HC Deb 24 May 1933 vol 278 cc1222-45

"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 he 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 D 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 1223 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."

Mr. SPEAKER

I do not select the Amendment—in line 2, to leave out paragraphs (a) and (b) —standing in the name of the hon. Member for Bothwell (Mr. Leonard).

Mr. LAWSON

I beg to move, in line 7, after the word "surplus," to insert the words: (other than any moneys set aside for return to members as dividend or discount on their purchases). Those who look closely at the Amendment will see that its purpose is to make quite sure that any moneys set aside to be returned to members as dividend or discount on their purchases shall not be counted as ordinary surplus. Those who are familiar with co-operative societies will know that it is the practice of some societies, instead of paying out certain moneys as dividend in a particular quarter, to earmark those moneys and set them aside to be paid in, say, the following quarter. It is a kind of assurance for dividend, with the object of equalising dividends from quarter to quarter. There is not any doubt that these moneys are definitely for the purpose of dividend, and there is no reason why the Chancellor of the Exchequer should not accept this Amendment. The Raeburn Committee stated on page 5 of their report, paragraph 9: To our mind the point of time at which the 'divi' is determined and paid is no more than incidental to the particular mode of operation of the societies and does not affect the essential nature of the allowance. I could read further from that report to strengthen that point of view, but I think everyone who heard the Chancellor of the Exchequer's statement will agree that the one thing he did insist on time and time again was that the principle of excluding dividends from taxation was agreed upon. If there were any doubt upon that point the Prime Minister, in that apologia of his, made it crystal clear that he himself would not have agreed to the taxation of co-operative societies if dividends had not been excluded. I understand that the word of the Prime Minister still has great weight in the Cabinet. [HON. MEMBERS: "Oh!"]"Well; one of the things that he, in common with the Government, stood for very strongly in the election was the safeguarding of the savings of the people. A rapacious Labour Government was running away with the Post Office savings, and so the Prime Minister wanted to make quite sure that the people's savings were safeguarded. What the Prime Minister did make quite clear was that in no circumstances would he agree to this tax, if dividends were not safeguarded.

I ask the Financial Secretary to the Treasury to give serious consideration to this proposal. I notice that to-night he has been fairly reasonable with some of his own people, and that the Chancellor of the Exchequer has manifested an unusual moderation for a Chancellor of the Exchequer. I trust that we are to have that serious consideration, and an acceptance of the principle which was laid down by the Chancellor and by the Prime Minister when he explained that famous speech. The Prime Minister certainly achieved a masterpiece in explaining that he meant what he did not say. He performed the most remarkable somersault that ever has been done by a Gentleman at that Box. I am looking to the time when he goes back to Durham, or anywhere else in the country, to explain that speech. If the Government do not accept this, they will take the last shred of pretence from the Prime Minister. In view of their proposals, and of their own attitude, I trust that the Government will accept the Amendment.

10.33 p.m.

Mr. LEONARD

I beg to support the Amendment. I regret that the time arrangements have not been acted up to, but that is no fault of mine. I will endeavour to make amends by keeping from repetition as much as I possibly can. I look upon the Resolution before me as one that outrages the spirit of mutuality which I, along with my colleagues, hold dear. The Amendment that has been moved is calculated to put that principle into the Resolution, and it is from that point of view that I speak. The object of the Resolution is that co-operative societies should be charged with Income Tax in respect of trading, irrespective of whether that trading is with members or with non-members. Not only is that principle being outraged, but the principles of equity are being placed on one side.

The Resolution is based upon recommendations contained in the Raeburn Report. I do not want to speak about what has already been stated sufficiently, in regard to the personnel of the committee, but as to whether the Chancellor was entitled to accept the recommendations from the gentlemen who were members of that committee, and to deem them to be competent to deal with this matter. In order to do so, I wish respectfully to put before the representatives of the Government my opinion upon that point. The committee made the surprising statement that the application of the decisions of the courts in regard to mutuality, and their application to cooperative societies, was by no means free from doubt. If that is the opinion of these gentlemen, it is incumbent upon me to put forward certain other opinions, for which I claim equal recognition. I do not think I shall be guilty of repetition in referring again to the statement of the Board of Inland Revenue: The surplus which arises in the mutual concern from transactions with members, though it is sometimes described as profit, is not a profit chargeable to Income Tax. The Board of Inland Revenue are aware that this fact has at times been challenged, but the question is one of law, and, as such, the Board are advised, in the light of decided cases, it admits of no reasonable doubt. I put that forward as equal in weight to any statement of the committee. I noticed that the Chancellor of the Exchequer stated earlier this evening that some Members of the House were not likely to be convInced by arguments from the other side, and I agree that that is so, but I now put forward the opinion of one who is outside trading and co-operative interests. I refer to an ex-Chairman of the Board of Inland Revenue, Sir E. Nott-Bower, who says: Of course, what we have to consider is, assuming that the New York Life decision applies to co-operative societies, whether any change in the law is required. It would follow from that, would it not, that, if we want to change the present position of affairs, and make that surplus chargeable, it would be necessary, not merely to refuse the exemption, which at present stands in the Statute Book, of the co-operative societies as an entity under Schedules C and D; it would be necessary, if you want to charge that surplus, to invent some new definition of profit. On that point being put to the witness of the Board of Inland Revenue, his answer was: I agree absolutely. Turning to legal opinion, Lord Macnaghten himself expressed this opinion: I do not understand how persons contributing to a common fund in pursuance of a scheme for their mutual benefit, having no dealings or relationships with any outstanding body, can be said to have made a profit if they find they have over-charged themselves. That is a simple statement of the position in which members of the co-operative societies find themselves. My last reference is to an outstanding case in the House of Lords on the question of mutuality, and covering the New York Life Insurance Company. I want to state that here there was great Similarity between that company and the co-operative societies. In both cases trade is conducted, not only with members, but also with non-members, and in both cases members do not buy identical things. In both cases there is income from investment, and in both cases the dividend returned is a proportion of the whole body of surplus. Here is a case which has been decided, on the lines that we are suggesting here this evening, in favour of our opinion, and the representative of the Board of Trade summed up by saying: I think the application of the principles of mutuality to co-operative societies admits of no reasonable doubt. The Committee state that they base their recommendations, which have been accepted by the Government, on two main points. In the first place, in paragraphs 20 and 22, they express themselves as unable to see any reasonable grounds for claiming exemption from taxation of co-operative trade with members by the nature of the source from which it arises. I can here quote two past chairmen of the Board of Inland Revenue who state that the proposal to tax the net receipts left in the hands of the society implies that profit depends, not on the origin of these receipts, but on the use to which they are put. This, in their opinion, is applied as regards any other class of receipts, and they cannot agree that it can be applied with regard to this particular class of receipts. It would single out a co-operative society for special taxation, and we humbly submit that this is what is being done at present and that a special class of the community is being singled out for special attention and taxation.

