but of the members in their capacity as shareholders. They meet and decide how it is to be applied; how much is to be put to dividend and how much to reserve. In making that decision they do not make it, and they are not entitled to make it, according to the amount of trade that they have done. Each shareholder has usually only one vote, which shows that what they are doing is to distribute the profit in their capacity, not as mutual traders, but as shareholders—a different entity altogether.

You can test the validity of this argument by taking an extreme, perhaps an absurd, case. Suppose there was a cooperative society of 100 members, 99 of whom did no trade at all with the society during the quarter but one of them did £10,000 worth of trade. The distribution of the profit appropriate to that £10,000 worth of trade would not be at the disposal of the man who had made it but at the disposal of the 100 members, 99 of whom had done no trade at all with the society. When they meet together at the end of the quarter they might perfectly well decide not to distribute any of it by way of dividend because it would return to the gentleman who had done all the trade; they might decide to allocate the whole lot to reserve. How can it be said that such trading, in which the control of the proceeds and profits of the trade is in the hands of a different body altogether, who decide on the distribution in their character as shareholders; how can it be said that such transactions differ in any respect from the transactions which occur between those who happen to be shareholders of Harrods and Selfridges and who buy there from time to time.

The exemption which has been given is indefensible. It cannot be supported in logic or in fairness, as against the private trader who is menaced by people carrying on this business, with the additional burdens which are now placed upon him. It cannot be defended as against those who have to meet the expansion of co-operative societies. Through these large reserves, or very largely through them, the societies are able to buy property and to develop and to extend, and the private trader is unable to put one farthing aside for the development of his business without finding it subject to the whole burden of national taxation. I submit that the whole procedure is an anomaly, and that the Government are perfectly right at long last in putting it on a more reasonable footing.

One or two other remarks in order to riddle the case that has been made for the continued exemption of these reserves. My hon. and learned Friend referred to the case of a man who makes a deposit by way of loan with a cooperative society. Suppose that I, by the mercy of Providence, had £10,000 to invest to-morrow. I could go and buy up shares in co-operative societies to the maximum permitted limit. They are bound to take my money because they must not limit the number of shares. I could invest up to £200 with each of a score or more of societies. They do not want the money, we will say, because they have adequate trading Capttal available. They therefore buy with that money Government securities, and they receive the interest upon those securities free of tax. That is the present position. They therefore have a free-of-tax fund with which to pay me a dividend on my money. If I lent that money to anyone else, to any corporation of any kind, and it does not require the money but invests it in Government stocks or bills, that corporation receives the dividend less tax, and to that extent has a less amount out of which to pay me a dividend. Therefore, in investing in cooperative societies I do better than if I lend the money to any holding company, even if it holds gilt-edged securities.

Sir S. CRIPPS

It has to pay Income Tax.

Mr. O'CONNOR

So I do in either case.

Sir S. CRIPPS

In the ordinary case the company which got my hon. and learned Friend's money would be entitled to deduct the tax and keep it, having paid itself. The co-operative society cannot deduct the tax and keep it. Therefore, there is exactly the same effect, but there is no intermediate stage in the one case.

Mr. O'CONNOR

My hon. and learned Friend completely misses the point, after I have made it so simple for him. If I lend £100 to a co-operative society and the general rate of interest on Government securities is 4 per cent., and the cooperative society does not require the money for trading, it buys a Government bond upon which it receives £4 in interest. It then has £4 for which it has to account to its shareholders. It gives a dividend to me, and upon that I pay Income Tax at 5s. in the £. If I lend that £100 to a trust company it has not a corresponding exemption. The company does not need the money for the moment, and so invests it in a similar bond. But it does not receive £4; it receives only £3, and when it pays me my dividend, I still pay one quarter in Income Tax. I am entirely right in my submission. If anyone thinks I am wrong, he can contradict me afterwards.

Sir S. CRIPPS

Surely the two positions are exactly the same. The second company gets £4 less Income Tax and passes it on to the hon. and learned Gentleman. Neither the co-operative society nor the company has made anything out of the transaction.

Mr. O'CONNOR

Again, I must complain that my hon. and learned Friend has completely missed the point. The co-operative society by the multiplication of similar sums of £100 upon which £4 each is returned, has a pool from which it can pay dividends to those people who lend it money: but that pool is 25 per cent. less in the case of any holding company or private company. There is no gainsaying that statement. Take another similar case. Is it really suggested for a moment that co-operative societies should be entitled to maintain political activities with funds that have borne no tax? Suppose that in my most prosperous days I had the fortune to be financed by a brewer in an election. He can finance me only out of money which has already borne the tax. What chance would he get from my right hon. Friend the Chancellor of the Exchequer if he went to him and said: "I have made a profit of £10,000 this year. I am going to give £5,000 to the Central Conservative Association, and I propose that you should let me off the tax on that amount."[HON. MEMBERS: "They would send him to another place."] They might send him to another place, and after all that would be a quid pro quo. That has been known to be done by a party of another kind. At any rate, that does not cost the taxpayer anything. But the co-operative societies make their trading profits, and the shareholders meet together at the end of the quarter, and they, not the people who have contributed the money, not the purchasers in their character as purchasers, decide how they are going to carve it up. They decide to give so much to Labour propaganda, though what earthly use that propaganda has ever been to them I do not know.

I think it is true to say that one of the things which has caused attention to be focused upon this anomalous position is the fact that throughout the co-operative societies have supported the Socialist party. If they had not contributed their tax-free funds towards the support of Socialism it might be that the searchlight of publicity would not have been focused on this anomaly. Co-operators cannot complain about what has happened. It is an unarguable proposition to say that the profits made in the way I have described by ordinary trade transactions should be capable of being voted towards the funds of one particular party at the expense of the taxpayer as to 25 per cent., and then be utilised in supporting a candidate who is utterly unacceptable to most of the people who trade with the co-operative societies. That position is wholly indefensible.

I have here the trade accounts for the last half-year of a co-operative society in my own area, and I see "Political Purposes Fund, £205. Parliamentary Expenses Fund, £419." Then comes the omnibus description, money spent upon "Education." Such education too often means education in political propaganda on behalf of the Socialist party. One educational meeting recently in my own Division was devoted to bird life, but the main subject dealt with during the evening appears to have been an attack on the Capttalist system. At all events it was the only part of the meeting that was reported. All this was done under the aegis of the local co-operative society's political education fund.

I agree entirely with the argument as to the exemption of the dividend. I do not agree that it is exempted because on any principle of taxation it would be exempted in the case of an ordinary trading concern. But the point is that in excluding the dividend you exclude the real element of mutuality that exists in these organisations. That principle is just as sacrosanct now as it was before the Chancellor of the Exchequer brought forward these proposals. There is no justification in law or in equity or common sense for leaving the position of co-operative societies as it is now. I congratulate the Chancellor of the Exchequer on having brought forward these proposals, and I hope that he will not allow them to be subjected to any considerable modification.

5.24 p.m.

Mr. MACM1LLAN

The speakers who first addressed the Committee to-day can at least congratulate themselves on one substantial effect of their speeches. They have apparently caused the Liberal party to leave the House en bloc, no doubt to hold a meeting in order to decide what line they should take on what might be a dangerous topic. We shall not know until later in the day whether it will be a decision to remain strictly outside the House or whether they will march in and give a decision on this subject. The hon. and learned Gentleman the Member for East Bristol (Sir S. Cripps), who opposed the Motion, made a very large number of statements, beginning with attributing to the Chancellor of the Exchequer a remark which the right hon. Gentleman did not make. It was pretty clear from his speech that this subject can very easily be approached with prejudice by either side. The hon. and learned Gentleman is very apt to attribute prejudice to other people. Those who so easily make those attributions should themselves try to approach this subject in an unprejudiced manner. Certainly the hon. and learned Gentleman's speech to-day could not be said to have done that.

The history of this controversy is very well known to all Members of the House, to all who have ever stood at a Parliamentary election or been engaged in political activities during the last 10 years. I cannot follow the flights of rhetoric of the hon. and learned Gentleman or work myself up into a state of moral indignation on the comparatively limited issue before us. After all the question we have to decide is whether certain proceeds of certain institutions should in future be liable to Income Tax. Really we must keep some sense of proportion in discussing this matter. I have a very high opinion of the work done by the co-operative movement, especially in the North of England. The character of the work varies a good deal with different societies. Some of them have kept their organisation remote from political and partisan activities. Others have been much more easily led into what I think is this dangerous aspect of their undertaking. But I certainly do not speak as one who is in the least prejudiced against the co-operative movement.

I would like to confirm what the Prime Minister said just now. We have been for many years subject to pressure from our own constituents, not so much with respect to the question now before the Committee as on the much wider question of charging to Income Tax the whole of the profits of the co-operative societies, that is to say the profits distributed in dividends. It is that which has caused the real pressure on the small trader. It is probably within the recollection of other hon. Members that for perhaps eight or nine years we have had deputations, not of rich Capttalists but of small traders, on this point. I have had many deputations of small traders giving reasons to show that these co-operative dividends should be liable to taxation. We have all had the same argument put up on the other side to show that these dividends should not be liable to taxation, because they take the form of a discount on trading, rather than of a profit.

I expect that other hon. Members have had the same experience as I have had in regard to these matters. When the argument which I have mentioned has been put up against the case in favour of taxing these dividends, the deputations have gone away impressed to some extent with the argument but not very well satisfied with the result. That has been the great battle in regard to this question, and it was to that battle that the Prime Minister referred. Clearly that was the issue to which we have had our attention directed for many years past, and I would like to point out to those who are interested in the co-operative movement that they have won an important part of their case, namely, that the dividend should be excluded from taxation. In regard to practically four-fifths of the case so well argued on their behalf in the controversy between the private traders and the cooperative societies, the co-operative societies have won. That is one fact which ought to be borne in mind. That point is now settled for ever so far as this controversy is concerned.

There remains the question of the surplus. As the hon. and learned Member for Central Nottingham (Mr. O'Connor) pointed out, the co-operator is in a dual position. He is both a client of the society and one of its proprietors. That is a very important distinction and one to be remembered. As a client, he receives a dividend in proportion to the amount of trade which he does with the society. He receives a discount upon the trade which he has done. That, of course, is not taxed. As a proprietor he may receive money as dividend on shares or as interest on deposit. There is no argument, and there never has been any argument that the individual is not liable to tax upon that money. He is liable— [HON. MEMBERS: "And is taxed"]—and is taxed if his income is of a character that would attract tax. I may point out in passing, as the Chancellor of the Exchequer has already done, that the surplus of an ordinary trading company is liable to tax although there may be many of the shareholders of the company who are not themselves liable to tax. Every private shareholder is in fact pay- ing his share of tax upon the surplus which is put to reserve. That is a point worth noting.

The only question at issue here, as I say, is with regard to the surplus. It is admitted that if the surplus is built up by trading with non-members, it ought to attract tax. I think the Socialist party and the co-operators themselves admit that proposition. It is admitted that if it is built up by profits which come under Schedules A or B it ought to attract tax and always has attracted tax. The only question therefore is whether that part of the surplus which is not redistributed to the members of the society in their character as customers of clients, but which now belongs to the co-operators in their characters as investors should remain liable to tax or should be free from tax. That surely brings the whole question down to a much narrower front and shows it to be a much more petty issue than it is represented to be by some of the pamphlets which we have read, and by some of the excited people who are agitating themselves about this matter. A very strong case—as I think, an overwhelming case-— can be made out, in logic and in equity, to show that this surplus should be taxed. We have heard a great deal about the principle of mutuality. The principle of mutuality is not a religious dogma; it is a fiscal convenience. It is not an eternal verity, but a temporary privilege which was given by Parliament in certain circumstances to certain kinds of corporations and clearly there is a point at which that principle ceases to apply. As I understand, it starts in a very small way and may be applicable to very small institutions. For instance, if I heard of some likely way in which I could buy a case of champagne or a gallon of whisky advantageously I might go to my hon. Friend the Member for Bodmin (Mr. Isaac Foot) or the hon. Member for West Bermondsey (Dr. Salter) and say to them: "Look here, it is very desirable to get this thing, and I can buy it. I do not know exactly what it is going to cost, but, if you will take shares, I will take the remaining share, and we will put up, say, £4 and I will remit to you any balance that there is after payment. "There might be a non-trading member in the combine in the person of the Noble Lady the Member for the Sutton Division of Plymouth (Viscountess Astor).

Suppose it is found that the cost is rather less than had been anticipated, and there is something to be returned. Suppose' one member of the combine had taken half of the total and the others had taken a quarter each and that there is a surplus available. The principle of mutuality would arise if the surplus were returned in those proportions. But suppose we said: "It 4s hardly worth paying it back; we will invest it in War Loan." Is it to be argued that the income from that investment is for ever afterwards to be free from tax? Let me point out that it does not belong to us in the proportion of 2, 1 and I but is the property of the whole undertaking. I think that is the essential difference between the character of a member of a society as a client or customer, and his character as a member of a corporation drawing profit and owning surplus—as a proprietor of the institution in relation to his share. That distinction wholly justifies the decision of the Government. Moreover, it is clear to my mind that there is a certain anomaly in regard to the use made of these surpluses. Cooperative societies like other undertakings do not accumulate surpluses for no particular purpose. They require those surpluses for the development of their business, and the situation at present is that if a private trader, however small, wants to make an addition of say 15s. to his Capttal equipment he has to save £l for that purpose. On the other hand, if a co-operative undertaking wants to make a Capttal addition to equipment of 15B. it has only to save that exact sum. It seems unanswerable therefore, in relation to the real function of surpluses, which is the development of the business, that the private trader should not be put in a less favourable position than the cooperative undertaking.

I think when we examine this controversy in its true proportions we ought not to be frightened by it. I know that a great many threats are made. I do not think I can be regarded as one who is unduly servile to the leaders of my party or as one who agrees with every aspect of the policy of the Treasury. But I shall certainly not be deterred by any threats of constituents or anybody else from making what I think is a perfectly sound decision on this matter. I have met important deputations from the North of England and discussed this question with them in a friendly spirit, and I have always said that I would consider what seemed to me to be the right and logic of the matter and give my vote accordingly. I believe there are hundreds and thousands of loyal members of the co-operative movement who will have a far greater respect for us if we do what we think is right and logical than they will have for us if we run away from an agitation which has been conducted by the most miserable methods.

It has also been said that if we tax the surplus the societies will be forced to pay more dividends. That will not be an unpopular result as far as the Majority of our constituents are concerned. But the threat of political pressure would be more formidable if the movement had kept itself scrupulously free in the past from political entanglements. When the sword of Damocles is hanging above your head, you may be afraid of its fall, but when the string has been cut 10 years ago and the sword lies on the floor it is no longer effective as a threat. It is no use trying to frighten people by threatening them with the results of something which has already been put into operation. We all know of the pressure exercised by that part of the movement which gets into the hands of a caucus, and is a very different thing from the movement as represented by all the members of the co-operative societies.

That pressure has been behind the Socialist party for years, end I do not blame that party for doing their best now to live up to the support which they have received. They have had a not of benefits from the co-operative movement, and they would be ungrateful indeed if they did not turn out to help the co-operative societies in their difficulties. I would point out to them that that is a defence of privilege. I have noticed that the Socialist party invariably rallies to the defence of privilege with extraordinary gusto, though they are often mistaken as to the true interests of those bodies or organisations which they try to support. They rallied to the defence of the privileged position of trade: unions. We were told that it would be a terrible accusation against us, if we decided that the time had come to bring the trade union movement into conformity with the general law. We were told that there would be frightful results. But the trade union movement has gone on perfectly well, carrying out its proper functions and none of the dire predictions which were made have come to pass. I think it will be so in this case also, and I think, if we carry out this Resolution, we shall be carrying out what is fair, equitable, and logical. Had we carried out the proposal which I admit was advocated by certain sections of people and tried to tax dividends, we would have done an unfair and unwarrantable thing. I should have voted against such a proposal. But I would say to those hon. Members who may not be intimate with the details of this controversy that they can be satisfied that in supporting the Resolution they are not only supporting the Government, which it is their natural tendency and duty to do, but they are, in this matter, supporting a position which is absolutely right in logic and equity.

5.38 p.m.

Mr. LEONARD

The Chancellor of the Exchequer began his speech by going into the history of this matter, and I cannot do better than glance back over the years which have been occupied by the agitation dealing with the Cooperative Movement and its relationship to private trade. There have been virile agitations in connection with this matter over a period of 40 years, but none of the Prime Ministers or Chancellors of the Exchequer or Governments of the past have deemed it advisable to take the step which is now contemplated, knowing quite well that, as long as the principle of mutuality was maintained, the taxation of co-operative societies on the same basis as private companies would produce less taxation than the Government of the day were receiving under the methods then in vogue. I cannot say that the Co-operative Movement has not received plenty of warning. It has been warned over and over again of the desire of the private traders of this country, and we have from time to time paid attention to those warnings, believing them to be true. There is one warning that comes to my mind, of which I would like to remind the Prime Minister, because, while it did not fall from his lips, it actually came from his pen and must have been thought about before being written and, presumably, looked at after- wards. On 18th June, 1927, he warned the Co-operative Movement in this way: What the movement must not tolerate is that the enemies of co-operation should frighten, wire-pull, or cajole it into betraying itself. After a period of a few years the Prime Minister apparently has forgotten the warning which he gave to this great movement, and he is now taking part in the attack' against which he warned the movement. I am not one of those who allow themselves to be swayed persoNaily against individuals, but I regret ever to have had to sit here and see the agitation displayed by the Prime Minister while he occupied the bench in front of me to-day. We see the results of this agitation, and I notice that some people who are quite alive to publicity methods are not above taking advantage of it in order to advertise their own firms. I have here a postcard issued by a well-known firm of bakers in Glasgow, which is being circulated among the retail traders of this country, because this one has come as far as London. It is dated 28th February and reads: The views held by the late"— I am not prepared to give it an easy and cheap advertisement— on the question of the taxation of cooperative societies have been fully borne out by the report now published of the committee appointed to inquire into the matter, which recommends the taxation of these societies. Mr. —fought long and unremittingly on behalf of the private trader in his endeavour to prove that cooperative societies had an unfair advantage in being exempt from payment of Income Tax under Schedules C and D. This firm is now taking advantage of the great work indulged in by its chief in order to get more trade. I cannot see any evidence that justifies the Government in its attitude towards the co-operative societies. I cannot find anywhere any mandate that was given by the people of this country for the Government to act in this way. I have endeavoured to ascertain from various parts of the country, through the method of scrutiny of election addresses and speeches, if any reference has been made to the present proposal, and I find that the question was never raised as a part of the policy that might be indulged in by a National Government. I appreciate, however, the advantages of a National Government, because there are things that a party in power might not like to have attached to itself as a party, but which might Colncide with some interests of the elements making up the National party, which might find it expedient to indulge in actions under the guise of the National Government that they would not do if their own party were in power, and they would then not be subject to the old criss-cross of political warfare where the Whigs dished the Tories and the Tories dished the Whigs.

I want now to refer to the impartial committee and to state that, in my view, the committee could not be deemed impartial right from the start. It was a committee that was more in the nature of a jury, because the initial statement of the Chancellor of the Exchequer was such as to allow the co-operative movement to demand the status of defendants, and if it were the case that they were defendants in this matter, the question of impartiality was all the more necessary to be safeguarded; and the impartiality of the committee I challenge. I repeat that I cannot see any reason why the representative already referred to, a director of the Columbia Gramophone Company, should have been allowed a seat on that committee at all. I stated, the day after the Chancellor of the Exchequer made the charge, that the right hon. Gentleman had charged the co-operative movement with being in a privileged position, and the then Financial Secretary to the Treasury thought that statement so unfair that he challenged it in this House; and it was only after it was read to him from the OFFICIAL REPORT that he accepted that such a sweeping charge had been made.

However, now that it has been made, we have to pay attention to the personnel of the Committee. The company with which the individual to whom I have referred is associated is not one of those that take up a weak resentment against the Co-operative movement, but has adopted an attitude quite distinct and easily recognisable, because it refuses under any circumstances whatever to enter into any trade with any co-operative organisation. I think I have already stated in this House that I am in possession of the correspondence between that company, the Columbia Gramophone Company, and a co-operative society that actually offered to enter into an agree- ment to handle its records without the dividend being applied at all, and the reply which they received was quite pat and pert, that the company was not prepared to enter into business relations with a co-operative society. In addition to that, the same individual is a director of Peter Robinson, Limited, a departmental firm that enters into definite competition with the Co-operative movement, and on that score it should have been ruled out as well.

It was very amusing to me to be told, in reply to the protests that we made, that while it was true that there was that trade connection, the outstanding reason why this gentleman should be included was that he either was then or had been in the past the President of the Institute of Chartered Accountants. Strange to say, this same Institute of Chartered Accountants themselves, at the Royal Commission in 1919, gave evidence against the co-operative societies and in favour of placing taxation upon them, and the one reason brought forward for putting him on the Committee is a reason why he should not be there. I assert that there must be nothing but shame on the part of the Government for the attitude which they have adopted towards this matter, and many Members of the party opposite really thought that that gentleman would not have accepted the position offered to him.

I should like to call in aid many Members of the Conservative organisation on this question of impartiality, because it is not very long Since I sat here and listened to the hon. Member for East Aberdeen (Mr. Boothby) leading an attack upon the Government with regard to the Committee that had to deal with the constitutional reform of India, and I hope that all those hon. Members who supported him so strongly on that occasion will come in on this Debate and condemn the personnel of this Committee, because I find that the hon. Member for East Aberdeen, referring to the composition of the Indian Committee, stated: Nobody could say this committee was a completely impartial body…It is not even a partial committee; it is a packed committee, and is overwhelmingly in favour of the principles underlying the White Paper. If that was a just ground for protesting against a committee that had to perform very important duties, I claim that the hon. Member can do nothing other than oppose anything that comes from a Committee with a packed body of opinion on it representing the private business of this country. He went on to appreciate the attitude adopted by the right hon. Member for Epping (Mr. Churchill) in not going on to the Indian Committee, and he charged the Government with the duty of accepting responsibility themselves for the Indian problem. I think I am entitled to say that the Government should accept the responsibility and go to the officials who guided them in the past in this matter, instead of creating a packed Committee and calling it impartial in order to make suggestions for them to get out of the difficulty in which they were placed by the pressure of interests behind them. The hon. Member for East Aberdeen went on: There seems to be something hypocritical in setting up this so-called impartial committee…with no; fewer than four members of the Government…pledged completely to the policy of the White Paper."—[OFFICIAL REPORT, 10th April, 1933; cols. 2257, Vol. 276.] It is nothing like the hypocrisy of the Government in bringing into being a Committee each and every one of whose Members was in favour of private enterprise, and to expect them to look at the problem in an impartial manner. It may appear desirable, but to me it was an advisory Committee, acting to help the Chancellor of the Exchequer, but I cannot accept its impartiality.

I have made endeavours to ascertain if there have been in the past any special inquiries conducted by any Government into one section of the taxpayers of this country, and I think I am correct in saying that this is the first time any British Government have instituted an inquiry in order to find ways and means of levying a toll upon one section of the taxpayers. With regard to the procedure at the inquiry, I have also some protests to make, because of the biased statement of the Chancellor of the Exchequer in charging us with having privilege at our disposal. Because of that fact, it was very important that all the proceedings connected with this matter should be as open as possible, and I therefore insist that it is nothing less than fair to have demanded, as we did demand, that the Committee should be held in public and that before being called upon to submit any observa- tions to the Committee the Co-operative Movement should have been supplied with the charges made against them by the private traders of this country, in order that they might be allowed to prepare their defence, and that they should have been granted the right of cross-examination at an inquiry such as this, where they were in the position of defendants.

Notwithstanding the representations made to the Committee and to the Chancellor of the Exchequer, it was not possible to get publicity for the proceedings nor to cross-examine the persons making the charges. I regret the delay that took place, because it was of such importance that the people of the country should have had a longer period in which to consider the pros and cons of the matter. The Committee was appointed in May, 1932; it did not start hEarlng evidence until the 2nd November, and the minutes of evidence were made available only a day or two ago. Then the supply was so meagre that many Members could not get a copy on Friday morning. That is scant consideration to Members of the House on a matter that deals with such intricacies as have been referred to by the Chancellor of the Exchequer. I want to suggest also that there is no reason why the price of this evidence should be l1s. That is a prohibitive charge, and I base that statement on the fact that the publication of the evidence of the Royal Commission on Income Tax, which was issued in 1920, was one-fifth of the price and that was at a time when paper and printing costs were very much more than they are now.

It is not possible for me to enter into the intricacies of the legal position. That has been amply, adequately and splendidly covered by my hon. and learned Friend the Member for East Bristol (Sir S. Cripps). I have read paragraphs 19 and 20 of the report of the Committee rather carefully. They must be taken together, and it seems from them that if six people care to join together to trade with themselves, that is mutuality and they cannot make a profit out of themselves; but if that six become 60, or 600, or 6,000, or 6,000,000, then some change is introduced which is covered by something called an entity, and that makes it entirely different. I would like to refer to the evidence on this subject. A statement by Mr. Justice Rowlatt appears on page 58, and I will content myself with reading a small portion which is germane to the point I am making. He was dealing with an association of coalowners, and he said: If people were to do the thing for themselves, there would, be no profit, and the fact that they incorporated a legal entity to do it for them makes no difference, there is still no profit. This is not because the entity of the company is to be disregarded, it is because there is no profit, the money being simply collected from those people and handed back to them, not in the character of shareholders, but in the character of those who have paid it. To a person with no legal knowledge that seems to me to be a suitable and ample reply on this point. There is another point about which I have been intrigued; that is, the attitude adopted by the Committee itself. It laid it down that the terms of its remit were so framed that it was precluded from entering into the question of social and economic advantages. It seemed to forget, as has been pointed out by my hon. and learned Friend the Member for East Bristol, that the social aspect of the matter is already recognised through the medium of the allowances granted, in addition to life assurance. The same thing applies to Savings Certificates in this country, and therefore I claim that we were entitled to expect the Committee to have paid some attention to the aspect of thrift and saving engendered by the co-operative system. I would refer the Committee to pages 92 and 93 of the evidence. I will not quote it, but I will content myself with saying that the points that emerged from the evidence on those pages are: that huge sums have been saved to the State in Poor Law expenditure through the operation of co-operation; that the purchasing power of pensions, of unemployment pay, and of Poor Law relief has been increased; that the field of taxation has been enlarged by reason of the trade union rates of wages paid in the movement being higher than elsewhere; and that a larger number have been brought into the Income Tax limits through the buying of their own houses. I suggest that we are entitled to bring these social aspects of the problem before the Committee of this House. If the committee which considered this matter was not empowered to pay any attention to the social aspect of the question, I want to ask why the Chairman paid particular attention to it and occupied the time of the Committee in asking questions about it. On pages 92 and 93 appear questions put by him to those giving evidence. He said: Let me see if I follow what you have been submitting. I hope I do, but if you think I have not, you will explain it further to me. You are dealing with the phrase used by the Income Tax Payers' Society' increase public burdens'?—Yes. And you are testing whether or not at any rate one class of public burden has been increased by any operations of the Cooperative Societies?—Yes. You are pointing out to us large figures, taken as examples—not covering of course the whole range of the Co-operative Societies—representing repayments of actual cash to members of these Societies?—Yes. You are pointing out to us that these figures which you have given, the specific ones, relate to certain areas which you have taken as examples of distressed areas, and your argument is that at any rate to a certain extent, if not to the full extent, these payments to members in these areas have operated in relief to Poor Law payments which would otherwise have had to be made by the public authorities?—Certainly. I suggest that if in the opinion of the Committee the social aspect of this matter was not within their remit, they were not entitled to waste the time of the witnesses and their own time by indulging in investigations into it. Furthermore, I would like to call to my aid a very respectable publication called the "Income Taxpayer" in order to show that even the Revenue officials pay some attention to the social aspects of Income Tax and how it is levied. The "In come Taxpayer" draws attention to a point which they very much appreciate, namely, that 5 per cent. of the direct taxation has been unloaded on to the indirect taxpayer. I find in this organ that a question was put in the House by the hon. Member for Bedwellty (Mr. C. Edwards) to the Chancellor of the Exchequer asking whether he is aware that the Ebbw Vale Iron and Steel Company and its four subsidiary companies owed the Inland Revenue £650,000 in respect of Incomo Tax on its past profits, but that £75,000 together with 259,195 paper shares, has been accepted in full settlement; what is the estimated loss to the Treasury; and what was the reason for not insisting on the payment of the full sum? The Financial Secretary to the Treasury replied: I am aware of the settlement to which the hon. Member refers—a settlement to which, I would remind him, all the interests concerned, of which the Inland Revenue is only one, have agreed. The alternative—liquidation of the group of companies—would have involved the throwing out of employment of many thousands of men; and I am confident that by joining in the arrangement now made, the Inland Revenue have obtained a not unfavourable settlement, and one which in the present circumstances is best calculated to secure the public interest." The hon. Member who asked the question pressed the Financial Secretary by asking him: May I ask whether the Treasury were consulted before the firm were forgiven this huge sum of £575,000; and secondly is he aware that in this very district where this company operates, working men owing a pound or two in Income Tax were sent to gaol? The reply was: I have told the hon. Gentleman that they agreed in order to protect the employment of a large number of men."—[OFFICIAL REPORT, 5th December, 1932; cols. 1234–5, Vol. 272.] Here we see the Inland Revenue machinery recognising the social aspects of this problem, and there is no excuse for that being ruled out as it was by the Committee. I want to say one or two words with regard to statements that were placed before the Committee showing the bias that existed in this inquiry. The National Organisations Co-ordinated Committee actually went so far as to describe this movement as a menace to the State. Hon. Members can judge for themselves what form of evidence would be submitted by an organisation that goes so far as to dub the great co-operative movement of this and other countries as a menace to the State. On page 96 of the minutes of evidence we find an illustration of what was put before the Committee as evidence. Dealing with the points made by the Chamber of Trade, a witness said: It is stated that the reserve funds in 1930 amounted to £28,919,611, 'upon which amount, as it has been built up year by year from the surplus of the trading profits, it Would appear that no tax has been levied.' The reply of the witness was: From the annual statistics published by the Co-operative Union, it is obvious that this figure of £28,000,000 odd includes a figure of £11,331,596 for the Co-operative Insurance Society, that figure being almost entirely the insurance funds of the society, that is to say, the premiums set aside to meet actual liabilities under policies. To refer to this as an accumulation of trading profits is a most serious mis-statement of facts. You would never refer to the in- surance fund of an ordinary insurance society or company as being its reserve fund. There are other quotations of the same character that I could give showing the misleading attitude adopted in some of the evidence given. A statement has already been made to this Committee with regard to over-taxation, and I will leave alone what has been said on that matter. When I think of the attitude adopted, I cannot but put my mind back to the time when Lord Snowden was introducing his proposals for the taxation of land values. I remember the great howls of indignation that came from the then Opposition about charging double taxation, and I am entitled to remind the Committee that if it was right at that time to protest against double taxation, we are entitled to protest against double taxation as it will be applied in this case. It will not only be double taxation, but taxation applied to sums that are the property of people who are not liable to pay tax at all.

I want also to refer to the recent discussions that have taken place with the Treasury officials. There it was made clear that, as far as the law stands at the present time, the co-operative movement was not only paying its share, but paying more than it was liable to under the conditions that now apply. I would refer hon. Members to page 55 of the minutes of evidence and ask them to read paragraph 415. There they will see the emphatic statement of the revenue authorities supporting the assertion I am making that not only is the movement paying its share, but actually more than it is liable to pay under the law.

The other aspect on which I want to touch is the fact that the Government are now proposing to tax savings on the spending of net taxed income. There is hardly an economist in this or any other country who is not asserting on every occasion that what is wanted in the world to-day is the circulation of money, the spending and not the saving of money. Here is an organisation which has confined itself to activities which have helped people to spend in a more economical way than otherwise they could the sums they receive in wages. The tax should be levied on their wages. It is a personal tax applied to the personal income of an individual. It is not a tax applied to a company, notwith- standing the expedient which has been adopted for the purpose of meeting the requirements of revenue officials. It is a tax on income, and therefore we are further supported in the assertion that the suggested tax should not be applied. I notice that the Federation of British Industries also are perturbed about double taxation, and in the book they have issued upon Industry and Empire they quote with approval the sub-committee of the Royal Commission: No citizen of the Empire ought to be penalised because he invests his money in a part of the Empire additional to the particular State in which he resides. If that is the case, no person should be penalised because he spends his wages with a society. If it is good in this sense it is good in the other. The committee insist that the hardship of double taxation is a hindrance to Empire trade, and if we interfere with the spending power of people in this country in this or any other way it acts as a hindrance to the trade of this country. The Financial Secretary to the Treasury, referring on the 27th April last, to the modification in the method of collecting the tax, said of the beneficiaries: They are thus given what is equivalent to a remission of 1s. 3d. in the £ in their Income Tax during the coming year. The concession applies to 1,800,000 persons, among whom an additional purchasing power of £12,000,000 will be distributed at the most useful season of the year, namely, at Christmas."—[OFFICIAL REPORT, 27th April, 1933; col. 266, Vol. 277.] I say that that is correct. It is a desirable thing to have that money to spend, and it is just as desirable that we should take no action in this House to prevent the people who have wages to spend from having anything filched from them through the medium of this proposal.

The question of mutuality has already been touched upon, and I am not going to deal with it at any great length. The Chancellor of the Exchequer met representatives of the Co-operative Movement, and I have been given certain details of what passed on that occasion. He asked our representatives to see him, and he actually offered to amend the law in order to give complete immunity from Income Tax for all surplus arising from mutual trade provided we agreed to pay a given ransom. That was not agreed. It was not considered to be a proposal which the Co-operative Movement could countenance at all. There is a reference to this in the leaflet which the Cooperative Movement have issued to each Member of this House, and I would refer hon. Members to that for further information on it. There have been negotiations with the Treasury, and they also are covered on the last page of the leaflet. The proposals that are now being supported by the Government on the report of the Raeburn Committee are, in my opinion, the thin edge of the wedge. We have had quotations from "The Grocer" indicating that grocers are not satisfied. In this morning's "Times" there is a letter from a Mr. Patrick Howling. When I think of the reception that the Chancellor received, I think it is a most appropriate name. He is a representative of the National Chamber of Trade. In that letter he is asking his people to keep quiet and be patient now that there is a definite legislative proposal on this subject, with the power of the Government behind it. The letter continues: There apears to be a disposition to depreciate the value of the cancellation because it will not involve tax upon the whole of the profits, whether distributed or undistributed. Then he goes on to say: Traders do not profess to be satisfied entirely with the Government's proposals, and for some time they have contended that only by a special scheme dealing with 'mutual' trading can the position be thoroughly adjusted. Further, he says: The main purpose of this letter is to emphasise how unwise it would be to endanger the prospect of the abolition of the statutory exemption on the ground that it will not carry the reform as far as we would wish. He asks the united hosts behind him to be patient, and to take what they have got, and says that afterwards they can strengthen themselves to make advances into the realm which really is their objective. The opinion of a former chairman of the Board of Inland Revenue has already been referred to. Here is an opinion of two ex-chairmen of the Board of Inland Revenue in their Minority Report to the last Royal Commission which is so specific that, notwithstanding the time, I cannot refrain from giving it in full: In our opinion the proceeds of mutual trade are not profits in any sense to the group of individuals among whom the mutual trade is carried on. They are no more profits than the payments to a club by its members are profits. The contention of our colleagues implies that the question whether or not the receipts of a co-operative society constitute a profit depend not on the origin of those receipts but on the use to which they are put. This test 13 not employed as regards any other class of receipts, and we cannot agree that it can be properly applied with regard to this particular class of receipts. We conclude, therefore, in agreement with the Committee of 1905, that no part of the receipts of a co-operative society which arises from transactions with its own members, whether they are distributed as dividends on purchases or placed to reserves, or disposed of in any other ways, are properly assessable to Income Tax. I have already referred to warnings given to us by the present Prime Minister that this was in the offing and might eventually ensue, and I want also to say that in my opinion the Chancellor of the Exchequer himself is in rather a peculiar position on this matter. I have here a statement which he made just previous to the last Budget. He said to the co-operative movement: All I will say is that I should not favour the creation of a special class of taxpayers under the Acts who would, in effect, be charged twice, and in considering the case which has been put forward by others as well as that which you yourselves have laid before me this morning I should certainly have to take that in view before coming to any conclusion one way or the other. That is a statement taken from the shorthand notes of that meeting. I suggest that the Chancellor is going back on that statement and selecting a special class of taxpayers for special attention. Now I want to quote the right hon. Gentleman who is now the Chancellor when he was speaking before the Departmental Committee on Income Tax as chairman of Hoskins and Son, Birmingham, a business which, I am informed, he bought in 1904.

He said: The State ought not to tax as profits that which a man himself does not consider to be profit or treats as such. In my opinion the Income Tax Commissioners ought not to attempt to exact Income Tax on a larger income than in the judgment of those conducting the business may be properly considered as such. I put it forward that anyone who makes that claim on behalf of his own business is certainly not entitled to bring forward this proposal. If he acted on what he said there, that the taxable income was only to be the income which the individual agreed to be the income, he would have difficulty in getting his taxation in the future.

Mr. COVE

Am I in order in moving to report Progress in view of the fact that there is no representative of the Treasury here? Is it not discourteous to the Committee?

The DEPUTY-CHAIRMAN (Captain Bourne)

The hon. Member is not entitled to interrupt a speech for that purpose.

Mr. LEONARD

I also have here a statement which appeared in the co-operative papers of this country as to what the Prime Minister said when he was asked a question at a meeting. A lady went to the meeting to ask him a certain question. She herself has said: I went to the meeting prepared to ask this question and it did not as suggested, refer only to the taxing of dividends. Furthermore, apparently the Prime Minister was not too clear as to what the question was, because he said: Would you mind repeating that? It was repeated, and the reply was: Not so long as I am a member of the National Government. I have referred to 1927, and the Prime Minister's attitude then, and I wish to refer also to his attitude on 10th February, 1923, when he said that he would be very much mistaken if in the Finance Bill of that year there was no attempt to tax co-operative societies as such, and said they would hear the old story about a co-operative society being a corporation and declaring dividends and profits. That is the old story we have heard to-day. He went on to say that he would like to hear the Solicitor-General, whom they had sent up from Bristol, trying to combine economic knowledge with legal rectitude on that point, and went on: The co-operative dividend is a simple thing. They got goods at what might be called a trial price, they sold at what would cover them, and at the end of six months they balanced their books and returned to their members what they had taken in excess of costs and called it the dividend, though it was not a profit. I put that forward also for the further consideration of the Prime Minister. The only other point regarding the Members of the Front Bench opposite to which I wish to refer is the reasoned opinion of the Foreign Secretary when be gave evidence about the Corporation Profits Tax.

Major MILNER

For which he was paid.

Mr. LEONARD

He said: But however that may be, it is clear that the whole of the balance is nothing more than money provided by the members in excess, as it turns out, of what was actually required for the purchase of the goods and the expenses of such purchase, and there is in principle no difference whatever between that part of the balance which is handed back to the members as being not required and those parts of it that, with their consent, are used for purposes which are incidental to the operation of the society over and above the mere purchase of the goods which are to be distributed. None of this money can possibly be called a 'profit' either of the society or of its individual members. Therefore, I hope that the Foreign Secretary will give us his observations upon that point. This document declares further: It may be urged with great force that whatever the technical legal position may be a society's surplus is in no real sense a profit either to the society or to its members, and that there is no rational ground"— I would ask that particular attention should be paid to this opinion of the Foreign Secretary— for imposing the tax even on that part of the surplus which the society retains for making necessary payments or for reserve. That quite specifically is the opinion of the Foreign Secretary. The only other opinion that I would touch upon is that which has been refererd to by my hon. and learned Friend. Up to the present time, in our discussion, I have heard no case made out in equity or justice for the attitude taken up in the suggestion now before the Committee. The initial mistake was that of bringing into being a committee that was a packed committee, gathered from sources that were entirely antagonistic to the Co-operative Movement, and, whatever report they had made, they could not entirely have dissociated themselves from their associations in every aspect of their life. From that initial mistake we have gone on to the big one in the endeavour that is now being made.

6.33 p.m.

Mr. EASTWOOD

I was waiting to hear the hon. Member for St. Rollox (Mr. Leonard) congratulate the Chancellor of the Exchequer on the time and trouble he took in negotiating with the co-opera- tive societies, in trying to come to some form of agreement as to this-tax, but the hon. Member did not offer any such congratulation. I was delighted to see the trouble that was taken by the Chancellor of the Exchequer in trying to come to agreement upon what is a very difficult subject. I am speaking, not as one who suffers from co-operative societies, because it is thanks to the co-operative societies that I am here, but as one who has 22 different co-operative societies in his constituency. I have nine retail societies, one with a membership of 100,000 people; three just outside, but operating inside the constituency; seven manufacturing societies making clothing, boots, printing and corsets—if people wear them now—and three oranches of the Co-operative Wholesale Society which are all operating inside the constituency.

Those societies own large areas of towns and villages. Until recently, they owned something like 40,000 acres of farm land. Those have been recently sold. The societies tender for public contracts, hundreds of thousands of pounds have been loaned by them to various local authorities, they carry on a banking system and a system of education and entertainment, and political activities which, apparently, were successful in returning me at the last General Election. Quite 95 per cent. of the electors of the Kettering Division are members of the co-operative societies, and, persoNaily, I am grateful to them. That is why I cannot understand why the hon. Member for Limehouse (Mr. Attlee), speaking on the Budget Resolutions, said: From whom is it that the Chancellor of the Exchequer wants to take the money? From the savings of poor people—small savings which are utilised mainly for buying such things as clothes, boots, and so forth."—[OFFICIAL REPORT, 26th April, 1933: col. 114, Vol. 277.] In criticising that, let me turn to the balance sheet of one of the co-operative societies operating in my area. I am quoting only a few odd figures. The balance sheet says: Land and buildings used in trade £128,000"— These are the assets— Fixtures and rolling stock, £24.000; Cottage property. £26.000: Advances oh mortgage, £41.5,000; Shares in industrial and provident societies, £96,000; Loans in industrial and provident societies, £120,000; Cash in hand, £41,000. When that balance sheet and list of assets is investigated it turns out that the Kettering Urban District Council have borrowed £240,000, the Thrapstead Rural District Council £7,000, the Joint Hospital Board £13,000, a borough council £26,000—and so far afield as Sheffield —Sheffield Corporation £25,000, and the York Corporation £10,000. It seems a little difficult, after looking at that, to say that the co-operative societies are carrying on business with the small savings of the small people.

I do not want to weary the Committee in any way with these figures, but there is another co-operative society—a much smaller one with a membership last year of 2,580, whose total assets are £201,493, making a share-out, if that society came to an end to-day, for each member of £78 per head. I am certain that hardly one member of that society realises that if the society came to an end his share would be as much as £78. I do not want the Committee to think that I am in any way running down the co-operative societies, who have been a great power for good, but I am certain, so far as the great Majority of members are concerned, that they are perfectly willing to pay a proper contribution to the running of the State. I am convInced of that. The question that bothers me is to how they ought to be taxed.

I cannot help thinking that one mistake has been made all the way through in dealing with this question. When the matter was referred, in 1904, to a Departmental Committee the terms of reference were as to Income Tax. When the matter came before the Royal Commission in 1910, again the terms of reference were as to Income Tax, and the reference to the Raeburn Committee was as to Income Tax again, so much so that the Raeburn Committee themselves realised that there might be a very much better method of dealing with this subject than through Income Tax. In their third paragraph they say: Some of the witnesses suggested that, if the method of the Income Tax should not be thought suitable for the purpose of obtaining from the co-operative societies their appropriate contribution towards the revenue of the State, our terms' of reference were wide enough to empower us to consider the application to the societies of forms of taxation other than the Income Tax, such as a tax on turnover. We decided, however, that the terms of reference did not admit of such an interpretation and we have limited our inquiry accordingly. That is a pity, because this method of taxing the co-operative societies is not the best method, and is open to criticism. I am bound to say that if 10 persons combine together to buy a cwt of sugar, instead of each of them buying a few pounds for their own consumption, and if they get their cwt. of sugar a little cheaper because of the bulk purchase, that is discount, and, of course no one is going to tax that discount. The principle is exactly the same whether it is 10 persons or whether it is half a million persons. Feeling, as I do, that the societies ought to pay their proper share to the State, I realise that there is considerable justice in that argument.