On the second point that the Committee touch upon, the question of entity— that because of the numbers of persons involved an entity has been created— there is a reservation to the report of the Royal Commission on that point. That statement is that the mere fact that a number of individuals have formed themselves into a separate legal entity does not constitute the receipts of this legal entity a taxable product under any part of the British Income Tax law and they see no reason why it should be made to do so for co-operative societies. That is quite explicit. Lord Herschell in the New York case said: I think the Attorney-General was correct in thinking it immaterial that the persons thus associated have been incorporated and that a legal entity had been created distinct from the members of which it was composed. Lord Justice Rowlatt's opinion on the matter is that, if people were to do the thing for themselves, there would be no profit, and the fact that they incorporate a legal entity to do it for them makes no difference. There is still no profit. These opinions, based upon analogous conditions and cases, are as important as those that gave guidance to the Government. The three individuals are, I presume, quite reasonable, intelligent people, but they do not equal the status of the references that I have given. The only other reference that has been made is that certain things that the right hon. Gentleman contemplated have Colncided with the opinion of Sir Josiah Stamp That is the only other name that I have heard from that side. Sir Josiah is deemed to be a statistician, and his own definition of statistician is a person who is brought in when your own figures can neither stand up nor lie for themselves. Sir Josiah Stamp was a civil servant at one time.

Mr. SPEAKER

That is hardly relevant to the Amendment before the House, which deals with exempting sums set aside as dividends or discounts. That is the only question under discussion.

Mr. LEONARD

I am suggesting that what is contained in the Amendment is reasonable and that the attitude of the Government in penalising this section of the community, as I claim they are doing, is unwarranted and should not proceeded with.

10.45 p.m.

Mr. HORE-BELISHA

I thank the hon. Gentleman the Member for Chester-le-Street (Mr. Lawson) for the mild and reasonable way in which he moved the Amendment. I understand the point which he was making. He wishes to ensure that the dividend commonly called "divi" shall not be assessable to tax. It will not be assessable to tax. The only point of substance in the Amendment would be to insert a provision which would ensure specifically that it would not be subject to tax. It is part of the common administration of the Income Tax that this "divi" will be treated as a trade discount. The report of the Raeburn Committee will be implemented by the Inland Revenue in letter and in spirit. If it were specifically laid down in the Resolution that the "divi" should not be subject to tax, then it would also be logically necessary by analogy to lay down by Statute that a trade discount allowed by an ordinary trader should not be subject to tax. These, I think the Committee will appreciate, are matters of administration, and the hon. Member for Chester-le-Street may have my solemn assurance that the "divi" will not be made liable to tax. He quoted paragraph 9 of the report which says that, the point of time at which the 'divi' is determined and paid is no more than incidental to the particular mode of operation of the societies and does not affect the essential nature of the allowance. I quite agree. Smith makes his purchase. At the end of the year the society makes its discount. It decides what sum it will return by way of "divi," and that sum is allowed by the Inland Revenue as a trade expense. Income Tax is in practice assessed on the profit of the previous year, and therefore there is no danger whatever that the Inland Revenue will refrain from allowing any sum which is distributed as "divi." I hope that the solemn and uncompromising assurance on my part that the "divi" will in no circumstances be assessable to tax will satisfy the hon. Member.

10.48 p.m.

Sir S. CRIPPS

I am afraid that it does not satisfy us, and for this reason. One of the great arguments which has been going on for many years is as to whether this is a trade discount or not. It has always been urged by the traders that it is not properly comparable to a trade discount. We want to avoid that matter having to be litigated up to the House of Lords hereafter. The House have an opportunity now of making it perfectly certain. There can be 110 harm in putting in these words. It is not a question of dealing with general Income Tax matters. This is dealing with the imposition of a tax for the first time on a class of trade which hitherto has been untaxed, and as a condition of that a great many provisions are to be inserted in two Sections which take up three pages of the Order Paper. The co-operators are anxious that this matter should be settled beyond any possibility of doubt hereafter. It may be that the hon. Member will not always be at that Box to speak. He may have a successor, and his successor will not be bound by his assurance. It may be that the present administration of the Inland Revenue think that this is a proper matter to allow as a deduction. It may be that they will be advised by some future Law Officer or someone else that it is not a proper matter for deduction. Unless this matter is now signed, sealed and delivered, it will leave the door open for this discussion to continue, and it is that which we want particularly to avoid at all costs.