I see justice in another point, with which I have a lot of sympathy. The position at the present time, so far as the societies are concerned, is upside down. Income Tax is admittedly a tax which falls upon an individual, and not upon a company or not upon a corporate body. As far as the societies are concerned, they pay under Schedules A and B as an entity. Once that is paid by a co-operative society, it is finished. The co-operative society in question, which pays under Schedules A and B, may have, as the whole of their membership, people who are not liable to pay Income-Tax in the ordinary course of events. That does not make any difference. They pay as an entity, and the tax that they pay under Schedules A and B has gone, and cannot be recovered. You turn to the other side, and you see that the individuals pay Income Tax on the interest on their shares that they have and upon their interest on the loans that they have already invested in the COT operative societies. The societies say— and frankly I have much sympathy with them—"Here is a tax which is meant to fall upon an individual, and yet at the present moment it is treating us in two different ways. It is falling on us as an entity on the one side, and as individuals on the other side." I see their point of view, and it is very largely because of that point of view that the agitation has gone round that the co-operative societies are to be penalised. "Penalisation" is altogether a wrong word to use. Nearly all taxation is unfair. Every one realises that. Take as an illustration the Death Duties. One estate perhaps pays two sets of Death Duties in five or six years, but another pays only one set in 60 years. That is entirely dependent upon the act of the Deity, and is grossly unfair upon the unfortunate estate that has to pay. I am not suggesting that the unfairness comes from above; I am suggesting that the unfairness comes from the tax that has been put on. Motor taxes are unfair. I have had to pay £15 every year for many years for a car which I sold eventually for £2 10s., an unfairness from which I am still smarting. Those are points which deserve further consideration.

There is another point, from the aspect of the Treasury, which also deserves consideration. It is a very grave question, to my mind, whether these new taxes on the societies cannot be perfectly legitimately dodged by them. As long as the law lays down what you can and what you cannot do, a society, just like an individual, is entitled to take the fullest advantage of the law. If the societies can dodge paying the new taxes, or any taxes, legally and properly in any way whatever, they are entitled to do it. Though I feel that the societies ought to pay, if I had to advise them—I hope that I shall not have to—I should advise them to make the utmost of any loopholes that they might find, or any method that they might discover to get round the new tax.

What is the alternative? I have said that I do not like this system of Income Tax. I should like to see the present taxes done away with, so far as Schedules A and B are concerned. I will make this suggestion to the Treasury: "You cannot go back upon it now. Let this be looked upon as an experiment, but do not let the matter stop here." Surely it ought not to be beyond the ingenuity of those who consider these matters to think of a special tax for the co-operative societies. This is not a new suggestion; there is a fair precedent for it. Take the position of clubs. Working men's clubs are very much in the nature of co-operative societies; men combine together and make a profit out of each other. Working men's clubs have to pay a tax; motorists have to pay a tax for the privilege of using the roads; beer drinkers have to pay a tax for the privilege of drinking beer; and persoNaily, I can see no reason why co-operative societies should not be subject to a special co-operative tax in respect of their dealing in the manner in which they do, Since co-operative stores have become at the present time such a vast organisation, carrying on such a vast part of the life of the country.

Last Easter I visited members of nearly every society in my constituency, and spent days with them trying to get them to suggest some method of taxation which they themselves would, I do not say like, but would find least objectionable. I found myself in the same difficulty in which, on a much larger scale, the Chancellor of the Exchequer was; they would not suggest any method by which they might be taxed. The leaders of the societies took this view: "It is not right that we should pay a tax at all. We are paying quite enough and, indeed, too much, at the present moment, and, therefore, we are not going to discuss what would be the best method of contributing to the State." One of them did say that a tax on turnover might not be objected to if it were universal, but that was a safe prognostication which does not, I think, carry us very much further. Obviously, however, one or more members of the Raeburn Committee were anxious to discuss the question of a tax on turnover, and I suggest that the Government might consider that as an alternative.

One other method that has occurred to me, although, of course, it would need working out, would be to try to get a unit value for these societies. I do not want to try to lecture the Committee in any way, but perhaps I may explain what I mean. You might take the assets of a society, and you might take the membership of the society, and find what the unit of value is for each member. In the case of the society to which I referred just now, the unit of value would be something between £70 and £80 per member. On that unit value an annual tax might be imposed which would fall equally on all the co-operative societies throughout the country. I put this suggestion forward because I hope that, when this Resolution is carried, and these taxes on the co-operative societies come into effect, the Chancellor of the Exchequer will not let the matter end there. I am going back to my own people and am going to tell them that these taxes are, and must be, in the nature of an experiment. They can be no more than an experiment at the present moment. There is nothing that is perfect, and these taxes are not going to be perfect. PersoNaily, I dislike them, and think that the method is a wrong one. I am going to support the Resolution, because I am convInced that it is right that bodies dealing in the large way in which these societies deal ought to pay their fair contribution to the State. I am going to say to my people, "If you do not like these new taxes, realise that you have to contribute your share to the State, and try to think out a better way for yourselves; and, if you do that, I am certain that the Chancellor of the Exchequer will meet you over it and see if he cannot adopt your method."

6.51 p.m.

Sir HERBERT SAMUEL

The hon. Member for Kettering (Mr. Eastwood) has shown the Committee with great force and logic how unfair these taxes are, and he ended by saying that, nevertheless, he proposes to vote for them. He understands fully how reasonable is the attitude of his constituents who are against these taxes, but, reasonable or not reasonable, he is going to vote for the Resolution which is before the Committee. There are many alternatives which he regards as far better than that which is now before us, but, nevertheless, he proposes to support these taxes. This taxation is unjust and unfair in the hon. Member's view, but, after all, he says, all taxes are unjust and unfair, so why not add one to the rest? FiNaily, he declares that as a lawyer he proposes to advise his constituents how they may defeat the purpose of the Measure which he, as a legislator, is proposing to enact.

The hon. Member has said very truly that, if the principle of mutuality holds, this taxation cannot really be fully defended. The Chancellor of the Exchequer has said that, if 10 people, for example, club together and buy-a truck of coal, and then divide it up among themselves at cost price, that cannot be regarded as an act of trade, and the saving which they make is not to be regarded as a taxable profit. But if, instead of 10 people buying a truck of coal, 1,000 people in a town join together in a society, and open a store, selling to each other things besides coal, and employing a manager to conduct the business, the principle of mutuality is exactly the same, and the size to which the principle extends is no reason for any change in our system of taxation. It may be right or it may be wrong to adopt this system of distributing, with its avoidance of the distributor's private profit, but it is legal, it has been encouraged by the Legislature in the past, and, so long as it exists, it seems to me that the principle of mutuality holds; and, as I shall endeavour to show later, if the principle of mutuality holds, this proposed taxation is not justifiable.

The Chancellor of the Exchequer has said that a new entity is introduced— that, because these societies are incorporated, therefore you have an entity different from the individuals, and you ought to tax that entity. But, as the hon. and learned Member for East Bristol (Sir S. Cripps) pointed out with great force, the mere fact of incorporation ought not to affect in any way the burden of taxation which has to be borne directly or indirectly by the members of these societies. The Industrial and Provident Societies Acts were passed in order to encourage these bodies, including trade unions, to seek incorporation, so that there might be some control over the management to prevent fraud and malversation of funds and generally to put them on a stable footing; but it was never intended that, having accepted the invitation of the State to incorporate themselves and be registered with the Registrar-General of Friendly Societies, they should thereby be constituted a taxable entity, or that that should be made the reason or excuse for imposing upon them taxation which otherwise they would not have borne.

This question of mutuality seems to me to be still the essence of the whole matter. The Chancellor of the Exchequer has said—I took down his words as he spoke them—that for his own part he would neither attack nor deny the principle of mutuality, but he would restrict its area by excluding these undistributed reserves. If he does not attack the principle of mutuality, so also, he says, he does not deny the principle of mutuality, and, if he does not deny it, he concedes it. He recognises that this trade of co-operative societies is mutual trade, and, that being so, we have to look at the matter in this light. The members of the societies, if they wished, might distribute in the form of what is called "divi" the whole of the savings that they made through their mutual trading, and, if they did, no one would cavil at it, and there would be no question of taxing it; the principle of mutuality would be held to apply, and it would be regarded as a trade expense, or, as some people have called it, a deferred discount. But supposing that a society, instead of distributing the whole of its savings, decides to put a part to reserve, why should that part be suddenly liable to taxation? I fail to see why it should not be regarded as absolutely analogous to the sum which is distributed in so-called "divi." To take a concrete example, suppose that a given society has a surplus of £10,000 on its year's business, that it has 1,000 members, and that it distributes to each of them at the end of the year, on the average, £10 a year. Suppose that in one year, trade being rather uncertain, it declares that, instead of distributing the whole £10,000, it will only distribute £&,000, and will put £l,000 to reserve. Possibly it may think that its trade is declining, and does not want to have varying dividends from one year to another, but wants to keep the "divi" stable. Why, because it holds over £l,000 in order to see what its trade will be next year, should the Inland Revenue come forward and take away a quarter of it? I fail to see that that can be regarded as an equitable proposition. Suppose that, on the other hand, instead of holding back the £1,000 for subsequent distribution, it were to employ that £1,000 in carrying on its business during the next year, I fail to see how that either should make this sum a taxable quantity. So far as such profits are paid out in interest on shares—if an individual invests £100, or whatever it may be, in a co-operative society and gets interest on the shares—obviously that ought to be taxed, if he is liable to taxation; and it is taxed. It ought to be taxed in just the same way as in the case of an investment in War Loan or a deposit in the Post Office Savings Bank. Whatever interest the holder of such an investment derives from it is liable to taxation, if he himself is not below the taxable level. But, in so far as the money is put aside and not distributed, and is not added to the members incomes, I fail to see any reason in equity why they should be called upon to pay Income Tax on it. Therefore, we on these benches propose to vote against the Resolution.

There is, however, a form of co-operative trading which is not now taxed, and which in equity, if we were regarding this matter by itself, ought to be taxed. That is the trade with non-members. Particularly striking examples of this are the contracts that may be made by the great co-operative wholesale societies with municipalities and others. Those, clearly, are not mutual trading among members, and the principles on which co-operative societies are exempted from taxation in other matters do not apply there. The profits made by a co-operative society from trading with non-members may go to increase what is called the "divi" that is paid to the members, and such profits would be properly taxable. That, I think, is admitted by the co-operative societies themselves. But there is this to be taken into account on the other side, that, if they are exempted from taxation which equitably and properly they might be called upon to pay, they are, on the other hand, required to pay taxation—and, as they claim, in greater amount—which, under the principle of mutuality, they ought not to be called upon to pay, namely, the Income Tax which is now paid by co-operative societies under Schedule A in respect of land and buildings in their ownership, and under Schedule B in respect of land in their occupation.

For my own part, I can see no more reason why they should pay on Schedules A and B than on Schedules C and D. If the principle of mutuality is admitted, they ought to be exempted from that taxation. For a long time, however, they have agreed to that taxation, and it has been the custom. They do not ask to be exempted from it. These two items more or less cancel off, one against the other. The Chancellor of the Exchequer tells us that non-member trading is of a trifling amount; consequently the sum they would pay on non-member trading is relatively trifling, while the sums they pay under Schedules A and B are considerable. It is claimed by the co-operative societies that they are in fact paying more under Schedules A and B than counterbalances what, in equity, they ought to be called upon to pay on non-mutual trading.

That is practically all I have to say to the Committee, but I should like to ask one question of the Minister who replies to the Debate. It is: How far will this Resolution, if enacted by Parliament in the Finance Bill, extend? The Chancellor of the Exchequer mentioned certain companies and societies to which it will extend. Mutual insurance companies will have to pay a sum—I do not know if it will be considerable. It may, however, be a sum which will seriously affect the whole of their proceedings. Will it affect the farmers' co-operative societies which purchase manures and seeds co-operatively, or the other societies that sell? The right hon. Gentleman the Member for North Cornwall (Sir F. Acland), president of the allotment organisation of Great Britain, may have something to say on this matter, from the point of view of these societies. I think we should know what we are doing when we are enacting legislation of this kind. The whole Debate has concentrated on co-operative societies, as ordinarily understood, but there may be other interests vitally affected.

I feel convInced that the movement which has prevailed in this country among private traders in favour of the taxation of co-operative societies, did not envisage a measure of this kind- All that small traders have in mind is the taxation of what is called the "divi." That is what they desire in order to secure what they regard as equality of treatment between themselves and the co-operative societies. This measure, now brought forward, while sufficient to arouse the indignation of the whole of the Co-operative Movement, is not enough to arouse the enthusiasm, or gratitude, of the private traders. I hold a paper sent to hon. Members from the National Organisations Co-ordinated Committee representing 56 national trading organisations, who gave joint evidence before the Government committee of inquiry. They state: We draw your attention to the fact that the Government committee's recommendations, if carried out, would only bring in additional revenue of £1,200,000, which is an absurd amount to accrue from the profit of a trading turnover of £340,000,000 per annum. Those who desire taxation for the sake of equality of competition between the two interests will consider taxation of £1,000,000, on a turnover of more than £300,000,000, inadequate to achieve that purpose. Furthermore, the same organisation in an accompanying document wrote that it is conceivable and in fact probable that the co-operative societies, if liable to be taxed in this way, will greatly reduce the amounts from time to time carried to reserve, and correspondingly increase the 'divis,' and that they may even divide the whole of their profits among their members. They go on to say that if that course were adopted it would greatly increase the trade of their members, that the trade thus added would create difficulties for the ordinary traders, even put them out of business in increasing numbers, and transfer trade away from revenue-paying traders to co-operative societies. I do not know whom the Government are pleasing with this measure. I do not know why it is being enacted. As the hon. and learned Member for East Bristol said, it certainly was not contemplated at the time of the General Election to bring forward this proposal, which has always been highly controversial, in a Parliament supposed to devote itself to measures passed by common agreement in order to relieve the financial distress of the nation. Such an action is not justified, and I would therefore, on behalf of my hon. and right hon. Friends, appeal to the Government further to consider the matter, and not to pursue this policy.

7.7 p.m.

Mr. MAITLAND

I have some sympathy with the right hon. Gentleman in his opposition to the form of the proposal we are now discussing, but I also have a rather lively recollection of the right hon. Gentleman speaking with equal force on a similar kind of proposal when the question of relieving from taxation the reserves of joint stock companies was under consideration. The right hon. Gentleman will accept my assurance that I would not wish to misrepresent him, and I believe that when the Amendment deal- ing with the relief from taxation of reserves of joint stock companies was discussed during the 1929 Parliament it was opposed by the right hon. Gentleman and his friends, although supported in many quarters of this House. When it came to a Division, however, I think the right hon. Gentleman and a large number of his friends absented themselves from the Lobby. I find some inconsistency in the right hon. Gentleman's policy. I do not know whether another explanation is to be found in some of his concluding remarks, when he said that the proposals of the Government would neither earn the gratitude nor the enthusiasm of the average member of the co-operative societies.

But, surely, that is not the ground upon which the National Government, or indeed any Government, should form any proposals with regard to taxation. The real basis should be whether a proposal is fair and equitable. The right hon. Gentleman said that the present Government had no mandate to deal with this matter. With great respect, I venture to differ from him. The present Government had a mandate to deal in any proper form with such matters, in order that excessive burdens should be borne fairly and equitably as between all sections of the community. It is not necessary to devote oneself to the question of whether a mandate was given for this specific proposal. We ought to apply ourselves to the subject of whether or not the proposal which the Government are bringing forward is fair and right. May I, speaking as an accountant, and as one who during a number of years has had to prepare forms for the payment of Income Tax, assure the Committee that, no matter what the Chancellor of the Exchequer may have said in another capacity, and to which reference was made by an hon. Member, the individual taxpayer, in my experience, is, in point of fact, liable for payment, and he has had to pay? So burdensome has taxation become that the Government were bound, in existing circumstances, to take into account the liability of any section of the community and see whether they were contributing their fair share.

If there is any mutuality of interest, I am rather disposed to agree with my hon. Friend when he said there was no "ex- ternal verity" in the matter. There can be no question of a vital principle which accepts an obligation for payment under Schedules A and B and says, "We will not pay under Schedules C and D." Surely this boils itself down to a matter of pounds, shillings and pence. Some members of co-operative societies have made the statement, in opposition to the proposal, that they are paying too much under Schedules A and B—that they are paying in excess of the amount for which they should be legally responsible. There is an easy answer to that, and it is not the less effective because it is simple. It is that, if they are really paying too much under Schedules A and B, their proper procedure is to come under the ordinary rules of Income Tax, which apply to all trading concerns. If they did so, the effect would be that they would be able to claim repayment of any amount in excess which they were paying. That is their answer, if they are paying too much.

As one who has some experience in these taxation matters—and they are not easy, being very complicated—I think we can safely discard this question of mutuality of interest, but may I say where I think the strength of the opposition' to this proposal really is? Its strength lies in the fact that a very large number of the members are below the Income Tax level. That is the real strength of their position, and hon. Gentlemen who are really concerned, as I am sure they are, in doing what is right and fair should devote themselves to that aspect, as to whether we are equitably imposing this upon a large number of people below the limit of private taxation. That would command more sympathy than they get. We have to-day, in connection with the building societies, a similar type of members, large numbers of whom are below the Income Tax limit. In order that there may be equity between the State and the building societies, as well as the members, there is an arrangement whereby a compromise is arrived at, and building societies pay a proportion of their taxes. That proportion is deemed to be fair as between the State and the societies, and to inflict no hardship upon the individual members.

In effect, the Government's proposal is really an attempt to reach a compromise. I am very sorry that the members of the co-operative movement have not shown greater readiness to accept the suggestion of my right hon. Friend the Chancellor of the Exchequer, and to attempt to deal with this matter in a way which is fair to them as well as to the State. For the National Government with their powerful Majority to have gone out of their way to negotiate with the representatives of the co-operative societies is the best evidence we can have that there has been nothing but a desire to do what was right and fair, and that, if the co-operative societies have lost the opportunity of arriving at a compromise more favourable to themselves, they have no one but themselves to blame. I shall support the tax without hesitation on the general ground that this is a compromise, that it is fair, that it is right, and that it does no hardship to the section of the community who are below the Income Tax limit. It is not a taxation of "divis." It is a proposal to tax reserves, and in normal circumstances those reserves would never be distributed to the members of the society. When the hon. Member says you must ignore the intermediate entity of the society, it is impossible to ignore it in fairness and justce to those who are carrying on identical business. When my hon. Friend suggests a tax on turnover as a more appropriate form of taxation, does he really think that that would be readily accepted by the co-operators? They would have said that we were taxing the poorest people, who are already taxed on every article that they buy. I believe that this is an honest attempt to deal with a difficult question and to adjust differences as between various trading sections of the community, and I am quite satisfied that no injustice is being done to the consumers, particularly the poorest section of the community whom we all desire to help.

7.18 p.m.

Sir PATRICK FORD

It is clear from the speech of the right hon. Member for Darwen (Sir H. Samuel) that the Government's motives must be absolutely pure and just. He pointed out that the sum that they are going to derive is very small, and that the benefits likely to be obtained by the small trader are so small that they are not likely to make friends with either side. I was surprised to hear the right hon. Gentleman's suggestion that they should abandon their proposal for that reason, I should like to look back to the real origin of the State sanctioning special exemptions for co-operative societies, because it is nonsense to speak, as the hon. Member for St. Rollox (Mr. Leonard), among others, did, of this being the selection of a special class with a view to penalising it. Perhaps the hon. Member and his friends have forgotten the answer, which was given before he spoke. It was that the State, for certain very good reasons, had given certain exemptions to a certain class of people, but, as circumstances changed and developments took place, it became questionable whether it was not in the interests of the whole public to withdraw them, and that is really what the dispute is about. The exemptions were given because it was thought years ago, when even finance-was not so complicated and investments not so varied, to encourage mutual trading among the poorer people and it was thought that, as the price at which things were sold to them was not very much below what they could buy in other shops, it was an encouragement to thrift, because by saving their funds from day to day and week to week they found that there was a considerable discount bonus or dividend at the end which was useful for paying rent and other things. No one could deny that that principle was a sound and a good one.

From the way that some people have spoken on one side and the other inside and outside the House one would think that there was some sinister motive to crush out co-operative societies. The thing is preposterous. On the other hand, I doubt if the better kind of co-operator wants to crush out the small trader. There is room for them both. I have always held that, for various reasons, not only legal but practical, you could not tax what has been called the "divi," or discount. I do not think it would be fair to do that, and I do not think it would be in the public interest. When it comes to the question of taxing surplus profits and so on, the real question is what is being done with them. As far as they are being used simply to preserve the interests of their business and their members by securing the solvency of the funds or using them for the reasonable extension of their legitimate business, I do not think it is desirable to tax any surplus, but when you get wholesale embarkation on wholesale trading, when you get the funds devoted to all sorts of things, including political and other propaganda, when you get the reserves being diverted far away from the original purposes of the society, which was to see that the poor working man should have his money looked after for him, that he got goods at a reasonable price and that he got something over at the end of the year, when you get enormous results built up with a view to crushing out the small trader, I certainly think the Government are perfectly entitled to withdraw the exemption and to see that these people pay their share as well as any other trading company would.

I am quite aware of the difficulties that there are in the incidence of taxation under Schedules A and B as between individual members of societies, and I think that should be borne in mind when we come to consider if some distinction could be made between societies in respect of the use they make of their reserves and surpluses. I put down a rather hastily thought-out Amendment simply as a sort of caveat that we might have some assurance that that point of view would be taken into consideration and that societies which really maintain, almost in their pristine purity, the purposes and conditions of the original societies that got these exemptions should be safeguarded to that extent in the case of any new taxation, whereas societies which long ago departed from that line and embarked on courses which were never contemplated, should be asked to give up their exemptions and pay up as every other trader does. If I had some assurance that such consideration would be given in the Finance Bill, I should have no hesitation in voting for the Resolution. The attitude which has been taken up by some co-operators has almost driven me, against my cool judgment, into deciding at all costs to vote for it, but I cannot rush off like that, because the society in which I am interested has behaved in a most reasonable manner and has applied its reserves reasonably, apart altogether from the fact that one should refuse to act one way or the other under the threat of intimidation. One wants to see justice done to those who have acted reasonably. I have some doubt, therefore, as to the way in which I should vote, but I wanted to draw attention to the distinction that I have been endeavouring to make.

7.27 p.m.

Mr. COVE

I am certain that if the Debate proceeds during the next hour or two as it has done in the past hour or two, the hon. Member will be convInced that the only fair and proper thing is to vote against the Government proposal. The hon. Member for Faversham (Mr. Maitland) said he was going to support this tax because it was fair. There was never brought before the House a tax which in its origin and its purpose was more unfair, and even vicious. One has only to read the evidence given before the Raeburn Committee to realise the bitter origin of it. One has only to go through some of the statements that were made to see quite clearly that the Chancellor of the Exchequer has accepted the trading and political purposes of one section of the community in order to penalise another. I see that the chairman asked the representative of the National Traders' Defence League: Your case is that the consumer prefers that method of purchase, and we ought to prevent it. That is that the consumer prefers the method of purchase through co-operative societies. The answer was: Yes, if you put it in that way. That is an admission that the object of the National Traders' Defence League is to kill co-operative societies and to bring compulsion upon consumers as to the way in which they should buy their goods. If you look at another section of the Report, it will be clearer still. Those who have been agitating for the tax have had a bitter and vicious feeling towards co-operative societies. I am quoting again from the cross-examination of the right hon. A. V. Alexander on page 100. I will read the whole paragraph: What I want to get at is this. You say it is open to these co-operators, if they choose, to get round the tax by destroying their profits and giving what you call the profits in cheaper prices. My question is, if that is so, what would you gain by your course? The answer was: There is one thing we would gain, and that is apart entirely from this inquiry. One thing we would gain would be that within nine or 12 months thereafter there would be no co-operative societies. There, I think, we have in made clear that the object of these private trading organisations is to wipe out the whole of the co-operative societies, and in these proposals the Chancellor of the Exchequer is helping them as far as he dare politically go. I have a shrewd suspicion that the dividends have not been exempted because the Chancellor of the Exchequer and the Government feel that they ought to be exempted on their merits, but because they hope the mere taxation of the reserves will not be felt so much by each individual co-operator, and because, under the guise of the taxation of reserves, they are penalising the co-operative movement without the adverse political reaction which otherwise would undoubtedly follow.

I have not felt competent to deal with all the legal intricacies of the matter, but even lawyers in this Committee this afternoon have been confusing returns on Capttal invested with returns from purchases made. The hon. Gentleman the Member for North Edinburgh (Sir P. Ford) mentioned returns from the building societies, and said that building societies were taxed. That is true, but there is a vital difference between membership of a building society and returns from building societies, and the returns which come from membership of a cooperative society. I happen to be a member of both societies. The return I receive from the building society is a return upon the Capttal I have put into the society, and therefore it is equitable and fair under the present law that it should be taxed. The profits made in a building society are profits made on Capttal invested. The fundamental distinction between a return from a cooperative society and a return from a building society is that one is a return on Capttal invested, and the other a return from the surplus on purchases made.

It is rather significant that we speak of members of a co-operative society. I do not hear talk of membership of a building society, of a private company or of a limited company. The whole thing is on an entirely different basis. It is on the basis of investment in one case, and on the basis of purchases in the other. That being so, there is no parallel at all. If you tax the surpluses of the co-operative society, it will be penal, not only upon the co-operative society, but also upon the members of the society, and in a very vicious form. The bigger the family the greater the need of the family, and more will be the purchases, and therefore the more will be taken by the State from the poor man with the large family. It is obviously the taxation of needy people; the taxation of the poor. Its object is not to find money for the Chancellor of the Exchequer but to penalise the cooperative societies. I was amazed that the Chancellor of the Exchequer should practically have admitted that fact this afternoon. As I understood him, he said that there has been an agitation outside. There has been great and long controversy about the matter, and private traders, through their organisations, have been saying that they were in an unfair position as far as the co-operative societies were concerned. They could not compete with the co-operative societies because they were taxed, and the cooperative societies were not taxed. Because there was a political and an economic and trading complaint from a section of the community, the Chancellor of the Exchequer comes along, and says: "Yes, I will tax the other people, because you have been complaining about the circumstances." That is a vicious principle upon which to bring taxing legislation before the House. There is no equity in it.

I and my hon. Friends and the whole of the co-operative movement will resist this action as a direct attack upon the principle of mutuality. It is admitted by the Chancellor of the Exchequer that mutuality still obtains when the "divis" are given to members of the society. When a particular person has the dividend, it is all right; it is the result of the principle of mutuality. But if the co-operative society say: "We will take a small sum of the surplus and put it on one side for a rainy day," then, somehow or other, the principle of mutuality vanishes. I cannot possibly accept, that point of view. If the right hon. Gentleman will look at the report of his own Committee he will find that Sir Warren Fisher and some other distinguished gentleman pointed out that they could not subscribe to the principle of taxation according to use and ignoring the principle of origin. The hon. and learned Gentleman the Member for Central Nottingham (Mr. O'Connor) spoke this afternoon in order to bring prejudice into the discussion. He said, "Here is a balance-sheet. So much for political purposes. So much for education purposes." According to him, the educational purposes were entirely political.

Mr. CAPORN

Hear, hear.

Mr. COVE

The hon. Gentleman backs it up. The hon. and learned Member wants to tax these people because they want to spend their money in a certain way. Is that a principle of legislation, for it was one of the strong arguments which were brought forward?

Viscountess ASTOR

I only want to ask a question—

Mr. COVE

The Noble Lady will no doubt have her opportunity. Hon. Members have complained over and over again about the way in which co-operative societies spend their money, and one of the big arguments which they have used is that they spend the money for political purposes, and for educational purposes, which, it has been asserted, has been camouflaged as political activity. Because they have done that they say: "We must penalise them." The proposal introduces a vicious principle and will lead to injustice. It has led in this particular case to the injustice which the Government is now perpetrating in the Motion which is brought forward.

Another argument which was used surprised me. It was not anticipated that those organisations would grow big and representative. Oh, no. It was only suggested that they should be exempt from taxation when they were small and poor. Because the organisation has grown financially and in trade, they say: "We must tax this organisation." The remarkable growth of the thing has now changed the whole future of the beast as it were. I like the political outlook behind that argument. There is the fear of the co-operative movement. Not only is there the fear that the co-operative movement is an economic trading concern, bringing benefits to co-operators, as it brings benefits to me as a co-operator, by the return of surplus profits in the form of divi's, and by keeping prices down, but there is also the social and political fear of that great movement. I see in the co-operative movement—and I admit it openly here this afternoon—something much more than a wisely governed, effective trading con- cern, namely, the germ of changes in society as a whole, and I am not ashamed to say so.

I complain that the Government are not meeting this matter by argument and by reason. It is an attempt to fight the movement by penalising taxation at the wish of the small traders who hate, not only the effective trading of the cooperative society, but the very principles upon which the great, movement is based. Traders may be vicious and spiteful and hate the movement as an effective trading organisation. They may hate it too from political and social points of view, but make no mistake about it: in spite of this, and it may be because of this, the co-operative movement will go on from strength to strength The reply which I hope to see from the co-operative movement, and which I believe will come from that movement, will be a renewed enthusiasm for the development of the co-operative stores a renewed spirit which will drive the cooperative movement, not only more and more into effective trading channels, but more and more into clear-cut political action. There is no doubt that from the political point of view the Government are doing the very thing which will help us in the country. From that point of view, I have no complaint. This is a penalising tax. It has no fairness in it. There is no compromise. An hon. Gentleman spoke of compromise. What compromise is there? The co-operative movement have not agreed to this proposal. There is no element of compromise in it at all. It is nothing but the big stick of the National Goverrment led by a traitorous and treacherous Prime Minister. For all that he said this afternoon words, words, words, he could not get away from the fact—

Sir P. FORD

On a point of Order. Is an hon. Member entitled to refer to any other Member of this House as dishonest, treacherous and traitorous?

The DEPUTY CHAIRMAN

I think such an expression is distinctly out of order, and I must ask the hon. Member to withdraw it.

Mr. COVE

Treacherous and traitorous to the Labour movement, treacherous and traitorous to the co-operative movement. I cannot withdraw that. I believe it. I believe that in the answer he gave he certainly conveyed to the co-operative movement—never mind all his finesse now —that there should be no further taxation of any kind on the co-operative movement. Now he runs away by saying that there has been taxation before. The Prime Minister cannot get away from his promise—from the answer that he gave. It is a sorry thing to have to say, but the Prime Minister will leave office not only with the contempt and disgust of the Labour party movement, but also with the bitter hatred of large numbers of co-operators, who see in this action treachery to the great co-operative movement which he once supported with all his heart and mind.

7.46 p.m.

Mr. KIMBALL

May I draw attention to the fact that in 1920 the Royal Commission on Income Tax made certain recommendations in regard to the taxation of co-operative societies which can be fairly summarised into the short statement that a co-operative society should be treated exactly as a limited company trading in similar circumstances and in similar conditions. Those recommendations were not carried out, but the principle of equality of treatment is one that commends itself to the great bulk of the people of this country. I would ask the Committee to view this Financial Resolution in the light of that principle and try to see clearly through the smoke screen which certain members of the co-operative movement have tried to lay down. To the ordinary unbiased person, in present conditions it is almost impossible to distinguish between a co-operative society and a limited company, against whom the co-operative society is competing. A cooperative society is at liberty to trade with non-members, and does so freely and as often as possible. It enjoys the same legal privileges as a limited company. It has the privileges of a legal entity. It can enter into contracts, it can sue and it can be sued.

Up to the present time there has been very different treatment of co-operative societies in regard to taxation. The income from their reserves and their investments has not been taxed. The surpluses carried to reserve have not been taxed. The dividends paid on their shares have not been taxed, and the "divi" paid to members has not been taxed. As I understand it, the Financial Resolution proposes merely to deal with the first two of these items—the income derived from investments and the surpluses carried to reserve. If we look at this matter in the light of the principle of equality of treatment with a limited liability company, there seems to be no reason why the income received from investments should not be subject to tax, and in so far as the Resolution proposes such a tax, I heartily support it. In so far as the Resolution suggests that a tax should be levied upon the profits carried forward to reserve, there is one point that I should like to put to the Financial Secretary upon which I hope he will be able to give me an answer.

If we try to visualise the position as purely a question of fairness, I am slightly troubled in this respect. A co-operative society is under a statutory liability to accept deposits up to £200 from its members and those deposits may be withdrawn upon the giving of the requisite number of days notice, which I think is seven. As a result of this the co-operative societies are put in the position of enforced bankers. They are not like an ordinary banker who can refuse any such deposits. As a result, in the course of management it may be necessary for a co-operative society to carry a larger fund forward to reserve to meet the liability in regard to the deposits which they are forced to accept. I suggested that a way out of that difficulty could be found by an Amendment of the Friendly and Provident Societies Act, which forces the co-operative society to accept these deposits, so as to remove that liability from them. Then they would be in exactly the same position as any other limited company. If they wanted to accept deposits in the course of business and the management thought it good business to do so, they could do it, but if they did not wish to carry further sums to reserve they would be able to refuse the deposit. If equality of treatment is what the Government are seeking and they will adopt that small suggestion, then with that reservation I shall support the Financial Resolution.

7.51 p.m.

Lieut.-Commander BOWER

It is not often that I find myself in agreement with the right hon. Member for Darwen (Sir H. Samuel), but on this occasion I am glad that he and his party have fallen off the fence on to my side. Speaking as a co-operator and one who believes in and admires that movement, I think the only real co-operative speech made this afternoon came from the right hon. Member for Darwen, because he expressed what I consider to be the very basis of the movement when he attached the right amount of importance to the word "mutuality." I hope that the Financial Secretary, if he concludes the Debate, will be able to say a little more on the subject of these proposals, because I am not quite happy that they will be restricted to the co-operative societies as such. I think they may affect very many other people. I regard this Resolution as affecting not only co-operative societies fundamentally but also the personal position of every Income Tax payer in the country. As the hon. and learned Member for East Bristol (Sir S. Cripps) made clear in his speech, it appears that the principle that Income Tax is a tax on individuals is now in danger and, unless I misunderstood him, he appeared to think that these proposals were the first occasion upon which that principle had been endangered.

The co-operative movement, as I see it, in developing from the first puny effort of the Rochdale pioneers into the great nation-wide movement that it is to-day, is one of the greatest Capttalistic organisations in the country, and that is where I probably differ from hon. and right hon. Members who have spoken from above the Gangway. The co-operative societies are great mutual associations of small Capttalists. They spread an unlimited net of small mesh and gather in the small Capttalists, and they all work together in trading mutually. The individual co-operator draws his income from two sources, interest from share or loan Capttal and dividends. We are not concerned with dividends now, because they not to be taxed, but interest on share and loan Capttal is drawn from exactly the same source and comes from exactly the same pool, therefore, without going into any of the legal technicalities, it seems to me inequitable and unjust that there should be any kind of taxation of part of that surplus. I cannot see any justification for that at all.

With reference to some remarks made by the hon. Member for Stockton (Mr. Macmillan), concerning the individual liability of shareholders in an ordinary company and co-operators in respect of Income Tax, there is a fundamental difference. It can be said that a very high percentage of shareholders in an ordinary company are liable individually to Income Tax, while an equally high percentage or probably a much larger percentage of co-operators are not individually liable to Income Tax. Therefore, there is a fundamental difference between the ordinary shareholder in a joint stock company and a co-operator. I have discussed this question of the taxation of co-operators with many members of my own party and I must say that I have been regretfully forced to the conclusion that it is a kind of political stunt. There are a great many members of our party who know nothing about co-operatives. In the Lobbies and elsewhere when I have mentioned the question the usual attitude seems to be: "Co-ops, Tax the beggars." There is a great deal of that sort of argument, and no doubt a great many of those people will go into the Lobby and carry this Resolution to-night. People of that description in our party appear to think that the co-operative societies are a sort of branch of the Socialist party. THON. MEMBEBS: "So they are!"] I hear an hon. Member say that they are. They are not. There are many of us who are co-operators, perhaps millions of us, who are not members of the Socialist party.

I equally deprecate the idea which is held by the Socialists that the co-operatives are their special property. That idea was helped on by the unfortunate attempts to tax the co-ops during the War, which led to the formation of the so-called Co-operative party. That party has an uneasy alliance with the Labour party, an alliance which has been Boistered up for natural reasons by the Labour party, by giving high office to Mr. A. V. Alexander and by generally petting those individuals in the cooperative movement whom I would call the political parasites of the movement. I believe that the great Majority of co-operators in this country not only have no use for the political parasites of the movement but resent their activities, and I hope that in future the non-political co-operators will assert themselves a little bit more and prevent the movement from being dragged at the cart tail of the Socialist party.

The co-operative movement is essentially a Capttalistic movement and is in many ways fundamentally opposed to Socialism. The co-operators state that they can carry out a great many functions which the Socialist party, particularly in their late pronouncements, say are going to be carried out by the State or the municipalities. We as co-operators do not agree with that. We think we can do it better ourselves. I think there is room for the co-operative movement and the individual trader to work side by side in this country, but I am not at all certain that there is room for the Socialist movement and the co-operative movement to work side by side, because they are really fundamentally opposed in principle. There is very little doubt that the reason why the Socialist party are so fond of sugaring up the co-operators is that they see in this great movement of ours the framework of a system of distribution which when they get into power again they will seize for their own purposes. The co-operative movement will be expropriated just as many other movements in this country will be. I am opposed to this Resolution. It will have the effect of imposing a tax upon those who are not liable, and should not be liable to a tax.

The hon. Member for Stockton has said that mutuality should not be regarded as a dogma. Listening to the Chancellor of the Exchequer this afternoon and reading the Co-operative Union pamphlet, it is apparent that in the discussions which took place the Chancellor of the Ex-chaquer was trying to persuade the co-operators to abandon the principle of mutuality, and they, on the other hand, constantly refused to abandon it. I hope they will always refuse to abandon it, because it is a fundamental principle upon which the movement has been built up. This tax will not hurt the movement very much. Its sole effect will be to Incense co-operators. The Chancellor of the Exchequer will not get the money he expects to get or wants, and in the end everyone concerned, after a lot of talk, will be where they were at the beginning. From the point of view of political expediency it is a remarkable silly step for the Government to take, but I do not pay much attention to that because I do not think co-operators have any more reason to be let off than any other vested interest. In fact, I have had a great deal more bother from private traders in my division than from co-operators. Those of us who are supporters of the National Government do not mind doing the unpopular things when we think they are right, and I do not mind voting against my own party if I think I am right. I think it is right to oppose this taxation, and I shall go into the Lobby against the Resolution.

8.3 p.m.

Sir FRANCIS ACLAND

I am not going to deal with the general case of industrial co-operative societies because that has been dealt with by my right hon. Friend the Member for Darwen (Sir H. Samuel) and I need not emphasise the points he has made. I want to make a case which I think ought to be made in regard to certain classes of societies which will come within the ambit of this Resolution. They are the little allotment societies up and down the country, many of which are technically trading societies. They will be included in the proposals of the Chancellor of the Exchequer. For 30 odd years I have been connected with the allotment movement, and during the whole of that time we have been trying to get allotment holders to form societies under the Industrial Provident Societies Act. We have been encouraged by various Governments to do so in order to bring that stability into the movement which it should possess. It is only when you get allotment holders and smallholders to form a society under the Industrial Societies Act that there is any real stability and even then they are inclined to fade away much too rapidly. We have been working with this movement in good weather and in bad. Last year we thought we had turned the corner. After the War there were 1,500,000 allotment holders but last year the number had gone down to under 1,000,000. We had hoped that the movement was now reviving, and just when that has been accomplished this taxation, for the first time, is going to descend upon them.

It has been no easy work. I do not claim to have done much, I have not the time, but there are many people who have been giving their spare time to get hold of these allotment holders, many of them unemployed men, to try and get them to form proper associations and societies to manage their own affairs. A good deal of human education and help and comradeship has been put into the work by these people, without any sort of help in the way of travelling expenses, to help these men. We had hoped that we should have been able to double the number of schemes this year for helping unemployed allotment holders, but now this sort of thing descends in the middle of the movement. Is it not a little bit too bad of the Government to undo what we have been trying to do for so many years —namely, to promote the growth and success of associations of small cultivators? Let me illustrate how it will hit these societies. They exist for various purposes. Many of them have an element of trading. A society which may be technically a trading society may be mainly a land renting society. If you rent land you pay a certain rent and you charge your sub-tenants a larger rent. That is perfectly legitimate, because every few years you need to refence the ground. A society tries to pile up a reserve on the difference between the rent they pay and the rent they charge in order that they may be able to construct a water supply, or a communal hut, and they need the whole of the reserves in the interests of the members of the society. If a quarter of that reserve is taken every year it takes the heart and soul out of the organisation.

It must also be remembered that these people do not compete with private traders. On the contrary, they are trying to do some of the best social work in the countryside and in the industrial districts. You may have a society which is a purely trading society. There again they want a reserve. It may be that the society has to buy Scotch seed potatoes. The prices may fall; and you are done. If you have to buy at one price and sell at another you have a bad year; and they get over this difficulty by accumulating a reasonable reserve. Why tax that? You are only hitting a valuable and good movement. Some societies hold shows; very often it is the event of the year. There again they need a reserve. You must have a reserve otherwise the society would become bankrupt. You have your show; you hire a couple of marquees, engage a band, and if the day happens to be wet the show is absolutely done; and the society is bankrupt, unless it has a reserve. Is the Government going to hit these reserves accumulated for purposes of this kind, which are really necessary, with the in- evitable result of doing a great deal of harm to a very humble and rather difficult work, which has served a useful purpose in many parts of the countryside and in some of our big industrial districts as well. That is the only point [desire to put before the Committee. Other hon. Members have expressed my feelings adequately on the main question, and I ask that these matters shall be considered before the Government definitely settles down to a deliberate policy.

8.10 p.m.

Mr. LEWIS

I suppose there is no subject out of the many which are included in the Budget, not excepting the somewhat flamboyant subject of beer, that has aroused more interest this year than the question as to the extent to which co-operative societies should be taxed. That is largely due to the strenuous efforts which have been made on behalf of the societies to argue that no change should be made in the law. Hon. Members will remember the extraordinary scene that took place in the central Lobby a few weeks ago when the various co-operative societies were bringing forward their petitions to the House by individual members. Certainly in the few years that I have been a Member it is the most remarkable example I have seen of a powerful vested interest trying to bring pressure upon individual Members of the House. In my own case the Colchester Co-operative Society handed me a petition which they said contained some 9,228 signatures. I have been asking myself what these signatures really meant. It is obvious that it meant that a large number of people in my Division were interested in the question of cooperative trading or they would not have signed the petition, but does it also mean that that considerable number of people are opposed to the proposals of the Raeburn Committee, which we are now told the Government have adopted?

In order to answer that question we must consider what information the people who signed that petition possessed. I do not suppose there is anyone who is opposing the recommendations who will suggest that very many of these people have even seen, let alone read, the actual report of the Committee. I suggest that the great Majority of them have got their information from the broadsheet which was published and circulated by the co-operative movement itself. In my Division this broadsheet is described as being sent with "the compliments of the Colchester and East Essex Cooperative and Industrial Society," and I have no doubt that similar broadsheets, the compliments being somewhat varied, were circulated in other Divisions. When I look at that broadsheet I find that the second sentence reads as follows: A Government Committee appointed to inquire into the position of co-operative societies in relation to Income Tax has reported in favour of penal taxation of cooperative surpluses or dividends, the tangible results of mutuality in trading. I draw particular attention to those words "has reported in favour of penal taxation of co-operative surpluses or dividends." A little later I read a paragraph headed "Safeguard your divi.," and a little later still this phrase, "This subtle attack on co-operative trade and dividends." I submit that anyone who reads that broadsheet, not having seen the report of the Raeburn Committee, would reasonably come to the conclusion that what was proposed was the taxation of the dividends. It is most discreditable to those in charge of the publicity arrangements of the co-operative movement that such misleading statements should have been circulated after the Raeburn Committee had reported. I submit that they entirely destroy any value that may attach to those petitions which were so laboriously got together as an expression of the opinion of those who signed them.

If we turn, not to what the broadsheet said was proposed, but to what the Raeburn Committee did propose and to what the Government are now asking us to assent, we find that the most important feature is the proposal that profits placed to reserve shall be taxable. No doubt as other hon. Members did in their constituencies, I had a long conference with the committee of the local co-operative society in my Division on this subject, to consider whether this was or was not a reasonable proposal. I listened very carefully to the arguments which they put forward against the proposal. I came away from that conference convInced that the proposal in itself was reasonable because of the essential unfairness in practice of the present arrangement. Let me try to give some very simple illustrations of what I mean by that expression "essential unfairness." I shall be most grateful if any hon. Member who is opposed to the Resolution would show me in what way I am wrong in describing these illustrations as being unfair as between one trader and another.

Take first the case where part of this money that is put to reserve is utilised for the improvement of premises. Suppose that a co-operative society decided to open a branch as a butcher's shop, and they wanted to put in a new shop-front. Suppose that a private trader in the same way and in the same trade also wanted to put in a new shop-front. Suppose that the cost of the shop-front is £75. Under existing conditions the co-operative society have to earn a profit of £75 before they can pay for the shop-front. The private trader, assuming for the purpose of simplicity that he pays Income Tax at 5s. in the £, has to save out of his profits a sum of £100 before he can put in that shop-front. He has first to pay £25 to the tax collector. I argue that it is essentially unfair that of these two traders, engaged in the same trade, one should have to make a profit of £100 in order to put in a shop-front, and that the other can do it with a profit of £75.