There is no question about the intention of the hon. Gentleman. We do not doubt it for a moment. Anything he states at that Box we accept absolutely as naturally something to which he would stick. But a new Act is to be passed imposing taxation for the first time. The co-operators think that they are at least entitled to have it stated in this Measure, which is taxing them for the first time, that these dividends will not be taxed. I am sure the right hon. Gentleman will understand that the state of nervousness and anxiety, which has been created by this taxation, is something which must legitimately be taken into account by anybody who takes account of mass psychology and mass thought. A provision of this type will, at least, do some- thing to allay the fears of the co-operators, especially in view of the fact that private traders have made it perfectly clear that they are going to try to get the "divi's" taxed as the next step.

If there is nothing in the Finance Act this year, and the co-operators have to rely upon the practice of the Inland Revenue Department, that practice may be changed to-morrow if the Inland Revenue Department think it right, proper or advisable, or are instigated to change their practice. If the Government refuse this Amendment, it will inevitably be thought by the people outside this House that the door is being left open to the taxation of "divi's" on a future occasion. They will think there can be no reason for not giving this protection and this assurance in a statutory form unless the Government have at the back of their minds the possibility on some future occasion of these "divi's" being taxed in addition to the taxation now proposed. I hope, therefore, the hon. Member, by accepting this Amendment, will undertake in statutory form to settle this matter of taxation of the "divi" and to put it on the Statute Book, so that nobody can take a case to the House of Lords or raise it in any other way as long as Parliament shall determine to keep the provision on the Statute Book.

10.52 p.m.

Mr. CHAMBERLAIN

The hon. and learned Gentleman has stated that doubts still exist in the minds of co-operators, not as to the intentions of the Government that now exist but as to the possibility that, in spite of those intentions, they should nevertheless be exposed to some decision in a court of law which might render the "divi" liable to tax. I think that his fears are groundless. The hon. and learned Gentleman does not throw any doubt on the intentions of the Government. I need hardly say that, whatever happens now, it could not possibly bind our successors. Nothing could prevent some future Government, if they chose, taking a different view from that taken by the present Government and introducing some legislation which would, in fact make the "divi" subject to tax. With regard to the particular Amendment before the House, its wording is not sufficiently accurate or precise to enable me to accept it, but, if the hon. Member will withdraw his Amendment now, I will certainly undertake to look into the question which he has raised before the Clause is actually debated. If it is found possible to put into the Clause some sort of assurance that will remove such doubts as may arise in the minds of co-operators, I shall certainly do so.

10.55 p.m.

Mr. LAWSON

In view of the statement of the right hon. Gentleman on this point, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

10.55 p.m.

Mr. MABANE

I beg to move, in line 17, at the end, to insert the words: except in the case of those societies the rules of which include specific provisions to the effect— (1) that the interest on shares of members shall be limited to five per cent; (2) that in no circumstances may any premiums be required to be paid on shares taken up; (3) that in no circumstances may shares be redeemed at a value higher than that origiNaily subscribed. The purpose of the Amendment is to introduce an approach to this problem which is different from that which has been taken by the Government. It seems to me that the attitude the Government have taken towards the co-operative societies is this: "You have ceased to be mutual traders. You have ceased to trade mutually, therefore you must be taxed." I would rather the approach had been in this fashion: "We will not tax you, but we will ensure that you shall trade mutually." The object of the Amendment is to ensure that the trade of co-operative societies shall be of a mutual nature. The fundamental condition of mutual trading is perfectly plain. It depends upon the question, to whom do the profits belong? If the profits that accrue as a result of the trading belong to those who engage in the mtual trading in proportion to the trade they have done, that might reasonably be called mutual trading, but if the surplus that accrues belong to the members of the society not as traders but as shareholders, then I think it cannot be maintained that that is mutual trading. It is perfectly well known that the original object of co-operative societies was to provide for the people who were members of the societies, goods at cost price. If, for a matter of convenience, it was necessary to charge more than the cost price and at the end of a period to assess the surplus and distribute it, it was merely a matter of convenience, and there was no doubt that the surplus belonged to the people who had traded, in proportion to their trading. I do not think that can be disputed without undermining the whole principle of mutuality. There is considerable misapprehension on this point.

I have been at some pains to examine the rules of co-operative societies in order to discover to whom in law the surplus belongs. Does it belong to the members as shareholders or to the members as traders, and I find that in the rules of almost all the co-operative societies that I have been able to examine, there is no sort of doubt that the surplus belongs to the members as shareholders. That fact carries with it very serious consequences. Let me illustrate it in a simple fashion. Let us suppose that three people decide to form a co-operative society. Two of them become shareholders to the extent of £200, and the third becomes a shareholder to the extent of only E1. Let us suppose that the shareholders to the extent of £200 did practically no trading with the society, while the shareholder to the extent of £l traded to the extent of several thousands of pounds. Let us suppose that there was a surplus of £200 at the end of the year. It is perfectly plain that if the trading was mutual, that surplus would belong to the member who had done the trading, but according to the rules of the co-operative societies as they stand in most cases, and certainly according to the rules which might be adopted, it would be possible for the two members who owned shares to the extent of £200 to determine that they would not distribute the surplus as "divi," but by means of interest to themselves on their shares, at 50 per cent., so that they would get £100 each, and the other poor man, who had done all the trading, would get only 10s. That; definitely undermines the principle of mutuality. It may be contended that that does not happen in practice, and that that is not the case in most retail societies, but the point is, that it might be so. There is a belief among members that the interest of co-operative societies is limited. Let me read a rule of the Huddersfield Cooperative Society: Profits of all business carried on shall be applied as follows; In payment of interest not exceeding six per cent. on all shares held. And at the end it says: The above rate of interest may be reduced or increased by a resolution of a quarterly or special general meeting of members. It is obvious that there is no limitation; that the members of the society, as shareholders, have the right to distribute any surplus by way of interest on their shares. The matter of the ownership of the profits is one of great significance. The object of the Amendment is to destroy any possibility of the surplus belonging to the shareholders. It provides that exemption from the tax shall cease except in the case of societies whose rules include the provision that the interest on the share of members shall be limited to 5 per cent., and that in no circumstances shall any premiums be required to be paid on shares taken up. Some hon. Members may be under the impression that cooperative societies cannot establish a premium on their shares. Of course they can. They may take powers to determine at the end of any year a price for its shares in excess of their par value. The third provision in the Amendment is that in no circumstances may shares be redeemed at a value higher than that origiNaily subscribed. It may be contended that co-operative societies never make provision which would allow shares to be redeemed at a value higher than that origiNaily subscribed, but they may do so. I suggest that the real test is what might happen on a winding up. Suppose a co-operative society acquires assets and that those assets in time become double the value of the shares subscribed. Suppose, further, that this cooperative society is wound up. There is no question that these assets would be distributed to the shareholders, who would receive double the amount which they origiNaily subscribed. If that is the case it cannot be contended that it is mutual trading. That surplus undoubtedly belongs to the members of the society in proportion to the trade they have done, and the Amendment would make that perfectly clear.