I will give another illustration. Take the case of provision for a fall in the value of stocks. Everyone who has had any practical experience of trading knows that it is often difficult to foretell the course of the market. The most careful buyer will find sometimes that he has bought stock which is not sold. The market has fallen against him, and in order that he may continue dealing he writes down the value of the stock, and reserves are used for that purpose by traders of all kinds. In such a case as that, again, the same principle obtains. Out of a profit of £75 the co-operative society can write down stocks by £75, but the private trader requires £100. As between those two traders it is an unfair situation for the State, as the tax collector, to create.

Here is one more example: It relates to political and educational expenditure. The co-operative societies spend large sums of money under that head. The expenditure very commonly takes the form of advertising the co-operative movement. Sometimes it takes the form of a contribution to the funds of a political party, or support of a particular candidate. Take the latter case. Suppose that a man stands for a division of Parliament as representing the cooperative movement, supported and financed by that movement. Suppose that a private trader stands against him, paying his own expenses or supported by other private traders. Suppose that the election expenses are £900. In the one case the co-operative people have to save a profit of £900; in the other case the private traders, assuming they pay Income Tax at 5s. in the £, have to save £1,200 before they can pay that £900 of election expenses. Again it is unfair for the State, acting as tax gatherer, to bring about that state of affairs.

It seems to me that on these grounds a very strong case can be made out for the proposal of the Raeburn Committee that the reserves of co-operative societies should bear taxation. But let me turn for a moment to consider what the effect will be if the proposal is adopted. According to the Raeburn Report the Board of Inland Revenue estimate that a sum of £1,000,000 or £1,200,000 will be available if all their recommendations are adopted. I understand from the figures that have been circulated in the broadsheet in my division that cooperative societies control a share and loan Capttal of £217,000,000. It is suggested that an organisation controlling that Capttal could very well afford that burden of £1,000,000 or £1,200,000 in taxation. Certainly, as compared with the small private trader, it is a case of putting the burden on the broadest back. To hon. Members who have a taste for alliteration, which they are fond of using at election times, I recommend that expression as singularly appropriate to this subject.

The hon. and learned Member for East Bristol (Sir S. Cripps) told us that this was an attempt by the Government to cripple the co-operative societies. He was making a set speech in opening the case for his party, and we are therefore entitled to take his words at their full and literal value. Does he really suggest that the men who control the co-operative societies are so incompetent that if they are asked to bear a tax burden which every private trader already bears, their societies will collapse and will be unable to face the competition of the private trader? I think that on reflection those in charge of the co-operative movement will scarcely thank him for the implied compliment.

It has been suggested that the proposals of the Government will have a boomerang effect on the private trader and that, if the tax be imposed, smaller sums will be transferred to reserve and dividends will be increased. I have no objection to the dividend being increased in my district, and to my Labour opponent at the next Election saying that the Labour party opposed these proposals in order that the dividend should not be increased. Indeed, it seems to me that this is a chance for the right hon. Gentleman the Member for Darwen (Sir H. Samuel). He spent a large part of his time seeking plausible reasons why he and his friends should vote against the Government which they were elected to support. This is an altogether fresh one. He can tell the co-operators of Darwen that he opposes these proposals because he does not wish the dividend to be raised in Darwen. Without, going into complicated and difficult theories of mutuality and so forth and looking at the question, as I have tried to do, from a fair and common-sense point of view, it is abundantly evident that there is a strong case for the tax on grounds of justice and that the financial strength of the society is such that it can very easily bear the burden.

There is another consideration which I would put before the Committee. There is a wider issue which has not been touched by most of the speakers in this Debate. I understand that Co-operative wholesale and retail trade today represents a turnover of over £300,000,000 per annum and is increasing. As the cooperative movement extends, the tendency is for private trading to contract. I do not say that the two balance exactly. There is probably extra trade, but it is impossible for the co-operative movement to have reached its present dimensions without having driven a good many private traders out of business, and if the movement expands that process will be increased. One obvious result is the reduction of the total sum of trading profits assessable for Income Tax. Therefore the yield of a given tax is reduced, while the expenses of government such as social services, defence and so forth remain constant. If that process is pushed far enough fresh taxation will have to come from somewhere to redress the balance. I am doubtful whether, if the co-operative movement continues to grow at the present rate, it will be able to escape the attentions of some future Chancellor of the Exchequer in the direction of a turnover tax. That might be a tax directed specifically to the cooperative societies leaving the private trader to continue paying Income Tax as at present, or the Income Tax on the private trader might be reduced while a turnover tax was placed on both private and co-operative trading. That is for the future to show, but I think it is obvious that, if the present tendency continues and the co-operative movement absorbs an increasing share of the trade of the country, it will have to make some further contribution to the upkeep of government and the expenses of the country. In these circumstances, it is a pity that those representing the movement were not willing to come to some agreed settlement for the time being with the Chancellor of the Exchequer on the basis of the Raeburn Committee's proposals. Had they done so, they would have removed a source of irritation and of dispute between those who support their movement and those who support private traders. By the action which they have taken, however, they will not put off, but rather will bring nearer a time when further taxation will be asked from them.

The co-operative movement undoubtedly deserves well of the State. It has served a useful purpose. It has been conducted in a law-abiding and satisfactory way. The hon. and learned Member for East Bristol says that it exists to encourage saving. I was interested to hear one who is so anxious to be considered an advanced Socialist descanting on the virtue and advantages of private saving, which is the foundation of the Capttalist state and can have no part in a Socialist organisation. The hon. Member for St. Rollox (Mr. Leonard), who, presumably, knows something about it, put forward the view that the great benefit of the co-operative movement was that it encouraged spending. Whichever view is correct, undoubtedly it has, as I say, served a useful purpose, and I think the Chancellor of the Exchequer was right in taking the unusual step of trying to get an agreed solution. I am sorry that he failed, but, having listened to most of the speeches this afternoon, I think the case against the Resolution goes by the board and that there is no substance in it, and that the proposals of the committee have the overwhelming bulk of the arguments behind them. It must not be forgotten that, though this Resolution may settle the question for the moment and in respect of Income Tax, trading by whomsoever conducted must bear a share of the expenses of government, and if any body of men set out to capture a large share of the trade of the country they must be prepared, ultimately, to bear their share of the common burden of taxation.

8.34 p.m.

Mr. McGOVERN

I must take what is for me the unusual step of claiming a little indulgence from the Committee. I have had to go through a process of teeth extraction during the past week, and am not in a position to express myself as well as I might otherwise do. I have heard Members on all sides speak on the proposed taxation of the co-operative societies, and I still look on this proposal as a mean-spirited attack on organisations which have been built up by a lifetime of effort on the part of working people in order that they might trade in a decent and genuine manner and for the good of the community.

Last week I heard the Financial Secretary to the Treasury say that there had been some statement made by a Member of the Opposition that the Government had not tackled this question in a business manner. He said the Chancellor of the Exchequer had decided, because of the breakdown in negotiations, to proceed with his own method of taxation, and he hoped the Opposition would take that as a business reply. I do. I take it as a big business reply to the proposed negotiations that were to take place between the co-operative societies and the Chancellor of the Exchequer. The Government gave them an opportunity of coming to an agreement upon a lump sum to be paid by the societies to the national finances, because they wanted to save the faces of some Members of the National Government, who, even at this late hour of the day, are inclined to call themselves Labour or Socialist representatives. They have given pledges to their constituents which could not be considered as anything but definite pledges that no taxation of cot-operative societies should take place by a Government of which they might be members, and they have departed from those pledges, as they have departed from most of the pledges that they have given to the people whom they have represented.

I do not look upon it as any more serious a departure from their pledges, from the point of view of the Prime Minister and the Secretary of State for the Dominions, during the lifetime of the present Government, than it was during the lifetime of the Labour Government, when they broke every single pledge which they had ever made to working men and women in return for the votes which they gave them. The Prime Minister will no doubt attempt to excuse himself. He is a sort of mystery man, who comes down here occasioNaily, talks a great deal, and says nothing, and he says it just as effectively to-day as he did from the same Bench during the lifetime of the Labour Government. He might attempt to excuse himself, but I am sure that no person with reason and intelligence will be taken in by any such attempted explanation by these individuals, who look upon pledges made to people during election time as something not to be kept, but to be played upon and to be broken just as they desire, in order to get in their little time on the Front Bench at the expense of the feelings of the people who have supported them.

When my colleague the hon. Member for Bridgeton (Mr. Maxton) made his speech on the poverty question a month or two ago, we were told from all sides that what was wanted was not anything in the nature of Socialism or Communistic efforts, but a greater distribution of the national wealth, to get it into more and more hands. Yet to-day, when working men and women combine and get a £5 or a £10 note into their hands—as little Capttalists, we are told—then big business says: "This cannot be tolerated. Here are working men and women conserving for themselves a certain amount of Capttal by their own communal efforts, or as little Capttalists, and we must tax it and apply the big stick to them." It is a contradiction. One would have thought that the Government which professed a desire to encourage the greater distribution of national wealth would have been inclined to encourage and stimulate such efforts, and would have said to the cooperative societies: "You have done well by the people in the country. You have built up a great trading organisation in which you yourselves, if you like, are little Capttalists, endeavouring to perform the arts and practices that we big Capttalists have performed in a bigger way. We do not want to cripple you. We do not want to hinder you in any way; we want to stimulate and encourage your efforts, and therefore we are not going to penalise you in any shape or form."

This attack that is being made on the efforts of these trading concerns is directed by big business in this country. Of that, there is not the slightest doubt in the mind of anyone who has listened throughout the last 20 years to the various statements made by the representatives of big business, when they have complained seriously about the co-operatives not being penalised in order to give Capttalism an opportunity to exploit the field that was being exploited by co-operative trading concerns. At the time that Capttalism was in the ascendancy, when it had a wide field to exploit and had not reached the apex of its effort, it could afford to a certain extent to neglect the co-operative societies, and could manage, by various devices, in this Capttalistic community that was gradually developing, to fight them; but we have reached the period when Capttalism is contracting, when the Capttalist field of exploitation is being much more severely narrowed, and they are finding that they have two fights to conduct, two war fronts to sustain. One is by the big multiple shopkeeper, by the big aspiring trust or combine, which is attempting to crush out, by competitive methods, the small trading concern, the small one-man business, and they have enlisted the small man, attempting to make him believe that his interests against the co-operatives are identical with those of big business. They are only using the small man as the Government used the married men to crush the young men into the Army during the War. They are using and exploiting from a tactical point of view the sympathies and feelings of the small business community in order to make war on the co-operative societies.

But the really serious reason why big business is against the co-operative trading concerns is because the co-operatives stand in their way of a wider field of exploitation, and prevent them getting greater profits and the higher prices about which all the members of-a protectionist Government are continually talking, and they apply the same mind, the same Protectionist mind, that is applied in this House to the foreigner. They say, "We will not allow any field of competition for the foreigner," and big business says the same regarding the cooperative societies, that they will exclude them completely from the opportunity of doing business. Within the last two or three years during which I have been a Member of this House one has heard continually questions regarding co-operative societies and their reserves, all stimulated and developed by the large business houses of this country.

We see another thing taking place in this country. Hon. Members grumble about the mass effort that was made by the co-operative societies in their postcards, petitions and deputations. The co-operative societies are babes in the art of lobbying and in the process of what might almost be described as the threats of blackmail made to hon. Members unless they conform to the wishes of those who lobby. Ordinary trading concerns do not always just come down to lobby Members. They arrange a luncheon or a dinner or a little excursion or something of that character, and give Members a free entertainment. They ask Members to go and hear the case that is to be put up for big business and Members flock by the hundreds in order to hear that case. The co-operative societies have not been cunning in their methods; they have not attempted to adopt cunning methods. Their methods have been open. They have come to the House and said: "The thousands of members of co-operative societies in your constituencies have sent these postcards asking that you should pay heed to their wishes as members of the co-operative movement to oppose the proposed taxation." That is quite legitimate; it is the ordinary method that is adopted by any concern that wants to indicate their desires.

Three great things have happened politically during the last three years. The big effort of the Tory Government before I came was directed to penalising and crippling trade unions by the Trade Unions Act. They thought that trade unions were a menace to themselves, and they thought that they could use the House as a political class instrument to prevent trade unions from carrying out their work throughout the common life of the country in the way that they thought fit. There was a second effort made by the late Labour Government. I consider that the late Labour Government carried that movement a stage further, and they crippled labour in the country politically by their gross surrender. Labour was crippled from the trade union point of view by the Tory Government, and"by the loss of heart and spirit of the people who had faith in the pledges of the Labour Government. Labour was crippled from a political point of view. Now we have the effort of the present Chancellor of the Exchequer who is supported by big business in the country and the House. No one can deny that the Tory party, which is really controlling the Government, is representing big business rather than constituencies. They come here and represent, beer, iron and steel, oil, coal and railways, and never think of their constituencies in any shape or form. They speak as representatives of the commercial trade interests from which they derive their economic sustenance. They would never dream, of considering the wishes of people in their divisions. I recognised that long before I came into the House. Those Members attempt to make their constituents believe that they are going to carry out their wishes, but they use the House as a class instrument for class purposes instead of for the good of the community at large.

On these three movements against which efforts have been made—trade unions, political labour, and the cooperative movement—imen and women pin great faith, to raise their standards of life and to give them a better and happier lot in the State. The House is being used to prevent them from the open and honest expression of those movements which they are entitled to expect. If hon. Members go on using the House in that way they need not grumble if they drive co-operative societies into a more advanced state of political thinking. Since the taxation of co-operative societies was proposed, the St. Cuthberts Co-operative Society of Edinburgh, one of the largest in the country with over 70,000 members, which never at any time would listen to the overtures of the co-operative political section, have decided enthusiastically to adopt political action as a means of redress against the present Government. Co-operative societies embrace a tremendous number of members who are Tory in their outlook. Members have denied that, but there can be no denial that the National Government candidate who opposed me at the last election was a local co-operative member and was sent by the local co-operative society to serve on the Glasgow Co-operative Board. He was Mr. Lucas. He was the National Government candidate, and he polled more co-operative votes than I did. He was a Conservative, and I believe that the Majority of members of co-operative societies are Conservative in their outlook. The complaint which I have always had against them is that they expected the Labour movement to safeguard them, while at the same time they put in the type of Government that would penalise them in every way. I had two co-operative candidates against me at the election, one the official Labour candidate, and the other the official Tory candidate. I am not sure that the Tory did not poll more Co-operative votes than the two others put together, because, as I say, the co-operators were Tory in their outlook.

Mr. PIKE

Does the hon. Member suggest that the co-operative movement put against him in the last election two official candidaes?

Mr. McGOVERN

I do not suggest that at all. I said that the Tory party put up a local co-operator who holds a responsible position in the local society and was elected by it to the Glasgow Co-operative Board. He was adopted by the Tory party and was supported at the poll by more co-operators than voted for me. On the other hand, there was a Labour candidate who was an employé of the co-operative society locally, and he also drew a certain measure of support from them. I use the illustration to point out that members of the co-operative societies are in my estimation Conservative in outlook. Most of them naturally have the outlook of the man who has £100 or £200 and has invested it in a co-operative society. He is just the type of man, or woman, to whom the Prime Minister made his appeal about Post Office savings, because I know that many of them thought that their life's savings would be gone if a Labour Government were returned, and they came out en masse to support a Government which to-day is going to use the boot upon them as effectively as it can.

I recognise that a tremendous body of co-operators in the country are being driven into Labour and Socialist political activity because of the action of the so-called constitutionalists. I have often been amazed by the people who preach constitutionalism. They are the type who never think of the constitution unless it suits them to do so. They will make pledges to the people which they never intend to keep, just as the present Prime Minister made pledges during the election which are embarrassing to him at the present juncture, but at the same time those are shackles which are easily overcome by a man of the present Prime Minister's type, because he will always find a reason, an excuse, for evading his responsibility to the people. That is the kind of man who drives people into unconstitutional action. They see the continual betrayal by Members of the House who go on to the platform at election time saying one thing and in the House change their opinion. I have never understood the type of politician who makes promises to people which he has no intention of fulfilling in any shape or form. It is trading upon the innocence of the population. I do not expect the Chancellor will make any further concessions of any great moment, because he himself is the Tory exponent of what big business desires. He is not carrying out his own desires and his own wishes. That does not mean to say that his wishes do not lie along these lines, but that big business has spoken, just as the man talks over the wireless at night. It has made known to the supporters of the Government what it desires, it has spoken to the Cabinet, it has laid down its terms, it has said to them: "This is what we want to carry out."

In this war between the forces of private ownership and communal trading the struggle will intensify, and there will be brought into the Socialist movement people who up to a year or two ago or up to this year were politically dumb in the main, who did not use their brains, who did not see the contradictions between Co-operation and Capttalism. They will see that this is part of the general war conducted on the working class. You have applied to many co-operators your cuts in salaries and wages, you have applied the cut in connection with unemployment benefit, you have applied your means test, you are applying your housing means test, you are applying your cooperative tax. They are all part of the general war on the working class, while you are determined' that those at the head of the social ladder shall live in comfort and in wealth at the expense of those at the bottom of the social ladder who are contributing their energy to the growth and development of a trading society which in my opinion, is only the forerunner of the movement that will take over, own and control economically the whole of the trading concerns of the country and will use them in one communal effort when Capttalism has been wiped out and the present exponents of Capttalism have either gone to their graves or dangle from lamp-posts.

9.1 p.m.

Mr. MACQUISTEN

I shall not endeavour to follow the last speaker or to go into any of his prognostications. I think he is really a disguised humorist. It is hardly possible to take seriously his talk about big business. Who are the people who mainly complain about the competition of the co-operative shop? It is the small business man, not the big business man. The multiple shop-keeper and the proprietor of the huge store do not give a button for the co-operators. I am a great supporter of the little man. I think PrInce Bismarck was very wise when he allowed a man to keep one shop only. If he tried to keep two shops he doubled the taxation. If he tried to keep three he doubled the taxation again, and so on. In that way it was impossible for one man to get a great many shops into his hands. In Italy, if you ask for the hotel omnibus, they will tell you "Mussolini does not allow any hotel to keep an omnibus." He says to the hotel keeper: "You mind your hotel; there are plenty of taxi-drivers and omnibus owners." He keeps down monopolies and keeps down over-grasping and huge associations like co-operative societies and multiple shopkeepers. He tries to see that the little man gets a chance.

I have sympathy to some extent with this opposition, because co-operators are trying to avoid taxation. Anyone who tries to avoid taxation always has my sympathy, especially taxation that is in the form of Income Tax. That is really a war tax, and never should be inflicted in ordinary times. It is the most direct inhibition against thrift that ever could be imagined. We heard only the other day how, if a man was extraordinarily thrifty and managed to secure an enormous sum, he would even be fined £3,000 a year for daring to have it. Could there be a greater inhibition on thrift than that? At the same time, if there is to be taxation, then all should pay alike. Nothing will bring home more vividly to the masses of the people the danger of the high taxation at present being inflicted on all the community than the fact that nearly all are having a little share in it. Our system of taxing company reserves, which is now being applied to these big registered combinations of co-operators, is the opposite of the system in Holland. There, companies pay taxation only upon the dividends they distribute. The reserves are allowed to accumulate, with the result that all their industries and shipping companies are enormously strong.

In this case we are not taxing the dividend distributed to the individual co-operators. That is the co-operative movement's form of advertisement, that is how they get their members, that is how they get their trade and their custom. Working people have not got the opportunities of accumulating money, and want a lump sum once a quarter or once a half year, and they get it in that way. How it is got I do not know, but I remember a leading co-operator in a Dumbarton election saying that the dividend was just a return of the amount by which they overcharged their customers. They are really getting back their own money in the form of accumulated money which is very much greater than the turnover. In that way it has my sympathy. I should be very much distressed to think that the ordinary small trader suffered. After all, he is a tax collector, because practically every shopkeeper has now been added to the brotherhood of tax collectors, and he has to collect the rates and taxes to a very large extent before he gets anything for himself. The co-operative movement is exterminating these tax gatherers and, as one of my hon. Friends has already asked, what is going to happen to all the services of the country if the co-operatives carry out their ultimate aim of eliminating all those collectors of rates and taxes? They will have to pay it all, and they may be in a very much more serious position than if they kept a few of them alive, if only for the purpose of collecting taxes and getting a bare living out of it.

The state of my letter bag, as hon. Members can imagine, has been very voluminous in the last few weeks, with I am glad to say, enthusiastic approval of everything that I said or did. There are only two slight exceptions, one on a postcard. I know how skilled the co-operators are, and I expect that I shall receive many apparently bona fide protests in the next few days. That is the way these things are done; just like the cards that they sent us all. I do not know whether they stamped them, because the cards came in large bundles. They were collected by the men who came round with the bread and milk in the morning. The men asked one correspondent, who said: "I do not like to sign it." They said: "They will not like you if you do not." He felt that he was being coerced in the matter. When men are calling upon thousands and thousands of houses, you can easily get people to sign anything, and you do not know what has been said or what instructions were given. Every woman who got a card would possibly think that her dividend had already been sadly reduced. One lady writes to me saying: "My dividend used to be 2s. 6d., but it is now only 1s. 4d." She thinks that must be because the co-operatives took up politics.

I was very much surprised to learn that the trade done with people who are not members of the co-operative movement is negligible. That is different from the information which has been put at my disposal, and which I do not suppose is as good as that of the Chancellor of the Exchequer, but it is good enough to be going on with. So far as I can learn, co-operative vans go through all the country villages, or a great number of them, and undersell the local trader for a period until he is exterminated and then the co-operatives proceed to get their own back. That will happen with all traders. We hear that they have very large Government contracts. That is not mutual trading, and has nothing to do with mutual trading. I am told also that the co-operatives have bought such things as a dairy in Devonshire, where they have preserved the old name for it, and are doing a huge trade in all dairy produce among the local people. I am told that at least 50 per cent. of the trade is done with non-co-operators. I suppose there must be a good many non-co-operators —not in the Indian sense.

Mr. LOGAN

The hon. and learned Gentleman has made a statement. Will he give us the district in which co-operative societies are coming in and closing the small shopkeepers? The hon. and learned Gentleman has used loose language before.

Mr. MACQUISTEN

I can tell the hon. Member the name of the dairy. I will give it to him for his own private information. I will give him the name of the district. In regard to the alleged statement that I made previously about automatic machines, I have seen the man, and he adheres to his statement. A lot of violent threats were made that I should "say it out in the open." That is all nonsense. I slandered no one and I mentioned nobody's name. It was all perfectly general about a man who called on another man who was a commission collector in control of a contract.

Mr. LAWSON

Why not say it publicly?

Mr. KIRKWOOD

Will you say it outside?