I am prepared to alter the Amendment to make it definite that the surplus shall belong to the members as traders in proportion to the trade that they do. I am also prepared to extend the Amendment to make it clear that cooperative societies shall on no account trade with non-members, but what I am most concerned about is the principle that co-operative societies shall engage in mutual trading. If instead of approaching the problem in the way it has been approached by the Government it was approached in the way I suggest, not tax co-operative societies but insist that they shall trade mutually, you would be doing a more logical, reasonable, and fair thing; and co-operative societies could not object to the conditions. You would not offend them.

We are told that this is done for the sake of the retail distributor. My business is largely connected with retail distribution, and I say that the present proposals are certainly no benefit to the retail trader. The proposal that I make would be of benefit to the retail trader. As a retail trader I should say, if I had to choose a competitor, that I should choose the cooperative society, because I think they are the least efficient, the easiest to beat. But the present proposal, as I see it, is only likely to have the effect of causing societies to distribute more in dividend or to lower prices, whereas my Amendment, by insisting that they trade mutually, would confine them to their proper sphere of business, and would be quite fair to them, and would get the Government out of a difficult position, for it is generally agreed that it is unfortunate that the Government has put its hand into this hornet's nest. I am prepared to admit that the great Majority of Members will vote against the Amendment, but we all know perfectly well that the House would have been much happier if this proposal had not been adopted by the Government.

I ask the Chancellor of the Exchequer to hold out some hope that an Amendment of this nature, made watertight so that the co-operative societies are confined absolutely to mutual trading, will be accepted. It would solve the whole trouble and put the societies in their proper place; and it would, I am sure, remove all the difficulties of those who complain of the competition of the societies.

11.7 p.m.

Mr. McCORQUODALE

I beg to second the Amendment.

Taxation of co-operative societies seems to me to fall under two heads. The Chancellor of the Exchequer in his opening speech mentioned the offer which he had made to the co-operative societies as to taxation falling upon all their income from investments. With that I am in complete agreement and I would have supported it. But when we came to the taxation of the surplus or profit which remains to the society after the dividend has been paid, we came to more ticklish and more dangerous ground. My hon. Friend who moved the Amendment raised a new and most interesting point. There is no doubt that at the present time, according to the rules of a great number of co-operative societies, the law of mutuality is not fully carried out. The whole profit made from trading before the dividend is paid is subject, not to the members' decision trading as members, but to the members' decision trading as shareholders.

There are two distinct capacities: A member as member with a say in proportion to the amount of trade that he gives to his society, and the member as shareholder, with "one man, one vote," or else according to the amount of share Capttal that he has in his society. I do not think the wording of the Amendment is sufficiently exact and I would like to see some alteration in it, but the point of the Amendment is well worth con-sieration, namely, that we should tighten up the test of mutuality. The Financial Secretary said there must be a limit to mutuality in the case of these trading societies. He proposes to limit it in the manner suggested by the Government proposal. I would say that the Government should define it, rather than limit it; that they should insist on strict mutuality and, where mutuality exists, refrain from taxing it, while subjecting these societies to taxation on investments and in so far as it does not exist.

11.11 p.m.

Mr. BUCHANAN

I oppose the Amendment. It seemed to me that the Mover became involved in certain contradictions.

He began by saying that his Amendment would not affect the co-operative societies as badly as the Chancellor's proposal and he wound up by saying that it was a much more efficient way of attacking the co-operative societies than the Chancellor's method. [HON. MEMBERS: "No!"] He said that his proposal was a better way of approaching the subject, a better way of tackling the question and therefore a more efficient way of attacking the co-operative societies.

Mr. MABANE

I said, quite objectively, that as far as the retail traders were concerned, my method would be more likely to satisfy them than the method proposed by the Chancellor. That is merely an opinion.

Mr. BUCHANAN

That is all I am taking it as. The hon. Member's whole speech is an opinion. It does not become more than his opinion unless his proposal is carried into effect, and his opinion is that his Amendment would satisfy the enemies of the co-operative movement more than the Chancellor's proposal—because the enemies of the cooperative movement are the private traders. If that does not mean attacking the co-operative movement I do not know what it means. The hon. Member based his argument on certain presumptions. He took the hypothetical case of a cooperative society of three members, two of whom had large share holdings, while one merely acted as purchaser. The two decided to divide the surplus between themselves and give nothing to the third, and the hon. Member says that would be unfair. But everybody knows what would happen in such a case. The society would "go bust," because it would lose its purchaser. The thing is so silly and stupid that there is no reply to be given to it. If the purchaser was left out he would leave the society and the society would be ended.