Mr. MACQUISTEN

How anybody could complain of an action like that I do not know. Hon. Gentlemen had better consult the legal correspondent of "Reynold's Newspaper." That reminds me that at one time I defended an old farmer for watering his milk. It was his third offence, and he was convicted. He said to me: "Intimate an appeal." I said, "What for?" He said, "Never mind, intimate an appeal," and so I did intimate an appeal. When we got outside I asked him about the appeal, and he said: "That does not matter, I am not going to appeal, but it gets into the newspapers and makes people think that I am not guilty." In the same way these gentlemen shout, "Say it outside."I am not going to trouble my head, but I would remind them of this—

Mr. KIRKWOOD

You have not the courage.

Mr. MACQUISTEN

I have more legal sense. Suppose when Mr. Samuel Plimsoll came to this House and gave, as he did, the names of the shipowners and of the coffin ships, he had accepted the invitation to "say it outside," and that he had said it outside, what a pleasant time he would have had. Would not the shipowners have drowned him in the same way as they were drowning the seamen? There is nothing I have said in regard to that particular question upon which hon. Gentlemen can attack me. I advise them to take a good legal opinion, and they will find that they are simply talking nonsense. In regard to my allegations about big business, there are one or two other things to say. I was accused of not having the facts with regard to the practices with which I dealt. Let me give the hon. Gentleman the Member for Dumbarton Burghs (Mr. Kirkwood) a few really definite things, which he can find in the newspaper for 22nd February. A leading man in a Newcastle co-operative society—

Mr. MORGAN JONES

May I ask whether this is relevant at all, Sir?

The CHAIRMAN

I have not yet heard what the hon. and learned Gentleman is going to say.

Mr. JONES

The hon. and learned Gentleman has already intimated what he is about to say. He is going to indicate what he alleges to be further evidence in support of a charge which the made in this House some time ago.

Mr. MACOUISTEN

No, I am giving a new statement. In the Newcastle paper —I will show the hon. Gentleman the cutting if he wants to see it—in February last a man got 15 months. Another of the name of Snowden was brought up on 72 charges. Snowden got 10 months. It was said that about £16,000 had gone astray. Then another couple of—

Mr. LAWSON

May I draw your attention, Sir—

HON. MEMBERS

Order!

The CHAIRMAN

The hon. Member knows that he cannot interrupt a Member who has the Floor, unless that Member gives way.

Mr. MACQUISTEN

Another gentleman got 12 months, and another eight months, for stealing coal, while yet another gentleman was found to have received 2 lbs. of butter a week for 13 years without paying for it. He was called before a meeting, which was, very properly, presided over by a gentleman called Mr. Lax, and they accepted £60 from him. Then there was a case in Manchester, where a night-watchman got away with £25,000—

Mr. ISAAC FOOT

On a point of Order. Is it in order that these statements should be made, whether accurate or inaccurate, having regard to the Motion that is before the Committee?

The CHAIRMAN

I am bound to say that I am not sure how the hon. and learned Member means to apply them to the question which is now under discussion. I suggest that he had better show how they apply to it.

Mr. MACQUISTEN

I mean to apply them to show that there is a tremendous amount of laxity in the co-operative movement, and the best prophylactics against and preventive of that will be when the tax collector comes in among them. He will put an end to a great deal of the wickedness that is going on. I know that the Labour party do not like it, because I see that the gentleman who got 15 months says: I am a caged rat, and my only hope is that my Labour friends will do their best.

HON. MEMBERS

Order!

The CHAIRMAN

I must ask hon. Members on this side of the House to leave the question of order to the Chair.

Mr. LAWSON

Tell them about Lord Kylsant.

Mr. MACQUISTEN

I want to raise one or two other questions about co-operative activities. I am astonished at the suggestion which is made that they are not engaged in all sorts of trade entirely independent of mutual trade. In 1915, a firm with a Capttal of £1,000 was registered in Mincing Lane, and carried on gigantic operations in tea, and, when losses were made, those losses were paid by the Co-operative Wholesale Society, which appeared to be employing the firm. In 1921–22 the diary issued by the Co-operative Society showed something like £1,000,000 lost in Mincing Lane in what was said to be a huge speculation in rubber. The Scottish Co-operative Wholesale Society declined to pay any share of that loss, and the matter nearly went to litigation. There was a good deal of comment in various newspapers, the "Evening News" and others. They took the money of these poor people to engage in these gigantic transactions in Mincing Lane. Some investigation should be made, because no one can get at the facts. They are hushed up, and I think that the greatest possible service that could be done to the co-operative societies and their 6,000,000 members, who are comparatively humble people, would be to appoint a committee to go through their books for the last 20 years and see what they have been doing—

The CHAIRMAN

The hon. and learned Member is now getting to a remedy which is quite different from that which would arise from the proposals in the Resolution which is before the Committee.

Mr. MACQUISTEN

I will abide by your Ruling. I have stated that the present position is in the last degree unsatisfactory, and, if Members of the House were to see my mail, and see the matters that come to me, they would agree that I could keep the House going for a week with all sorts of matters of this kind. What else can be expected in a huge concern having 18,000 branches? Undoubtedly there are many cases of wrong-doing in private enterprise, but they are all paying their taxes, and every man has an interest in looking after his own affairs. He is not handling other people's money, but the co-operatives are. Both limited companies and co-operative societies afford immense opportunities for wrong-doing, and I believe that if this Measure goes through, and the Government have a financial interest in the conduct of co-operative societies, the members will benefit enormously—their dividends will increase, and the security of their Capttal will be greater. In fact, I think that the remedy suggested by an hon. Member on these benches, that the whole business should be wound up, that the Capttal should be divided up among the members, and that they should begin all over again, would be the best of all solutions.

9.26 p.m.

The SECRETARY of STATE for DOMINION AFFAIRS (Mr. J. H. Thomas)

I had no intention whatever of taking part in this Debate, and it was not arranged that I should do so, but, as one who has been associated with the cooperative movement almost from the time when I reached manhood, whether as a member of a Government or as a private Member, I should be unworthy of my experience if I sat silent and allowed such base and unfounded charges to pass as those which have been levelled by the hon. and learned Member for Argyllshire (Mr. Macquisten). Whatever may be the merits of the issue that we shall be voting upon—and I shall vote for the proposal, because I am a Member of the Government, and have always played for my side—I cannot sit silent when a Member of the House, on a Motion of this kind, makes slipshod statements without a vestige of foundation.

That there has been a number of prosecutions is, of course, a tribute to the co-operative movement. What would the working classes say if there was fraud and robbery and no or 0 took action against it? That, indeed, would be an indictment against the movement. But are we to stand here and allow a movement to be condemned because it has had the courage to prosecute people who were doing wrong? And need we bother about the newspapers? Cannot we take up the newspapers every day and see that private firms are prosecuting their people for wrongdoing? What is the difference? I have prosecuted many branch secretaries who have robbed my trade union. That was not in indictment against my trade union, but I should have been lacking in my duty and responsibility if I had not brought to justice those who did wrong. In the same way, no one has any right, on an issue of this kind, to bring unfounded charges which cannot be justified. It is all very well to talk about the privilege of the House, but, if anyone has any indictment to make against an individual, he ought not to seek the cover of the privileges of the House.

The hon. and learned Member charged the late First Lord of the Admiralty with having used his position to give a preference to the co-operative movement. That was not only a libel on him, but it was a libel on every one of his colleagues, and it was not proved. Therefore, I repeat, I am not going to argue the merits of this particular issue this evening. My own view is that I would have liked an arrangement, because I believe this great big movement that is doing something ought not to be made the cat's paw of party politics. In fairness to the Chancellor of the Exchequer, I should say that he did his best to try to bring about an arrangement. The Chancellor of the Exchequer was anxious to make an arrangement that would settle this problem for all time. I did not get up to say that, but I felt in loyalty to the movement with which I have been so long associated, whether as a member of the Government or not, that I should not stand by and allow a gross and wicked libel on that movement which I know is not true and which could not be justified outside this House.

9.26 p.m.

Sir B. PETO

If I may be permitted to revert to the earlier part of the Debate, when we were more closely discussing the Resolution before the Committee, I heard the hon. and learned Member for East Bristol (Sir S. Cripps) use a double-barrelled argument. I hold that he cannot substantiate the two different barrels or branches of that argument. On the one hand, he pointed out that this proposal of the Chancellor of the Exchequer would cripple the co-operative movement; on the other hand, he declared that the taxation the Chancellor was proposing was of such a trivial nature that, if it were divided out among the taxpayers of the country, it would only afford relief to the extent of 1s. 6d. a year to the small trader earning £500 a year. It must be either one of the two; it cannot be both.

We have heard arguments about penal taxation and crippling the movement throughout the Debate. Let us see for a moment what the co-operators themselves say. They have sent round a paper from the Co-operative Union, Limited, which is signed by all the leaders of the co-operative movement, including the Parliamentary Secretary, Mr. Alexander, lately First Lord of the Admiralty. In that they say: As a matter of fact this sum— that is £1,200,000— is equal to a dividend of 1d. in the £ on a trade of £288,000,000. We have been told by other speakers that the co-operative trade of the country is even larger than that. I believe it is over £300,000,000, but, taking it at £288,000,000, then a penny in the £ is one-third of 1 per cent. of the turnover. Assuming the profits are 10 per cent., that means a tax of 3 per cent. on the profits. The tax on the profits of the ordinary wholesale and retail trade is not 3 per cent. but 25 per cent. Therefore, when the Chancellor of the Exchequer tells us this tax is going to equalise the position between the co-operatives and private trade, I am afraid I cannot agree with him.

Let us see what the proposal really means. The great difference—and it was referred to by the hon. and learned Member in his attack on the Prime Minister in the earlier part of the Debate—is whether the "divi" is taxed or not. The right hon. Member for Darwen (Sir H. Samuel), at the conclusion of his speech, said that this proposal of the Government would not please anybody, that it would certainly not please the co-operatives or the party opposite, and it would not satisfy the retail traders of the country. I am inclined to agree with both sayings of the right hon. Member. The position broadly is that co-operative trade has increased daily and monthly and yearly at the expense of private trade, and nothing will equalise the position except by the co-operative trade making a contribution in one form or another to the revenue of the country in proportion to the amount of trade it is doing. Whether or not Income Tax is the right vehicle of taxation is very doubtful.

It was said in the Debate that this question had been suddenly sprung upon the country and upon the House. It is really quite inaccurate to say so. As long as 15 years ago two Chancellors of the Exchequer, the right hon. Member for West Birmingham (Sir A. Chamberlain) and the late Mr. Bonar Law raised this matter, though it is true it was in connection with other taxes, the Excess Profits Duty and the Corporation Profits Tax. When these taxes were objected to by the co-operative societies, those two Chancellors of the Exchequer said at that time that so great a share of the trade of the country was being done by the cooperative societies and was esCaptng taxation that the position had become intolerable. The position was described as intolerable 15 years ago; yet we are told in this Debate to-day that no notice has been given of this question and that the present Government has no mandate to act.

I agree with the right hon. Member for Darwen that this proposal to tax only the sums placed to reserve will not completely satisfy in the sense it will not conduce to the sense of equity and fairness between the private trade of the country and co-operative trade. It is undoubtedly a step forward, and it is only a step, because it will be a long time after we pass this before any Government tackle it again. This arrangement will go on and will settle things for a long time, although it will not completely satisfy private trade. When I hear it said that it is no good at all because co-operators will undoubtedly increase the amount of "divi" and place nothing to the reserve, that does not seem likely to me. One has only to consider how this vast co-operative movement has been in the main built up. It has been built up in the main from the sums placed to reserve from the profits of the business carried on over many years. The cooperative movement is expanding. If these sums are not placed to reserve, it will put a complete stop to this process of expansion, and I believe the co-operative movement means to expand and will expand. All I ask is that in the process of expansion it shall make some contribution to the revenue.

When we ask why we are not to tax the real profits of the co-operative trade, the part that goes in "divi" to the members, we are told that it is because the Raeburn Committee have decided, after considering the subject elaborately, that the "divi" is, in effect, discount. I cannot for a moment allow that to pass unchallenged. I suppose, if you have to find a parallel to the "divi," it is much more near what its name implies, a dividend such as is paid to shareholders out of profits than a discount upon trade done. Discounts are given to individuals fin virtue of their individual orders, and vary in percentage in accordance with the importance of the orders given. Some discounts are given only to members of the trade, wholesalers and the like, and are known as trade discounts. They are limited to the trade and are not given to all purchasers. I hold, on the other hand, that the"divi"is merely a method of distributing profits, and it is much more nearly a dividend than a discount. As far as revenue is concerned, there is no question that this £1,200,000 does not really settle the question of the great co-operative trade of over £300,000,000 a year, paying any fair share towards the taxation of the country in proportion to the results of their various activities. The paper that I have just quoted says that the trade of the retail societies is round about £205,000,000 or £210,000,000 a year. If that trade were in the hands of private individuals and companies, at the present rate of Income Tax it would contribute over £4,000,000 a year more to the revenue than is now going to be asked of the co-operative movement.

Therefore, it is not surprising that, with one or two exceptions, such as the speech of the hon. Member for Shettleston (Mr. McGovern), the Government proposals have been received with extraordinary equanimity by the Committee. There has been very little feeling shown except in the very small incident that has just closed, and I am not surprised, because, after all, the proposals are so moderate that I am able to agree with the right hon. Gentleman that they will really not please either party and, because they will not please either party, it is fair to assume that they are wise and statesmanlike. With regard to the negotiations that the right hon. Gentleman had with the co-operative societies, I do not want for a moment to say anything that would be offensive to him, but I think that the results, which were nil, have proved that this new procedure of negotiating with a body of taxpayers as to whether they should be taxed or not is one which we hope will never be repeated. It produced nothing, it was an undignified proceeding, if the right hon. Gentleman will excuse me saying so, and it would have been very much better if the Government had made up their mind, although I know it is difficult in the circumstances, announced it to the House, and proposed their financial resolution in the ordinary form. It has had an extremely good re- ception even from hon. Members opposite. The hon. and learned Gentleman the Member for East Bristol made the very best that could be made of a very poor and weak case. I think the Chancellor is to be congratulated on having steered a most difficult proposal through the Committee without a word of serious opposition from any quarter.

9.41 p.m.

Mr. KIRKWOOD

When the hon. and learned Gentleman the Member for Argyll (Mr. Macquisten) commenced his speech, the Committee did him the honour of filling up. Those who are against co-operation thought that at last reaction had produced an outstanding man, who would stand up against truth, but they discovered to their dismay that their champion took advantage of a coward's castle in the meanest and despicable manner possible. He had been challenged to make his statement outside, and he had not the courage of a louse. The Secretary of State for Dominion Affairs administered a sound admonition, but he showed that, while he loves the co-operative movement, he loves the Government better. What is all this tirade that is being made? The chief attacker up to now has undoubtedly been the hon. and learned Gentleman the Member for Argyll, and he attacked this great movement because it had kept itself intact. It is the only great industrial concern in Britain, if not in civilisation, today that remains intact. All your big industries, with all their great financial experts, and all the big industrialists with their business acumen, have had to write off millions, and this is a business run by working men.

The hon. and learned Gentleman was giving vent to the feeling of enmity of the ruling class when he made a deliberate attack on Mr. Alexander, who filled his post at the head of the Admiralty as creditably as anyone who has ever occupied the position. He was drawn from the ranks of the working class without any training for any special job of this kind, and yet he fulfilled it as well as any man who has ever been in office, and, if a Member of the House gets up and takes advantage of the privileges of the House and makes an attack and tells deliberate lies—

The DEPUTY-CHAIRMAN

The hon. Member must not accuse any Member of this House of lying.

Mr. KIRKWOOD

The hon. and learned Member has had every opportunity to substantiate his statements outside. When I once made statements in this House, in 1926, and the Home Secretary of that time challenged me to make those statements outside, I went outside and made them, and I was fined £35 for doing so. It is a serious business for any man in the responsible position of a Member of this House to make statements such as were made by the hon. and learned Member for Argyll when he knew that he could not substantiate any of them, and to cast a slur on one of the most outstanding men our movement has ever produced.

The hon. Member for Colchester (Mr. Lewis) told us that the co-operative movement had a turnover of £300,000,000. That is what is wrong. Here is one of the greatest concerns in the country being run by the working class. It is a living example to the country of what members of the working class can do. They are not university-trained men or men specially trained for the positions which they occupy, but men gifted with common sense and able to apply it and to take the advice of experts and so carry on the huge concern which is second to none in the country. It is because of that living example to the working class that we on these benches can go out to the country and say: "That is what Labour men can do. That is what members of the working class can do. Give Labour a chance and Labour can govern the country just as well as the co-operative members can run the co-operative movement." That is what they are up against, and they want to trammel it. The hon. Member for Colchester gave the game away as far as he is concerned. He said that the cooperative movement spent money upon educating the working class, so that it was unfair on a representative like himself. Owing to the money which the cooperative movement spent in educating the working class, along came a working-class candidate who needed only to spend £600, because the folks worked for him for nothing, but along came the Tory who had to pay for everything, and it cost him £1,200.

I hope that the working class is paying attention to what the Tories say in this House. They are writing on the wall as far as this Government are concerned. They say that the co-operator does not pay taxes. The co-operative society in my constituency in Clydebank in 1914 paid £80 in taxes, and in 1932 it paid £1,069 in taxes, proving conclusively that the co-operators are paying their fair share of taxes. They are not to tax the "divi" because the Chancellor of the Exchequer is a shrewd fellow. I know, for I have had talk with him. I have reasoned with him. He realises that it would be detrimental to his party. If ever there was a party man, it is the Chancellor of the Exchequer. He realises full well that it would be injudicious at the moment to tax the co-operative "divi" because the co-operative movement is a great power with which to be reckoned, and, therefore, he does not want to chase the co-operators away entirely from the Tory party. He desires to keep a grip upon them, and he says to them: "You see, we are up against it. Our country is in a terrible state. We have not got round the corner yet, and therefore you just have to contribute a little more. We do not want to do what is wrong, but we want you to play the game." Letting them down in his soft, nice, sauve manner, he says: "We will just tax the reserves."

I will tell the Chancellor of the Exchequer what we do with the reserves. I cannot speak about England, but I can speak authoritatively about my native land as to what co-operators are doing with the reserves. The right hon. Gentleman when Minister of Health was in favour of, and, according to his lights, advanced housing schemes all over the country. His idea was to build new cities, and we gave him every encouragement. Adjacent to Clydebank is a new city called Knightswood, about 30,000 souls being rehoused there. The Clydebank Co-operative Society went into that new town and opened shops, and if it had not had reserves it could not have done so. That is what we are doing with the reserves. We are doing what we can to meet the demands of the folk in those new towns, and it ill becomes the Chancellor of the Exchequer, one of the chiefs of the National Government, to make this attack upon the co-operative movement, which is essentially a working-class movement. It was founded by the working-class. Think of how it started in a little shop, with about £20 behind it, and, realise that to-day the movement has a turnover of £300,000,000 a year.

This has all been done by the efforts of working-class men and women. How can this Government take advantage of that idea of thrift and interfere with the well-being of the poor who have savings in the co-operative movement? It is not a question of interfering with the savings of the rich who have tens of thousands which they do not require. The money in the co-operative movement represents the savings of working-men and working-women, who might well have spent it but they denied themselves by putting it there, believing that the day would come when their children would get the benefit of their providence. Now, we have the Chancellor of the Exchequer taking advantage of the situation, because this is such a powerful Government. He knows that there are only a few of us and that he can carry through anything that he wishes. We have had a Cabinet Minister, who has been a Labour man all his life, the leader of one of the most powerful trade union movements, the Secretary of State for the Dominions, pointing out what the great co-operative movement is, but despite that fact he says that he is going to vote with the Government. Well, the Government will require to pay the price when the time comes.

9.56 p.m.

Mr. GEORGE HALL

I urn sure that the Chancellor of the Exchequer can. understand the feelings of the right hon. Member the Secretary of State for the Dominions in consequence of the way in which he intervened in the Debate. May I tell the right hon. Gentleman that the feelings that were expressed by the Secretary of State for Dominion Affairs are the feelings which are held by right hon. and hon. Members on this side of the House? We are of the opinion that the right hon. Gentleman and a number of his colleagues in the Cabinet, together with a number of back bench Members who are supporting the Government in this proposal, cannot understand the position of the co-operative societies in the hearts and minds of the great mass of members of that movement. It is a movement which, as the hon. Member for Dum- barton Burghs (Mr. Kirkwood) has said, has grown from the efforts of the early pioneers in the year 1844. It has grown not only in size and in strength but in the hearts of the people of this country until it has reached a position when almost every member of a co-operative society looks upon this great movement as a part of his very being, and almost as a child of his. If the right hon. Gentleman cannot understand that feeling I can assure him that those of us who have been cradled in the movement can understand the feeling of despair which fills the minds of large numbers of people as a result of the proposal which the Chancellor of the Exchequer is now making.

Complaints have been made from this side of the House with regard to the manner of the setting up of the Raeburn Committee. My hon. Friend the Member for St. Rollox (Mr. Leonard) referred to a statement which the Chancellor of the Exchequer made in introducing his Budget last year, when he expressed his opinion that the co-operative society enjoyed a privileged position. Far be it from me to suggest that the Chancellor of the Exchequer saw that those who occupied the position of judging this matter would be people who could not bring an unbiased mind to bear upon the work which he directed them to do. The hon. Member for St. Rollox also referred to one of the members of the Raeburn Committee. There is no doubt as to the bias of that member against the co-operative movement. Moreover, one has only to look at the kind of evidence which was called by the Committee. What were the associations or organisations called to give evidence? There was the National Traders' Defence League, the Scottish Federation of Growers' and Provision Merchants' Association, the Federation of Grocers' Associations of the United Kingdom, the National Citizens' Union, the National Chamber of Trade, the National Federation of Meat Traders' Associations, and then came the Board of Inland Revenue and the Parliamentary Committee of the co-operative movement. In every way this Committee wa3 weighted against the co-operative movement, and one could quite understand the decision which was arrived at and the recommendation which was made by the Committee, a recommendation which has been accepted by the Government.

This is not the first time that the cooperative movement has been attacked in this country. Almost as soon as it began to be a force in the trading circles of this country attempts were made to compel the co-operative movement to pay an unjust tax. In 1850, just six years after the formation of the movement, efforts were made and for two years the authorities succeeded in obtaining Income Tax from the co-operative movement, but people who were not learned in the law and who knew very little of business had sufficient courage to resist the imposition which was placed upon them. It has been interesting to listen to a number of hon. Members who have suggested that the present agitation for the taxation of co-operative societies is not an agitation from big business but that it is an agitation from the small business people, from the small grocer, and the small draper. How long is it Since big business has not agitated for the taxation of co-operative societies? Is it not a fact that 10 years ago Sir Eric Geddes led a deputation to the Lord President of the Council, who was then Chancellor of the Exchequer, and, speaking on behalf of the Federation of British Industries, called the attention of the Chancellor of the Exchequer to the fact that the co-operative movement was growing in such strength in this country that it was time the Government sat up and took notice?

While small businesses are the pawns which are being used in this agitation, we can see big business behind every move. It is not merely small business; we can see the vindictiveness of big business in every action. How many of us in the last three or four years have not heard question after question put to the Chancellor of the Exchequer regarding the taxation of co-operative societies? Hon. Members cannot leave business interests outside the door of the House of Commons and forget them when they come in. In the National Government there are 190 Members connected with business, and those 190 Members are interested in 700 different trading concerns. If anyone wants to ask for the secret of this proposal it can be found in the composition of the present House of Commons. In his last sentence this afternoon the Chancellor of the Exchequer said that the co-operative societies were going to be treated just as other traders; but to do that he said that it was necessary to amend the existing law.

How are the Government going to obtain this £1,200,000? Are the co-operative societies to be treated, in the raising of this money, in the same way as private traders? Will any allowances be made under Schedule A, and under loan and share Capttal, as are made in the case of private traders? I am glad to see the Secretary of State for the Dominions in his place. We can understand his outburst of feeling against the hon. and learned Member for Argyll (Mr. Mac-quisten) but we cannot understand the right hon. Gentleman's closing sentence, when he said that notwithstanding his opinions, notwithstanding the principles of a lifetime, he was one of a team and was going to play with the team. He is going to forget everything he had been taught, to forgo every principle in which he has believed, and support a tax which he has always opposed, simply because he is one of a team. We cannot understand how the right hon. Gentleman is prepared to continue to play in a team which is out of sympathy with what he believes. When this matter was discussed some 10 years ago in this House the right hon. Gentleman said: If I were asking the House of Commons to give a privilege to the co-operative movement the right hon. Gentleman would be entitled to ask why should we differentiate P Therefore, I say it is a question not of £150,000. The right hon. Gentleman in 1921 took his stand not on a question of £1,200,000, but on £150,000; and his opposition was so strong on the question of principle that he led others into the Lobby and defeated the proposal. He went on to say: Therefore I say, it is not a question of the £150,000 which is involved. The question involved is whether this Government is going to reverse, under the guise of the Corporation Tax, the accepted policy of every Government for the past 50 years. Never mind what our politics may be; never mind on what side of the House we may sit, there is no one who would not admire respect and encourage the man who says: I will go on with my work, I will do my best, I will endeavour to buy a house, 'I will be thrifty and endeavour to educate my family.' That is the type of citizen we all want to encourage. He has made our country great and he is the man we all want to help. How can it be said that we are doing the right thing when we say, 'No, for the first time, never mind all your efforts in the past, never mind how thrifty you have been, we think now is the time to take £150,000 from you.'"—[OFFICIAL REPORT, 19th July, 1921, col. 2122, Vol. 144.] Never mind all the efforts of the past; never mind all the work that the cooperative movement has done for the right hon. Gentleman and myself and our colleagues, and for the 6,000,000 of people in the country, never mind all that, I will play with the team. The right hon. Gentleman is undoing the work of 60 years. I ask him not to forget his past and to think of the present and the future. There is one thing which we can admire about the right hon. Gentleman, and that is his courage. What a contrast to the statement made this afternoon, the miserable statement of the Prime Minister. I have never seen a more unhappy statesman, I have never seen a more unhappy Member of Parliament in this House than the Prime Minister as he stood at that Box this afternoon endeavouring to explain away something which he could not explain away. It is not a question of what the Prime Minister said at the last election, it is a question of the professions of a lifetime. Until a short time ago we thought that the Prime Minister would be the one person who would defend the co-operative movement. All forgotten. We regret it.

He says that it is a question of not taxing dividends. Where is this £1,200,000 coming from? It is coming from reserves. What are these reserves? They are the unpaid dividends of the 6,000,000 working men and women, who in preference to having their dividends quarter after quarter, decided to put their concern into a condition of financial stability. Now the Government says, "We will take £1,200,000 from you." This sum of money will have to be found; and it can only be found by taking it from those people who are members of co-operative societies. It must mean that on every £l worth of purchases in the retail societies in this country the amount of dividend paid will be less than if the tax was not charged. But there are other quotations from other Members of the Government. Where in the President of the Board of Trade on this matter? Where is the Foreign Secretary; and where are some of the Liberal Members? The right hon. Member for Darwen (Sir H. Samuel) said that he and his colleagues were going to oppose the Resolution. We were glad to hear that, because otherwise it would have meant that they had forgotten the professions of the Liberal party of the past. I have never read a more striking passage dealing with the taxation of co-operative societies than a speech made by the late Lord Oxford when he was a Member of this House. Speaking on the 19th July, 1921, Mr. Asquith as he then was, said: What has been the financial policy of this country in regard to co-operative societies in the past. They are liable, like other persons who own and occupy land, under Schedules A and B, and they do not disclaim that liability. They are satisfied with it, but they might claim abatements which they are willing to forgo. That has been the experience right along —that the co-operative societies could have claimed abatements which they have decided to forgo. The right hon. Gentleman said further: Then again, as regards profits which are made by a co-operative society from trading outside its own membership, no one disputes and certainly the supporters of this Amendment do not dispute and do not ask the House to dispute, the liability of the co-operative funds to that extent. But it has always, upon grounds of public policy, which have been recognised by successive Chancellors of the Exchequer now for the best part of two generations, and certainly so far back as my financial memory goes, been maintained, that the so-called profits arising from their mutual trading should not be regarded as subject to Schedule D. That is common ground. That has been hitherto, upon grounds of policy which I believe to be thoroughly well justified—at any rate which have never been successfully challenged by this House and which have been followed by successive Administrations of almost every complexion of political thought and party—regarded as almost a fundamental canon of our Income Tax law."—[OFFICIAL REPORT, 19th July, 1921; col. 2105, Vol. 144.] One could go on quoting ad libitum these statements which were made by the right hon. Gentleman. I should have thought that that fact would have been sufficient in itself to have convInced the present Government on this matter. We can quite understand the mentality of right hon. and hon. Gentleman opposite. They are truly representing the opinion which was expressed by Mr. R. Walker in the evidence which he submitted to the Raeburn Committee. Mr. Walker said: If I may be allowed the expression, the co-operators, as far as trade is concerned, are mere intEriepers. They have introduced no new trade; they have invented nothing, created nothing. The whole of the £340,000,000 of trade which they did in 1930 have been abstracted from the traders of the country. That is the attitude of the traders generally, and unfortunately it is the attitude of the present Government, for they are simply carrying out what the private traders asked them to do in that Committee. It is no use the hon. Baronet the Member for Barnstaple (Sir B. Peto) saying that the private traders are not satisfied. Of course they are satisfied. They have got in the thin end of the wedge, and they know that with a Government such as this they can go on driving the thin end of the wedge in further. The same gentleman in his evidence before the Committee said: The co-operative movement is the present-day menace to the State. I quote now, not my own opinion, but the opinion of the right hon. Member for Hillhead (Sir R. Home). He said in this House on 20th June, 1921: No one is more ardent than I am in the tribute I am prepared to pay to the very great work which the co-operative movement has done in this country. It has been referred to as a great movement towards thrift, and I am perfectly certain that, no matter how prejudiced any individual trader might be, he would be compelled to acknowledge the truth of the claim made for the co-operative movement, that it has probably done more to encourage thrift among the masses of our people than any other single factor of which we are aware."—[OFFICIAL REPORT, 20th June, 1921; col. 1030, Vol. 143.] The hon. and learned Member for East Bristol (Sir S. Cripps) in his excellent speech dealt with the assistance which the movement has given to this country during this period of unprecedented distress. He referred-to the fact that 12 co-operative societies during the last II years have paid out in dividends, with drawals of Capttal and loans to their members, no less a sum than £42,000,000. These payments have been made in some of the most distressed areas—Sheffield, for example,£4,300,000;Manchester and Salford, £4,116,000:Barrow-in-Furness,£1,200,000;Barnsley, £6,500,000;Liver pool, £5,500,000; and Bolton over £1,000,000;Taking the co-operative societies throughout the country, £400,000,000 has been paid out during the last 11 years. I shudder to think of what would be the state of things in my own division had it not been for the fact that an excellent co-operative society was operating in that area. The same remark would apply to practically every other industrial division in the country. It is not only a question of paying out dividends. It is not only a question of share Capttal or of loans. Is there any industrial area in the country, in which there is a progressive co-operative society, where that co-operative society has not made its contribution to the educational and social life of the district? That in itself ought to be sufficient to warrant the Government dealing with this question in a different manner.

One can understand the attitude of some hon. Members and some traders in their hostility to the co-operative movement. How far do the labour conditions which prevail in the movement account for that hostility? There has been a growth in the number of employés of the co-operative organisation, from 115,000 in 1914, to 263,000 in 1931, and the wages paid to those employés have increased from £9,000,000 in 1914 to £34,000,000 in 1931. The Ministry of Labour in 1926 set up an inquiry into the question of establishing trade boards in the distributive trades. The Ministry then discovered that in the grocery trade of the country outside the co-operative movement only 2 per cent. of the employés were members of trade unions. In the catering trade less than 1 per cent. of the employés were members of trade unions and in the butchering trade, 13 per cent., whereas in the co-operative movement no fewer than 86 per cent. of the employés were members of their trade unions.

What effect has that upon private trade? The co-operative movement in 1926, some seven years ago, took over a large business in the West End of London, and with that business they took over no fewer than 300 employés. In the first week after the co-operative movement took over that business, there was an increase in the wages and salaries of each person who was employed in that business of no less than an average of 15s. a week; in other words, the wages bill for those 300 employés amounted to an increase of no less than £200 a week, and that is the experience in the taking-over of almost every business which the cooperative movement has had to take over in this country. When hon. Members refer to the loss of taxation as a result of driving private traders out of business, we claim that there is no loss of taxation, because invariably the co-operative society takes over what is very largely a bankrupt business, and if anything is lost from taxation of profits, that taxation is more than made up by the increase in wages paid to the employés as a result of the co-operative movement taking it over.

There can be no justification for this tax. Let me give the Chancellor of the Exchequer an experience that has come to my notice recently with regard to a co-operative society in my own division. We have in the Aberdare division one of the oldest co-operative societies in South Wales. Unfortunately, it fell upon rather a distressing time. A young society at Aberdare felt that; they could not allow the older society to go out of existence, and there was an amalgamation between the two societies, upon terms. But instead of the members of the old Cwmbach Society having their full 20s. for every £1 of share Capttal which they had invested in the society, the Aberdare society, owing to financial difficulties, could only allow them 7s. in the £, but the Aberdare Society decided that they would establish a redemption fund. Out of their trading profits, so much was set aside each year, with the result that two-thirds of the difference between 7s. and 20s. have already beer paid to the members of the Cwmbach Society. There is still a sum of between £11,000 and £12,000 outstanding. If this tax is put into operation, those members of the Aberdare Society will not only have to raise £11,000 but an additional £3,000, because the £11,000 will be liable to the tax which the right hon. Gentleman the Chancellor of the Exchequer is now en forcing. Not only would that apply to that particular society, but it would apply also to a number of other societies throughout the country.

The one movement in this country that is combating the influence of the big food trusts is the co-operative movement. The one movement in this country that is keeping down prices is the co-operative movement. The one movement in this country of which the country ought to be proud for the amount of service which it has rendered the country is the co-operative movement. I conclude as I com- menced, by saying that the Government are striking at one of the greatest forces for good in this country, and at the same time they are striking at the poorest of the poor of the people of this country. Elderly persons have spent a lifetime in giving service to the co-operataive movement, which they regard as their child, and the Chancellor of the Exchequer and the other Members of the Cabinet are coming in and inflicting a grievous injury upon this child. The action of the Government will be remembered in the homes of millions of people as another attack upon the standard of life of the working people.

10.30 p.m.

The FINANCIAL SECRETARY to the TREASURY (Mr. Hore-Belisha)

My hon. Friend the Member for Aberdare (Mr. G. Hall) has spoken with his usual restrained fervour. He asked me whether I could name anyone or any institution which had done as much for education and social service as the co-operative societies. I do not deny the great benefits that these societies have conferred, but many millionaires have established educational foundations and have endowed medical research at a cost of many millions of pounds, but they have never claimed that that should be their title for exemption from Income Tax. I understand that the Resolution which is now before the Committee was awaited with-some misgiving Those responsible for the conduct of co-operative societies, in ignorance of the meaning of the Raeburn Report, misinformed their members as to what the report contained. They told their members that the Government Committee appointed to inquire into the position of co-operative societies in relation to Income Tax had reported in favour of the taxation of co-operative surpluses or dividends, which were the tangible results of mutuality in trade, and they asked them to array themselves in order to safeguard their "divi." Scotland, it was said, must stand firm at this subtle attack on the co-operative trade and "divi."

That information having quite wrongly been placed before them, I can appreciate the anxiety which moved them, and it is not surprising that, if that were the interpretation put upon the report of the Raeburn Committee and our proposal, the strong language which resounded even this morning from the Press should have been heard. Many adjectives were used to describe our proposal, such as pernicious, inequitable, unjust and penal. Hon. Members have listened to the Debate to-day. Usually we have the calm before the storm; on this occasion we have had the storm before the calm. I can sympathise with the feeling of the hon. Member for St. Rollox (Mr. Leonard), whose whole life has been honourably bound up in the co-operative movement. Nevertheless, we should not be deflected from appreciating exactly what it is that this Resolution connotes. It in no way fulfils the prognostications or justifies the fears of those who informed co-operators so wrongly of what it was that we intended.

Sir GEORGE HAMILTON

That is how the petition got signed.

Mr. HORE-BELISHA

The purpose of His Majesty's Government is to carry out the recommendations of the Raeburn Committee, which was appointed to inquire into the position of the co-operative societies in relation to Income Tax. The hon. and learned Member for East Bristol (Sir S. Cripps) made it a grievance that we had appointed a committee to inquire into the assessability of cooperative societies for Income Tax. He said, not accurately as it happens, that this was the first occasion on which a committee had been appointed to inquire into the assessability of any particular section of the community. But his grievance is really a tribute to our fairness. The Royal Commission upon Income Tax was appointed in 1918 to survey the whole field, and it reported, as the Raeburn Committee has now reported, that there was no ground for exempting co-operative societies from the ordinary obligations. That report was never put into effect so far as the co-operative societies are concerned, and my right hon. Friend took the course of appointing another committee before carrying out what, in fact, it has proposed.

What is it that the Committee has proposed? It made three recommendations. The first is that co-operative societies should be charged to Income Tax in respect of all trading, whether with members or non-members, the charge being computed in accordance with the ordinary provisions as to allowable expenses—I draw the attention of the hon. Member for Aberdare to that, because he asked the specific question—wear and tear, etc., applicable under the Income Tax Acts in the case of corporate bodies carrying on trade. The second is that the "divi" should be treated as a trading expense; and the third is that the statutory exemption granted by Section 39, Sub-section (4) of the Income Tax Act, 1918, should be withdrawn. In sum, the proposals of the committee are that co-operative societies should be on the same footing as trading companies bEarlng the standard rate of tax on their undistributed surplus or income as normally computed for Income Tax purposes. It is a first principle of taxation that all taxpayers in similar circumstances should be treated alike, and it is to this principle that the Resolution gives effect in exacting Income Tax on the same basis from all incorporated companies or societies equally. That is all that this Resolution does.

What is the income of societies and of trading companies? In so far as it is distributed both companies and societies are treated on exactly the same basis. They pay interest upon shares or deposits, and the Income Tax is calculated by reference to the income of the recipient. There is no difference whatever between the trading company and the society. That sameness of treatment will remain. There is a slight variation in the method that, whereas companies deduct Income Tax at the source, in the case of co-operative societies it is the beneficiary who is assessable. That is a mere matter of convenience which will continue. So much for the distributed income, which is on a parity in the case of the trading company and in the case of the society.

When we come to the undistributed income, we are met at once with an anomaly. If an industrial and provident society invests its reserves in property, it is, like a company, liable to Income Tax under Schedules A and B, whereas if it invests them in Government stocks, in foreign securities, in shares, or in bank deposits or mortgages, it is not liable, as a trading company is, under Schedules C and D, or at all. The Raeburn Committee were unable to elucidate, in examination, any historic reason for this paradox. It has its origin in the old Friendly Society Acts, which were re-enacted in Section 39, Sub-section (4) of the Income Tax Act, 1918. This Subsection we now repeal. The Committee will observe that income, whether arising from investments or property can assume no special character"— I am here quoting paragraph 16 of the Report— because it happens to be received by a co-operative society. The co-operative societies themselves do not justify this anomaly. Indeed, the hon. and learned Gentleman the Member for East Bristol said that if this Subsection were repealed, and if nothing else were done, the societies would actually be in a better position than they now are. Nor, I understand, do the societies claim that they should continue to be exempt from tax in their trading with non-members.

So we have narrowed the issue down to this: should the undistributed income or surplus of co-operative societies, derived from trading with their own members, be liable to Income Tax? It is important to observe, as my right hon. Friend the Chancellor of the Exchequer pointed out in moving this Resolution, that a shipping company which carries its own shareholders pays taxes on the profits that it makes out of carrying its own shareholders. Not so a co-operative society; it does not even pay tax if it carries the general public. A trading company running a store which sells to its own members is not exempt from tax on that account, but a co-operative society is, and it is not even assessable to tax if it sells to the public at large. A municipality running a trading concern pays tax upon the profits. If a co-operative society should run a line of omnibuses in competition with the omnibuses of a municipality, you would have this position, that the municipality would pay taxes on the profits but the co-operative society would not. It is this inequality—

Mr. KIRKWOOD

Surely that is a hypothetical case. There is no case of that sort.

Mr. HORE-BELISHA

Surely we are dealing with the law?

Mr. KIRKWOOD

It is a hypothetical case.

Mr. HORE-BELISHA

My hon. Friend the Member for Dumbarton Burghs (Mr. Kirkwood) will realise that we have to deal with the law. It is the law that we are making in this House, and the law now is that, if a co-operative society were to run a line of omnibuses in competition with the municipality, the municipality would pay, but the co-operative society would not pay, on its profits, and it is this inequality that we propose to redress. How does the inequality arise? It arises, first, under the Section which I have mentioned of the Income Tax Act, and which we now propose to repeal. The hon. and learned Member for East Bristol said that, even if we repealed that Section, the co-operative societies would still be protected by virtue of the principle of mutuality. That principle is that a man cannot make a profit out of himself. It is an easily understandable principle, and, if it is extended to a few persons, it is still understandable that a number of persons combining in order to buy an article more cheaply cannot make a profit out of themselves. But surely there must be some limit—[HON. MEMBERS: "Why?"] If the whole country were to become covered by cooperative societies, the Revenue would receive progressively less Income Tax. If my hon. and learned Friend disputes that, I have verified the fact that, in a country where co-operative trading has been extended to its logical limit, cooperative societies are taxed far more heavily than it is proposed to tax them in this country.

There must be some limit to the idea of mutuality, and, when a society, or series of societies, has a turnover of, it may be, millions of pounds, surely it is impossible to identify any particular purchaser with the principle of mutuality. [HON. MEMBERS: "Why"?] Surely, if 10 men combine to buy a sack of potatoes, paying 1s. a head for the purpose, and if it happens that the sack of potatoes costs them 10d. less than they thought, and they each get 1d. back, that is mutuality; they have each saved 1d. on the transaction. But if that is carried into the most complicated and intricate system of trading, it cannot be contended that mutuality still applies. [HON. MEMBERS: "Why?"] There must be a limit, and it is the function of the House of Commons to prescribe that limit. Accordingly, what we have decided to do is this: Once we have the circumstance of a separate corporate legal entity from whom, and not from each other, members purchase, we consider that the principle of mutuality can no longer apply.

Mr. LEONARD

I like the simplicity with which the hon. Gentleman is dealing with this matter, but I want to ask him one question. If a society, at its half-yearly meeting, finds that it can return to its members 2s. as dividend, and if the members determine that it shall only return 1s. 11d. and put 1d. into a common pool, how does that 1d. escape mutuality?

Mr. HORE-BELISHA

My hon. Friend then would place no limit at all upon mutuality. The right hon. Member for North Cornwall (Sir F. Acland) wanted to know the scope of this Resolution, and whether it would be extended to the farmers' associations and the allotment societies. The test is a simple one. Are these societies engaged in trade? If the societies are engaged in trade for purposes of Schedule D and they make a profit, then that profit is assessable to Income Tax. If they are not engaged in trade, the profit is not so assessable. It was a criticism brought against these proposals by the hon. and learned Member for East Bristol that they were attempting to cripple, or would cripple, the retail societies. How so? The retail societies have sales amounting to £207,000,000 per annum; the additional tax payable by them will be about £400,000, about one-fifth of 1 per cent. The wholesale societies have sales amounting to £100,000,000 the additional tax payable by them will be about £650,000 which is just over one-half of 1 per cent. Surely the hon. and learned Member has too close a knowledge of co-operative societies to imagine that a fractional tax upon their turnover such as that can succeed in crippling them.

Both the hon. and learned Member and my right hon. Friend the Member for Darwen (Sir H. Samuel) complained that co-operative societies had been lured by Parliament into becoming incorporated bodies, and that, having become incorporated bodies, we were now about to place a tax upon them. This is a remarkable charge. Even though the right hon. Member for Darwen does not know it, the hon. and learned Member for East Bristol does, that under the general law not more than 20 persons can combine together to carry on a trade. The cooperative societies must therefore be incorporated somehow. If they chose to be incorporated under the Industrial and Provident Societies Acts rather than under the ordinary company law, it is because they derive certain advantages. We have, therefore, given to these co-operative societies facilities which they would not otherwise have enjoyed, and have saved them expense. The right hon. Member for Darwen said that the "divi" and the surplus were both derived from the same source, and that it was illogical to tax one without the other. That might be true if the reason for not taxing the "divi" were the mutual nature of the transactions from which it arose. The Raeburn Committee do not base their exemption of the "divi" on any idea of mutuality. They regard it as a trade expense analogous to discount, and there is no more inconsistency in taxing the surplus of a co-operative society without taxing the "divi" than there is in taxing the profits of an ordinary trading company without taxing discount allowed to the customers.

These are the grounds upon which our proposal has been contested. My right hon. Friend at the beginning of this Debate issued a challenge. He asked any hon. Member opposite to show that this taxation was penal. No argument has been addressed to show that. The co-operative societies are in common practice indistinguishable from trading companies. The purchasers buy their goods in the shops in exactly the same way. The shareholders receive interest in the same way, and the entity itself which is trading should pay tax in the same way upon its undistributed surplus. It is our duty here to see that all individuals and corporations in similar circumstances and performing the same tasks should be treated with equality before the law. This Resolution achieves that principle and nothing more, and it is because it is fair and equitable, because it has in it no element of penality, that I ask the Committee to accept it.