Mr. MABANE

He would lose his money.

Mr. BUCHANAN

But the hon. Member's point was that he had really no money in it and that the other fellows had the money in it.

Mr. MABANE

He would have lost his dividends.

Mr. BUCHANAN

And they would lose their business which would be a more serious matter. If co-operative societies followed the practice of limited companies and if members voted according to the cash value of their shares, there might be some point in the Amendment. In a co-operative society that is not the case. Each society member votes as a member. He may have the full voting capacity of £200; he may only have a voting capacity of a few shillings, but his membership rights of voting as to how the surplus is to be divided are the same absolutely.

Mr. MABANE

We want to establish this fact, that the surplus belongs to the members as traders, in proportion to their trading, and that they shall be able to dispose of that surplus, and in disposing of it their voting power shall be in accordance with the trade that they have done, and not in accordance with the mere money that they have invested.

Mr. BUCHANAN

They vote as members, not as shareholders with a certain amount, and a member with a shilling may trade as much as or more than a member with £200, but his voting rights are the same. Take the proposal that each member shall vote according to the trade he has done. That means that you are to have in future at a co-operative society meeting a miniature form of Labour party conference, with card voting, and that each member must be supplied at each annual, or six-monthly or three-monthly meeting, when the dividend is made up, with a card. One card will say, "You have bought £10 worth of goods: here is a card for you to vote with"; another will say, "You have bought £20 worth; here is your voting card"; and a third member will get a card for £30 worth of trading. As one who knows co-operative societies fairly intimately and who has been a member of a co-operative society for the biggest portion of his life, may I say that that is an awful proposal? It means the handing out of cards to one another, and anybody who knows anything about card votes at meetings knows what they involve. Imagine doing it in the society of which I am a member, with 22,000 members, and handing each member a card. Your meeting would cease to be anything like a business meeting, and the cards would be handed out, and there would be wholesale abuse in every part of the country.

Then the hon. Member says a society might finish and might have a surplus due to certain advantageous circumstances. His experience of the Cooperative Movement must be different from mine. I have been a member now of three societies, and in one case, far from there being a surplus, there was so much more for me to pay, because they "went bust." But take the hon. Member's imaginary case of a society with a surplus. How has that reserve surplus been built up? The hon. Member says, "Give it to the members according to how they have traded in the last six months." Take my own case. My mother is, I think, the oldest living member of the Kinning Park Co-operative Society, in Glasgow. At one time she was almost the biggest purchaser, because she had a big family, but today, with nobody at home, she is a small purchaser. But she has built it up, and the hon. Member comes along and says, "Having built that up, she is only to have a say with regard to the last six months."

Mr. MABANE

I mean all the time, continuously.

Mr. BUCHANAN

So that they would have to search back. My mother has been a member for 50 years, I should say, and they have to search back for 50 years and try to average it out, and hand her a card accordingly. That is what it means.

Mr. MABANE

It means for a year.

Mr. BUCHANAN

It is to be for a year then, so that the person who has been a member for 40 years and a big purchaser for 38, but who has become a small purchaser, is to be given a card according to her small purchases, and all the other years are to be disregarded. Some societies went in for an insurance system according to the purchases of the members, and they went back over three years for new members, and for old members, in order to make it equitable and fair, and they had to increase the period to five or seven years. They knew that members' purchases may have altered over a period of years. What society today is paying more than 5 per cent.? What society dealing with retail members is not now engaged in reducing the percentage to a lower average? To-day the average purchaser of the Co-operative Society is not a large shareholder. He is a small shareholder, but a large purchaser, and every Co-operative Society is faced with the problem that the small shareholder—but large purchaser—is compelling the societies to spend less in interest and more in dividing out the surplus among its ordinary rank and file members.

I see nothing in the proposal to commend itself to people who understand the co-operative movement. It is said that we are dealing with non-members, but the amount of that trade is infinitesimal, and it is so small as to make the cost of collection not worth the trouble.

Mr. PIKE

Does the hon. Member say that £9,000,000 is a small total?

Mr. BUCHANAN

In the total turnover of the movement in the country, retail and wholesale, it is nothing. Nearly every society gives a return to its non-members as well as to its members; they pay a dividend to non-members. The number, however, is comparatively small. The £9,000,000 to which the hon. Member refers consists in the main of contracts that may be undertaken in a wholesale fashion. The Amendment is not drafted with a knowledge of the co-operative movement and it brings those who sponsor it into ridicule and contempt.

11.25 p.m.

Mr. MAITLAND

This Amendment has brought forward one substantial point of importance. The opposition to the general principle of this proposal was upon the ground that it interfered with the principle involved in what has been termed "mutuality of interest." But the hon. Member who proposed it, and his friends, as I understand, have shown by this very Amendment that the very principle of mutuality of interest does not, in fact, exist. The hon. Gentleman said that the purpose of the Amendment was to ensure that the surplus resulting from trading should belong to the members actually doing the trade. The proposal which the Government have made secures that. The Chancellor of the Exchequer has agreed to consider between now and the Report stage the acceptance of some words which will fit the purpose of the previous Amendment proposed from the Opposition benches. It was a very wise decision to agree to in- sert words which will give effect to that suggestion, because the intention of the proposal now before the House is to exempt the "divi's" from tax, and that means that those who are doing the trade will still continue to receive the "divi's" in accordance with the amount of trade they do. So far as this particular Amendment is concerned it has demonstrated, from what the hon. Member for Huddersfield (Mr. Mabane) has said, that the principle of mutuality with regard to the disposition of any surplus certainly does not apply, and it has also demonstrated the fact that those who trade will still continue to receive their "divi's" free of Income Tax and thus are not being imposed upon or unfairly treated. I think the hon. Member for Gorbals (Mr. Buchanan) has sufficiently exposed the impracticability of the proposal and I am quite certain that there are no members of the Cooperative Movement who would under any circumstances be prepared to put into practical operation the suggestions embodied in this Amendment, and therefore I hope it will be rejected, as I am sure it will be.

11.27 p.m.

Mr. CHAMBERLAIN

The hon. Member for Huddersfield (Mr. Mabane) offered two reasons for moving his Amendment. One was to help the Government out of a tight corner, and the other was to try to bring back the cooperative societies to a stricter path of virtue. He does not seem to have pleased the representatives of the cooperative societies by his suggestion, and, in fact, the hon. Member for Gorbals (Mr. Buchanan) has torn to pieces the practicability of the suggestion. I am afraid I cannot give the hon. Member any more encouragement from the Government side. He seems to have in his mind that the undistributed income of societies must belong either to the shareholders or to the purchasers. It does not seem to have occurred to him that it is possible that neither may be the case. The Government theory, at any rate, is that the undistributed balance belongs not either to the shareholders or to the purchasers as such, but to the society as an entity, and I venture to suggest to the House that the very terms of the Amendment, which shows that a society can make rules which will limit the priv- ileges of the shareholders with regard to the surplus, indicates that this money is the property of the society as an entity. That being so it is obvious that the Government cannot accept the Amendment.

11.29 p.m.

Sir S. CRIPPS

So far as we are concerned, this is so obviously a wrecking Amendment that we shall support it. It seems to be quite impracticable but, on the other hand, if it were passed, it would entirely defeat the Government's scheme. We shall, therefore, support the hon. Member.

Amendment negatived.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

11.30 p.m.

Mr. LUNN

We shall vote against this Resolution. I do not intend to say very much at this late hour of the evening, as there will be other opportunities for discussing this matter in the Debates on the Finance Bill. This establishment has added many lines to its business during this Parliament, and, if we are to take the Chancellor of the Exchequer's speech to-night on the Heavy Oils Duty at its face value, it is very likely, if he remains in his present position, that other lines will be added. I am sure that it is not really money that is sought for in this Resolution; the proposal is put forward to satisfy the prejudices of the Government's supporters and to injure the co-operative societies, which are the greatest thrift organisations in this country.

It has been understood in the past that Income Tax was a personal tax. Millions of members of co-operative societies are not liable to it. In my own society, which is one of the largest in the Kingdom, 90 per cent. of the members are not liable to Income Tax, but the Government are seeking to make them pay by bringing them within the Income Tax limit. The money that the Government are seeking to get is money that belongs to the members. Until now they have not been liable to pay anything in that direction. The reserves are the undistributed surplus resulting from mutual trading among the members of the societies, and those reserves are used for various purposes, including the ad- vancement of co-operation. They may be used for depreciation, because the co-operative movement is a business organisation and looks after matters of that description in the interests of its future. Co-operative societies do a, great amount of educational work, assisting the Government and education commits tees by their activities among their members and sometimes among the general public, and making a certain allowance from their funds for the purpose. We hear a great deal about the position of the voluntary hospitals; there is not a town in this country but whose hospital is in a sad financial position. One of the activities of the co-operative societies is to support, equally with any other body in our towns and cities, the funds of the voluntary hospitals.

The proposal of the Government is an attack upon the future development of the movement which has done so much good for the people, and upon mutual trading, and there is no justice in it. As has been said by the hon. Member for Gorbals (Mr. Buchanan), most of the trade of the co-operative societies is with their own members, and that done with non-members is infinitesimal. The surplus is simply the saving on the household expenditure of the members. I would ask the Chancellor a question which I am sure he will be able to answer: Does a private trader pay tax on the profits on the goods which he takes from his shop for his household use? I guarantee that there is not a Member in this House who will not say that he does not. Then why should a number of people who have banded together for mutual trading, and who are in a similar position, be called upon to pay tax? These surpluses have never been taxed before, and never ought to be taxed. Unlike the company, the reserves of co-operative societies do not affect the shares of the members, and do not add a penny to the interest. Another question that I should like to ask is, why are the savings of a member of any co-operative society up to £200 to be taxed, when a person may have £500 in Savings Certificates which are not taxed? I think we ought to have some explanation of this discrimination between individuals.

We realise that this is an attack upon the best of the citizens in our country. Those who, like the members of co- operative societies, are the most careful and thrifty, are the deserving part of the population. Realising that there will be further opportunities, I conclude by saying that I believe that this proposal will have more to do with the downfall of the present Government than any other proposal that they have brought forward up to the present, and I hope that I shall be here to see it. It will be shown that this Government is not a Government that looks after the interests of the deserving and decent people

among the poorer section of the population. Because of the prejudices of its Members against the co-operative societies, it has taken, is taking, and will continue to take action the result of which, I hope and believe, will be that another Government will take its place when the opportunity arises.

Question put, "That this House doth agree with the Committee in the said Resolution."

The House divided: Ayes, 241; Noes, 60.