10.56 p.m.

Mr. de ROTHSCHILD

I understand that the Eleven o'clock Rule, through the kindness of the Government, has been suspended. As I have vainly tried to catch your eye, Sir, several times, I take it that it was done out of kindness to myself. I should not have risen at this late hour if I had not been very seriously perturbed by the speech of the hon. Gentleman who has just spoken, because he has stated that, if agricultural co-operatives made a trading profit, it would be subject to this new taxation. At the present moment we have the right hon. Gentleman who is at the head of the agricultural Department trapesing all round the country exhorting the farmer to adopt new co-operative methods, to co-operate in new bacon factories, to co-operate in dairying and to co-operate in erecting new slaughterhouses. What will the farmer say tomorrow when he reads the speech of my hon. Friend?

Surely the Government are speaking with two voices. Surely the farming community will not agree to the new methods that the Minister of Agriculture is trying to bring in. Instead of being freed from taxation, as they were promised, they are going to be subject to new penal taxation. The Government are really speaking with a dozen voices. We have heard the hon. Gentleman who wound up for the Labour party explain how those Members who used to belong to the Liberal and Labour parties have now changed their opinion. But there are sitting on the Government benches Members of the Government who are Tories who also have made emphatic speeches in favour of co-operators. In 1921 there was a Debate on very much the same lines. The right hon. Gentleman who is at the head of the Post Office, whom I see looking very disconsolate, followed the Minister for the Dominions into the Lobby. There is also on the records of the Division the name of the Minister for Agriculture and there are also the names of "Ormsby-Gore" and "Bowyer." [HON. MEMBERS: "Order."] I am quoting from the Division list. I am not going to allude to the words of the Prime Minister. The Prime Minister has made many pledges. He was asked about one to-day, and I am told that he made a sorry figure when he gave his explanation. The right hon. Gentleman, as head of the National Government, has been liberal in his promises, conservative in their fulfilment, and to-day he labours hard to explain them away.

Viscountess ASTOR

rose—

HON. MEMBERS

"Divide."

The DEPUTY-CHAIRMAN

I think that we shall get on more rapidly if the Noble Lady is allowed to make her speech.

11.1 p.m.

Viscountess ASTOR

The Financial Secretary to the Treasury said that the Government were keeping the letter of the law. The Government may be doing that, but they are certainly not keeping the spirit of the National Government by bringing in a most unwise and unjustifiable tax. If the Chancellor of the Exchequer had come to the House and said, "We need every penny that we can get, and there is something more to be got out of the co-operative societies" I think that he would have had the whole of the House with him. Anyhow, it would have been a point of view, but he did not do that. He did not say that the Government needed the miserable sum they will get from the co-operative societies by this particular tax. I object to any taxation you are not going to get. [Laughter.] I do not believe for one moment that the Government are going to get this tax, and I do not believe that there are many hon. Members who think that they will. Everyone knows that the co-operative societies can ride through it with a coach and four, and, naturally, that is what they will do. Of course, they will.

I think that the Chancellor of the Exchequer has put Members in a very awkward position. It is a blunder of the first order. I am not going into the ins and outs of the matter; we have had it the whole of the day. We all know that if the object is to help the little trader, they could not have done anything worse for the little trader. All the co-operative societies have to do is to increase their dividend and decrease their prices, and the little trader will be ruined. Who is this going to help? It is certainly not going to help the National Government. I do not see anyone it will help except the political side of the co-operative party, which is the one party we do not want to help. I am interested in co-operation. I believe in the spirit of it. If certain hon. Members had been in this House as long as I have they would have heard speeches in which tributes were paid to co-operative societies. What we all deplore is the political activity of it. But they have done good work among the very poorest of the country.

If hon. Members could have been members of the Co-operative Women's Guild and had seen the great work they do and how much is dependent upon it, they would not have taken this moment of all others to bring in so vexatious a taxation as is being brought in now.—[An HON. MEMBER: "Divide."]—The hon. Member is not going to make me shut up by saying "Divide." Let us have our say. I have sat here all day. Many of you have only come in at the crack of the whip, and you are going to do a very bad service to the National Government. Most of you know that it is a blunder. I say frankly that it is a political blunder. The National Government have a great work still before them. They need the cooperation of all sorts and conditions of people. They need the co-operation of every working man and working woman in the country before they get over the crisis which faces them. At this moment the Chancellor of the Exchequer puts the House of Commons in a very difficult position. If the House of Commons had the courage of its convictions it would go into the Lobby against the Government. I hope many hon. Members will do so. I am a believer in the National Government and I want to help them, and I believe I shall help them by voting against them to-night. It seems to me that they are puting the Labour Members of the Government in a most appalling position.

I cannot conceive how the National Government could make so great a blunder. I am a believer in the co-operative movement. Do the Government need the money? They do not. If they are throwing away £14,000,000 to the brewers they cannot be in such dire need. It is not too late for the National Government to retrieve themselves. Those who think that this will help the small trader had better realise that this proposal, more than anything else is going to ruin the small traders. I would appeal to those who believe in the mutuality of the cooperative societies and in the real cooperative spirit in those societies, and not in the political spirit, which has very nearly ruined it. That political spirit has been, I think, one of the reasons which have created so much animosity against the movement. There are just as many Tories and Liberals in the co-operative societies as there are Labour people, and to-night I beg hon. Members to stand up

for those Tories and Liberals in the cooperative societies, and to vote against the National Government.

Question put.

The Committee divided: Ayes, 328; Noes, 108.

Division No. 186.]	AYES.	11.9 p.m.
Acland-Troyte, Lieut.-Colonel	Colfox, Major William Philip	Haslam, Henry (Horncastle)
Adams, Samuel Vyvyan T. (Leeds, w.)	Colman, N. C. D.	Headlam, Lieut.-Col. Cuthbert M.
Ainsworth, Lieut.-Colonel Charles	Colville, Lieut.-Colonel J.	Heilgers, Captain F. F. A.
Albery, Irving James	Conant, R. J. E.	Heneage, Lieut.-Colonel Arthur P.
Allen, Sir J. Sandeman (Liverp'l, W.)	Cooper, A. Duff	Hills, Major Rt. Hon. John Waller
Allen, Lt.-Col. J. Sandeman (B'k'nh'd)	Courthope, Colonel Sir George L.	Hoare, Lt.-Col. Rt. Hon. Sir S. J. G.
Amery, Rt. Hon. Leopold C. M. S.	Craddock, Sir Reginald Henry	Hope, Capt. Hon. A. O. J. (Aston)
Anstruther-Gray, w. J.	Croft, Brigadier-General Sir H.	Hore-Belisha, Leslie
Astor, Ma]. Hn. John J. (Kent, Dover)	Crockshank, Col. C.
	Windt (Bootle)	Hornby, Frank
Bailey, Eric Alfred George	Crookshank, Capt. H. C. (Gainsb'ro)	Horobin, Ian M.
Baldwin-Webb, Colonel J.	Crossley, A. C.	Horsbrugh, Florence
Balfour, George (Hampstead)	Cruddas, Lieut,-Colonel Bernard	Howard, Tom Forrest
Balfour, Capt. Harold (I of Thanet)	Culverwell, Cyril Tom	Howitt, Dr. Alfred B.
Balniel, Lord	Dalkeith, Earl of	Hudson, Capt. A. U. M.(Hackney, N.)
Banks, Sir Reginald Mitchell	Davidson, Rt. Hon. J. C. C.	Hudson, Robert Spear (Southport)
Barclay-Harvey, C. M.	Davison, Sir William Henry	Hume, Sir George Hopwood
Bateman, A. L.	Dawson, Sir Philip	Hurst, Sir Gerald B.
Beauchamp, sir Brograve Campbell	Denman, Hon. R. D.	Inskip, Rt. Hon. sir Thomas W. H.
Beaumont, M. W. (Bucks., Aylesbury)	Despencer-Robertson, Major J. A. F.	Iveagh, Countess of
Beaumont, Hon. R.E.B. (Portsm'th.C.)	Donner, P. W.	Jackson, Sir Henry (Wandsworth, C.)
Beit, Sir Alfred L.	Doran, Edward	Jamieson, Douglas
Benn, Sir Arthur Shirley	Duckworth, George A. V.	Joel, Dudley J. Barnato
Bennett, Capt. Sir Ernest Nathaniel	Dugdale, Captain Thomas Lionel	Jones, Sir G. W. H. (Stoke New'gton)
Betterton, Rt. Hon. Sir Henry B.	Duggan, Hubert John	Kerr, Hamilton W.
Bevan, Stuart James (Holborn)	Duncan, James A. L. (Kensington, N.)	Kimball, Lawrence
Birchall, Major Sir John Dearman	Eales, John Frederick	Knox, Sir Alfred
Bird, Ernest Roy (Yorks., Skipton)	Eastwood, John Francis	Lamb, Sir Joseph Quinton
Blaker, Sir Reginald	Elliot, Major Rt. Hon. Walter E.	Law. Richard K. (Hull, S.W.)
Borodale, Viscount	Ellis, Sir R. Geoffrey	Leech, Dr. J. W.
Bossom, A. C.	Elmley, Viscount	Leighton, Major B. E. P.
Boulton, W. W.	Emmott, Charles E. G. C.	Lennox-Boyd, A. T.
Bowyer, Capt. Sir George E. W.	Emrys-Evans, P. V.	Levy, Thomas
Boyce, H. Leslie	Erskine, Lord (Weston-super-Mare)	Lewis, Oswald
Boyd-Carpenter, Sir Archibald	Erskine-Boist. Capt. C. C. (Blackpool)	Liddall, Walter S.
Bracken, Brendan	Essenhigh, Reginald Clare	Lindsay, Noel Ker
Braithwaite, Maj.A. N. (Yorks, E.R.)	Evans, Capt. Arthur (Cardiff, S.)	Lister, Rt. Hon. Sir Philip Cunliffe-
Braithwaite, J. G. (Hillsborough)	Everard, W. Lindsay	Lieweilin. Major John J.
Brass, Captain Sir William	Falle, Sir Bertram G.	Locker-Lampson, Rt. Hn. G.(Wd.Gr'n)
Briscoe, Capt. Richard George	Fielden, Edward Brocklehurst	Lockwood, John C. (Hackney, C.)
Broadbent, Colonel John	Ford, Sir Patrick J.	Loder, Captain J de Vere
Brocklebank, C. E. R.	Fox, Sir Gifford	Lumley, Captain Lawrence R.
Brown, Col. D. C. (N'th'l'd., Hexham)	Fraser, Captain Ian	Lymington, Viscount
Brown, Brig.-Gen.H.C.(Berks., Newb'y)	Fremantle. Sir Francis	Lyons, Abraham Montagu
Browne, Captain A. C.	Fuller, Captain A. G.	MacAndrew, Lieut-Col. C. G. (Partick)
Buchan-Hepburn, P. G. T.	Galbraith, James Francis Wallace	MacAndrew, Capt. J. O. (Ayr)
Bullock, Captain Malcolm	Ganzoni, Sir John	MacDonald, Rt. Hon. J. R. (Seaham)
Burghley, Lord	Gault, Lieut.-Col. A. Hamilton	Macdonald, Sir Murdoch (Inverness)
Burnett, John George	Gillett, Sir George Masterman	Macdonald, Capt. P. D. (I. of W.)
Burton, Colonel Henry Walter	Gilmour, Lt.-Col. Rt. Hon. Sir John	McLean, Major sir Alan
Butler, Richard Austen	Gledhill, Gilbert	Macmillan, Maurce Harold
Butt, Sir Alfred	Glossop, C. W. H.	Macpherson, Rt. Hon. Sir Ian
Cadogan, Hon. Edward	Gluckstein, Louis Halle	Macquisten, Frederick Alexander
Calne. G. R. Hall-	Goff, Sir Park	Maitland, Adam
Campbell, Edward Taswell (Bromley)	Goldie, Noel B.	Makins, Brigadier-General Ernest
Campbell-Johnston, Malcolm	Goodman, Colonel Albert W.	Manningham-Buller, Lt.-Col. Sir M.
Caporn, Arthur Cecil	Gower, Sir Robert	Margesson, Capt. Rt. Hon. H. D. R.
Carver, Major William H.	Graham, Sir F. Fergus (C'mb'rl'd, N)	Mason, Col. Glyn K. (Croydon, N.)
Cassels, James Dale	Graves, Marjorie	Mayhew, Lieut.-Colonel John
Castlereagh, Viscount	Greaves-Lord, Sir Walter	Meller, Richard James
Castle Stewart, Earl	Grenfell, E. C. (City of London)	Merriman, Sir F. Boyd
Cautley, Sir Henry S.	Grimston, R. V.	Mills, Sir Frederick (Leyton, E.)
Cayzer, Sir Charles (Chester, City)	Gritten, W. G. Howard	Mills, Major J. D (New Forest)
Cayzer, Maj. Sir H. R. (Prtsmth., S.)	Guest, Capt. Rt. Hon. F. E.	Mitchell, Harold P.(Br'tl'd & Chisw'k)
Cazalet. Thelma (Islington, E.)	Guinness, Thomas L. E. B.	Molson, A. Hugh Elsdale
Cazalet, Capt. V. A. (Chippenham)	Gunston, Captain D. W.	Monsell, Rt. Hon Sir B. Eyres
Chamberlain, Rt. Hon. Sir J.A. (Birm., W)	Guy, J. C. Morrison	Moore, Lt.-Col. Thomas C. R. (Ayr)
Chamberlain, Rt. Hon. N. (Edgbaston)	Hacking, Rt. Hon. Douglas H.	Morgan, Robert H.
Chapman, Col. R.(Houghton-le-Spring)	Hamilton, Sir George (Ilford)	Morris, Owen Temple (Cardiff, E.)
Christie, James Archibald	Hanbury, Cecil	Morris-Jones, Dr J. H. (Denbigh)
Clarke, Frank	Hanley, Dennis A.	Morrison, William Shepherd
Clarry, Reginald George	Hannon, Patrick Joseph Henry	Muirhead, Major A. J.
Clayton. Dr. George C.	Harbord, Arthur	Munro, Patrick
Cobb, Sir Cyril	Hartington, Marquess of	Nail, Sir Joseph
Cochrane, Commander Hon. A. D.	Harvey, Major S. E. (Devon, Totnes)	Nail-Cain, Hon. Ronald
Nation, Brigadier-General J. J. H.	Russell, Alexander West (Tynemouth)	Stuart, Lord C. Crichton-
Newton, Sir Douglas George C.	Russell, R. J. (Eddisbury)	Sueter, Rear-Admiral Murray F.
Nicholson, Rt. Hn. W. O. (Petersf'ld)	Rutherford, Sir John Hugo (Liverp'l)	Summersby, Charles H.
North, Edward T.	Salmon, Sir Isidore	Tate, Mavis Constance
Nunn, William	Samuel, Sir Arthur Michael (F'nham)	Thomas, Rt. Hon. J. H. (Derby)
O'Connor, Terence James	Samuel, Samuel (W'dsworth, Putney)	Thomas, James P. L. (Hereford)
O'Donovan, Dr. William James	Sandeman, Sir A. N. Stewart	Thomson, Sir Frederick Charles
Ormsby-Goro, Rt. Hon. William G.A.	Sanderson, Sir Frank Barnard	Thorp, Linton Theodore
Patrick, Colin M.	Sassoon, Rt. Hon. Sir Philip A. G. D.	Titchfield, Major the Marquess of
Peake, Captain Osbert	Savery, Samuel Servington	Todd, Capt. A. J. K. (B'wick-on-T.)
Penny, Sir George	Scone, Lord	Todd, A. L. S. (Kingswinford)
Perkins, Walter R. D.	Selley, Harry R.	Touche, Gordon Cosmo
Petherick, M.	Shakespeare, Geoffrey H	Tryon, Rt. Hon. George Clement
Peto, Sir Basil E. (Devon, Barnstaple)	Shaw, Helen B, (Lanark, Bothwell)	Turton, Robert Hugh
peto, Geoffrey K. (W'verh'pfn, Bilst'n)	Shepperson, Sir Ernest W.	Vaughan-Morgan, Sir Kenyon
Pickford, Hon. Mary Ada	Skelton, Archibald Noel	Wallace, Captain D. E. (Hornsey)
Pike, Cecil F.	Slater, John	Ward, Lt.-Col. Sir A. L. (Hull)
Potter, John	Smiles, Lieut.-Col. Sir Walter D.	Ward, Sarah Adelaide (Cannosk)
Powell, Lieut.-Col. Evelyn G. H.	Smith, Bracewell (Dulwich)	Warronder, Sir Victor A. G.
PowNail, Sir Assheton	Smith, R. W. (Ab'rd'n & Kinc'dine, C.)	Wells, Sydney Richard
Raikes, Henry V. A. M.	Smith-Carington, Neville W.	Whyte, Jardine Bell
Ramsbotham, Herwald	Smithers, Waldron	Williams, Charles (Devon, Torquay)
Rankin, Robert	Somervell, Donald Bradley	Williams, Herbert G. (Croydon, S.)
Rawson, Sir Cooper	Somerville, Annestey A. (Windsor)	Wills, Wilfrid D.
Ray, Sir William	Somerville, D. G. (Willesden, East)	Wilson, Clyde T. (West Toxteth)
Reed, Arthur C. (Exter	Sotheron-Estcourt, Captain T. E.	Wilson, G. H. A. (Cambridge U.)
Reid, William Allan (Derby)	Southby, Commander Archibald R. J.	Windsor-Clive, Lieut.-Colonel George
Remer, John R.	Spears, Brigadier-General Edward L.	Winterton, Rt. Hon. Earl
Rentoul, Sir Gervals S.	Spender-Clay, Rt. Hon. Herbert H.	Wise, Alfred R.
Rhys, Hon, Charles Arthur U.	Spens, William Patrick	Womersley, Walter James
Ropner, Colonel L.	Stanley, Lord (Lancaster, Fylde)	Wood, Rt. Hon. Sir H. Kingsley
Rosbotham, Sir Samuel	Stanley, Hon. O. F. G. (Westmorland)	Young, Rt. Hon. Sir Hilton (S'v'oaks)
Ross. Ronald D.	Stevenson, James
Ross Taylor, Walter (Woodbridge)	Storey, Samuel	TELLERS FOR THE AYES.—
Runciman, Rt. Hon. Walter	Strauss, Edward A.	Mr. Blindell and Major George
Runge, Norah Cecil	Strickland, Captain W. F.	Davies.
Russell, Albert (Kirkcaldy)	Stuart, Hon. J. (Moray and Nairn)
NOES.
Acland, Rt. Hon. Sir Francis Dyke	Hall, George H. (Merthyr Tydvil)	Milner, Major James
Allen, William (Stoke-on-Trent)	Hamilton, Sir R.W.(Orkney & Z'tl'nd)	Moreing, Adrian C-
Aske, Sir Robert William	Harris, Sir Percy	Nathan, Major H. L.
Astor. Viscountess (Plymouth, Sutton)	Hicks, Ernest George	Nicholson, Godfrey (Morpeth)
Attlee, Clement Richard	Hirst, George Henry	Owen, Major Goronwy
Banfield, John William	Hoidsworth. Herbert	Parkinson, John Allen
Batey, Joseph	Jackson, J. C. (Heywood & Radcliffe)	Pearson, William G.
Bernays, Robert	Janner, Barnett	Pickering, Ernest H.
Bevan, Aneurin (Ebbw Vale)	Jenkins, Sir William	Price, Gabriel
Boothby, Robert John Graham	Johnstone, Harcourt (S. Shields)	Ramsay, Capt. A. H. M. (Midlothian)
Bower, Lieut.-Com. Robert Tatton	Jones, Henry Haydn (Merioneth)	Rathbone, Eleanor
Briant, Frank	Jones, J. J. (West Ham, Silvertown)	Rea, Walter Russell
Buchanan, George	Jones, Morgan (Caerphilly)	Roberts, Aled (Wrexham)
Cape, Thomas	Kerr, Lieut.-Col. Charles (Montrose)	Rothschild, James A, de
Cocks, Frederick Seymour	Kirkwood, David	Salter, Dr. Alfred
Cove. William G.	Lansbury, Rt. Hon. George	Samuel, Rt. Hon. Sir H. (Darwen)
Cripps, Sir Stafford	Lawson, John James	Shaw, Captain William T. (Forfar)
Curry, A. C.	Leonard, William	Sinclair, Maj. Rt. Hn. Sir A. (C'thness)
Daggar, George	Logan, David Gilbert	Smith, Tom (Normanton)
Davies, David L. (Pontypridd)	Lovat-Fraser, James Alexander	Soper, Richard
Davies, Rhys John (Westhoughton)	Lunn, William	Stewart, J. H. (Fife, E.)
Dickie, John P.	Mabane, William	stones, James
Dobble, William	McCorquodale, M. S.	Thorne, William James
Edge, Sir William	Macdonald, Gordon (Ince)	Tinker, John Joseph
Edwards, Charles	McEntee, Valentine L.	Wallace, John (DunferMilne)
Evans, David Owen (Cardigan)	McEwen, Captain J. H. F.	Wallhead, Richard C.
Evans, R. T. (Carmarthen)	McGovern, John	Wedderburn, Henry James Scrymgeomr-
Foot, Dingle (Dundee)	McKeag, William	Wedgwood, Rt. Hon. Josiah
Foot, Isaac (Cornwall, Bodmin)	Maclay, Hon. Joseph Paton	White, Henry Graham
George, Rt. Hon. D. Lloyd (Carn'v'n)	Maclean, Nell (Glasgow, Govan)	Williams, David (Swansea, East)
George, Major G. Lloyd (Pembroke)	Magnay, Thomas	Williams, Edward John (Ogmore)
George, Megan A. Lloyd (Anglesea)	Mainwaring, William Henry	Williams, Dr. John H. (Llanelly)
Greenwood, Rt. Hon. Arthur	Mallalieu, Edward Lancelot	Williams, Thomas (York, Don Valley)
Grenfell, David Rees (Glamorgan)	Mander, Geoffrey le M.	Wood, Sir Murdoch McKenzie (Banff)
Griffith, F. Kingsley (Middlesbro', W).	Martin, Thomas B.
Griffiths, T. (Monmouth, Pontypool)	Mason, David M. (Edinburgh, E.)	TELLERS FOR THE NOES.—
Groves, Thomas E.	Maxton, James	Mr. John and Mr. D. Graham.
Grundy, Thomas W.

Resolution to be reported To-morrow; Committee to sit again To-morrow.

The remaining Orders were read, and postponed.