Division No. 193.] AYES. [11.37 p.m.
Acland-Troyte, Lieut.-Colonel Duckworth, George A. V. Levy, Thomas
Adams, Samuel Vyvyan T. (Leeds, W.) Dugdale, Captain Thomas Lionel Liddall, Walter S.
Albery, Irving James Duggan, Hubert John Lindsay. Noel Ker
Anstruther-Gray, W. J. Duncan, James A. L. (Kensington, N.) Lloyd, Geoffrey
Apsley, Lord Eady, George H. Lockwood, John C. (Hackney, C.)
Bailey, Eric Alfred George Eastwood, John Francis Lockwood, Capt. J. H. (Shipley)
Baldwin, Rt. Hon. Stanley Elliston, Captain George Sampson Loder, Captain J. de Vere
Balfour, George (Hampstead) Elmley, Viscount Lovat-Fraser, James Alexander
Balniel, Lord Emmott, Charles E. G. C. Lumiey, Captain Lawrence R.
Banks, Sir Reginald Mitchell Emrys-Evans, P. V. MacAndrew, Lt.-Col C. G. (Partick)
Barclay-Harvey, C. M. Entwistle, Cyril Fullard MacAndrew, Capt. J. O. (Ayr)
Barton, Capt. Basil Kelsey Erskine, Lord (Weston-super-Mare) Macdonald, Sir Murdoch (Inverness)
Bateman, A. L. Essenhigh, Reginald Clare Macdonaid, Capt. p. D. (I. of W.)
Beauchamp, Sir Brograve Campbell Fraser, Captain Ian McLean, Major Sir Alan
Beaumont, Hon. R.E.B. (Portsm'th.C.) Fremantle, Sir Francis McLean, Dr. W. H. (Tradeston)
Benn, Sir Arthur Shirley Fuller, Captain A. G. Macmillan, Maurice Harold
Sevan, Stuart James (Holborn) Gibson, Charles Granville Macquisten, Frederick Alexander
Bird, Ernest Roy (Yorks., Skipton) Gilmour, Lt.-Col. Rt. Hon. Sir John Maitland, Adam
Blaker, Sir Reginald Glossop, C. W. H. Makins, Brigadier-General Ernest
Bossom, A. C. Gluckstein, Louis Halle Manningham-Builer, Lt.-Col. Sir M.
Boulton, W. W. Goff, Sir Park Margesson, Capt. Rt. Hon. H. D. R.
Bowyer, Capt. Sir George E. W. Goldie, Noel B. Marsden, Commander Arthur
Bracken, Brendan Goodman, Colonel Albert W. Mason, Col. Glyn K. (Croydon, N.)
Braithwaite, J. G. (Hillsborough) Gower, Sir Robert Mayhew, Lieut.-Colonel John
Briscoe, Capt. Richard George Graham, Sir F. Fergus (C'mb'rl'd, N.) Meller, Richard James
Broadbent, Colonel John Graves, Marjorie Mills, Sir Frederick (Leyton, E.)
Brown, Col. D. C. (N'th'I'd., Hexham) Grimston, R. V. Mills, Major J. D. (New Forest)
Brown, Brig.-Gen.H.C.(Berks., Newb'y) Guest, Capt. Rt. Hon. F. E. Mitchell, Harold P.(Br'tt'd & Chisw-kr
Browne, Captain A. C. Guinness, Thomas L. E. B. Monsell, Rt. Hon. Sir B. Eyres
Buchan-Hepburn, P. G. T. Gunston, Captain D. W. Moore, Lt.-Col. Thomas C. R. (Ayr)
Burghley, Lord Hacking, Rt. Hon. Douglas H. Moore-Brabazon, Lieut.-Col. J. T. C.
Burnett, John George Hales, Harold K. Morris, John Patrick (Salford, N.)
Butt, Sir Alfred Hall, Capt. W. D'Arcy (Brecon) Morris-Jones, Dr. J. H. (Denbigh)
Campbell, Edward Taswell (Bromley) Hanbury, Cecil Morrison, William Shephard
Campbell, Vice-Admiral G. (Burnley) Hanley, Dennis A. Muirhead, Major A. J.
Caporn, Arthur Cecil Hartington, Marquess of Munro, Patrick
Carver, Major William H. Hartland, George A. Natl, Sir Joseph
Castlereagh, viscount Harvey, George (Lambeth,Kenningt'n) Nation, Brigadier-General J. J. H.
Cayzer, Ma]. Sir H. R. (P'rtsm'th, S.) Haslam, Sir John (Bolton) North, Edward T.
Cazalet, Theima (Islington, E.) Heilgers, Captain F. F. A. O'Donovan, Dr. William James
Chamberlain, Rt. Hon. N.(Edgbaston) Heneage, Lieut.-Colonel Arthur P. O'Neill, Rt. Hon. Sir Hugh
Chapman, Col.R. (Houghton-le-Spring) Hep worth, Joseph Ormsby-Gore, Rt. Hon. William G.A.
Clarry, Reginald George Hoare, Lt.-Col. Rt. Hon. Sir S. J. G. Palmer, Francis Noel
Clayton, Dr. George C. Hope, Sydney (Chester, Stajybridge) Patrick, Colin M.
Cochrane, Commander Hon. A. D. Hore-Belisha, Leslls Peake, Captain Osbert
Coltox, Major William Philip Hornby, Frank Penny, Sir George
Colman, N. C. D. Horne, Rt. Hon. Sir Robert S. Perkins, Walter R. D.
Colville, Lieut.-Colonel J. Horobin, Ian M. Peto, Sir Basil E. (Devon, Barnstaple)
Conant, R. J. E. Horsbrugh, Florence Peto, Geoffrey K.(W'verh'pt'n,Bliston)
Cooke, Douglas Howitt, Dr. Alfred B. Pickford, Hon. Mary Ada
Copeland, Ida Hudson, Capt. A. U. M.(Hackney,N.) Pike, Cecil F
Courtauld, Major John Sewell Hudson, Robert Spear (Southport) Powell, Lieut.-Col. Evelyn G. H.
Courthope, Colonel Sir George L. Hunter, Capt. M. J. (Brigg) Ramsbotham, Herwaid
Crooke, J. Smedley Hutchison, W. D. (Essex, Romford) Rankin, Robert
Crookshank, Col. C. de Windt (Bootle) Jesson, Major Thomas E, Ray, Sir William
Crookshank, Capt. H. C. (Gainsb'ro) Joel, Dudley J. Barnato Reed, Arthur C. (Exeter)
Culverwell, Cyril Tom Ker, J. Campbell Reid, Capt. A. Cunningharn-
Davidson, Rt. Hon. J. C. C. Kerr, Hamilton W. Reid, William Allan (Derby)
Davies, Maj. Geo. F.(Somerset,Yeevil) Lamb, Sir Joseph Quinton Remer, John R.
Denman, Hon. R. D. Law, Richard K. (Hull, S.W.) Roberts, 8lr Samuel (Ecclesall)
Despencer-Robertson, Major J. A. F. Leighton, Major B. E. P. Ropner, Colonel L.
Drewe, Cedric Lennox-Boyd, A. T. Rosbotham, Sir Samuel
Ross, Ronald D. Simmonds, Oliver Edwin Thomson, Sir Frederick Charles
Ross Taylor, Waltar (Woodbridge) Slater, John Thorp, Linton Theodore
Runge, Norah Cecil Smiles, Lieut.-Col. Sir Walter D. Tryon, Rt. Hon. George Clement
Russell, Albert (Kirkcaldy) Smith, Sir Jonah W. (Barrow-in-F.) Vaughan-Morgan, Sir Kenyon
Russell, Alexander West (Tynemouth) Smith, Louis W. (Sheffield, Hailam) Wallace, Captain D. E. (Hornsey)
Russell, R. J. (Eddisbury) Smith, R. W. (Aberd'n & Kinc'dine.C.) Ward, Lt.-Col. Sir A. L. (Hull)
Rutherford, John (Edmonton) Smith-Carington, Neville W. Ward, Sarah Adelaide (Cannock)
Rutherford, Sir John Hugo (Liverp'l) Somervell, Donald Bradley Warrender, Sir Victor A. G.
Salmon, Sir Isidore Somerville, Annesley A. (Windsor) Waterhouse, Captain Charles
Salt, Edward W. Sotheron-Estcourt, Captain T. E. Wells, Sydney Richard
Samuel, Sir Arthur Michael (F'nham) Southby, Commander Archibald R. J. Whiteside, Borras Noel H.
Samuel, Samuel (W'dsworth, Putney) Spens, William Patrick Whyte, Jardine Bell
Sandeman, Sir A. N. Stewart Stanley, Lord (Lancaster, Fylde) Williams, Herbert G. (Croydon, S.)
Sassoon, Rt. Hon. Sir Philip A, G. D. Stanley, Hon. O. F. G. (Westmorland) Wilson, Clyde T. (West Toxteth)
Savery, Samuel Servington Stevenson, James Wise, Alfred R.
Scone, Lord Strauss, Edward A. Woimer, Rt. Hon. Viscount
Shaw, Helen B. (Lanark, Bothwell) Strickland, Captain W. F. Wragg, Herbert
Shepperson, Sir Ernest W. Sueter, Rear-Admiral Murray F.
Shute, Colonel J. J. Thompson, Luke TELLERS FOR THE AYES—
Mr. Blindell and Mr. Womersley.
NOES.
Acland, Rt. Hon. Sir Francis Dyke Grenfell, David Rees (Glamorgan) Mander, Geoffrey le M.
Asks, Sir Robert William Griffith, F. Kingsley (Middiesbro',W.) Maxton, James
Attlee, Clement Richard Groves, Thomas E. Milner, Major James
Banfield, John William Grundy, Thomas W. Nathan, Major H. L.
Batey, Joseph Hail, George H. (Merthyr Tydvil) Parkinson, John Allen
Bevan, Aneurin (Ebbw Vale) Hamilton, Sir R. W.(Orkney & Zeti'nd) Price, Gabriel
Brown, C. W. E. (Notts., Mansfield) Hicks, Ernest George Rea, Walter Russell
Buchanan, George Hirst, George Henry Roberts, Aled (Wrexham)
Cape, Thomas Holdsworth, Herbert Rothschild, James A. de
Cocks, Frederick Seymour Janner, Barnett Salter, Dr. Alfred
Cove, William G. Jenkins, Sir William Smith, Tom (Normanton)
Cripps, Sir Stafford Jones, Morgan (Caerphilly) Soper, Richard
Daggar, George Kirkwood, David Stones, James
Davies, David L. (Pontypridd) Lansbury, Rt. Hon. George Tinker, John Joseph
Davies, Rhys John (Westhoughton) Lawson, John James Wallhead. Richard C.
Dickie, John P. Leonard, William Williams, David (Swansea, East)
Dobble, William Lunn, William Williams, Edward John (Ogmore)
Edwards, Charles McEntee, Valentine L. Williams, Thomas (York, Don Valley)
Foot, Dingle (Dundee) McGovern, John
Foot, Isaac (Cornwall, Bodmin) Maclean, Nell (Glasgow, Govan) TELLERS FOR THE NOES.-
George, Major G. Lloyd (Pembroke) Mallalieu, Edward Lancelot Mr. John and Mr. G. Macdonald.

Resolution agreed to.

Ordered, That it be an Instruction to the Committee on the Finance Bill that they have power to make provision therein pursuant to the said Resolution".— [Mr. Chamberlain.]