HC Deb 31 May 1933 vol 278 cc2021-33

(1) Notwithstanding anything Contained in the Income Tax Acts, any share interest or loan interest paid by a registered society shall be paid without deduction of income tax:

Provided that this Sub-section—

  1. (a) shall not apply to any share interest or loan interest payable to a person whose usual place of abode is not within the United Kingdom; and
  2. (b) shall not render improper any such deduction made before the first day of October, nineteen hundred and thirty-three, which would have been a proper deduction if this Sub-section had not been enacted.

(2) Any share interest or loan interest paid by a registered society without deduction of income tax shall be chargeable under Case III of Schedule D as if it were mentioned in Rule 1 of the rules applicable to that Case.

(3) Where at any time, by virtue of the last foregoing Sub-section, the income of a person from any source becomes chargeable as therein provided not having previously been chargeable by direct assessment on that person, the provisions of paragraph (ii) of the proviso to Section thirty of the Finance Act, 1926 (which relates to charge of tax where a person acquires a new source of income in any year of assessment) shall apply as if the source of that income were a new source of income acquired by that person at that time.

(4) Subject as hereinafter provided—

  1. (a) a registered society shall be entitled to have the amount of income tax which, but for any relief under this paragraph, it would be liable ultimately to bear for any year of assessment, reduced by a sum representing tax on the amount of share interest or loan interest paid in that year by the society without deduction of tax in accordance with the foregoing provisions of this Section; and
  2. (b) where due relief under this Subsection cannot be given for any year of assessment in respect of any part of the share interest or loan interest so paid by a society in that year, Section nineteen of the Finance Act, 1928 (which relates to allowance for certain purposes of interest payments as losses), shall have effect as if the society had been assessed to tax for that year under Rule 21 of the General Rules in respect of the payment of that part of the share interest or loan interest, and had paid tax under that assessment on the amount of the payment:

Provided that this Sub-section shall not apply to any loan interest in respect of or by reference to which a deduction or relief is allowable to the society otherwise than under this Sub-section.

(5) Sub-sections (1) and (2) of Section forty-one of the Finance Act, 1927 (which relate to the making and determination of claims for certain deductions of tax), shall apply to claims for relief under paragraph (a) of the last foregoing Sub-section as they apply to claims for deductions of tax and as if the Special Commissioners were the commissioners concerned, and any relief due under the said paragraph (o) may be given either by discharge or deduction of any assessment, or by repayment, or by all or any of those means, as the case may require.

(6) On or before the first day of May in each year (commencing with the year nine teen hunderd and thirty-four), every registered society shall deliver to the surveyor for the district in which its registered office is situate a return in such form as the Commissioners of Inland Revenue may pre scribe, showing—

  1. (a) the name and place of residence of every person to whom loan interest (being loan interest to which Sub-section (4) of this Section applies) amounting to the sum of five pounds or more has been paid by the society in the year of assessment which ended next before the said first day of May; and
  2. (b) the amount of such loan interest paid in that year to each of those persons; and if such a return is not duly made as respects any year of assessment the society shall not be entitled to any relief under this Section in respect of any payments of loan interest which it was required to include in the return, and the amount of any relief or allowance which has been given in respect of any such payments may, if not otherwise made good, be assessed under Case VI of Schedule D and recovered from the society accordingly.

(7) For the purposes of this Section—

  1. (a) the expression "registered society" has the same meaning as in the last preceding Section;
  2. (b) the expression "share interest," in relation to a registered society, means any interest, dividend, bonus, or other sum payable to a shareholder of the society by reference to the amount of his holding in the share Capttal of the society;
  3. (c) the expression "loan interest," in relation to a registered society, means any interest payable by the society in respect of any mortgage, loan, loan stock, or deposit;
  4. (d) references to the paymentof share interest or loan interest shall include references to the crediting of such interest.—[Mr. Chamberlain.']

Brought up, and read the First time.

11.12 p.m.

Commander COCHRANE

I beg to move, in line 26, after the word" section," to insert the words: and also on the amount of any sum not exceeding two per cent. of the Capttal of the society which the society may put to reserve out of profits of that year provided that the total reserves of the society do not exceed twenty per cent. of its Capttal. The reason for this Amendment lies in the difficulty which my hon. Friends and I find in accepting the full conclusions of the Raeburn Committee. In particular, we feel that the Committee's recommendation regarding the taxation of the whole of the profits of co-operative societies is illogical. I know that my right hon. Friend avoids that difficulty by saying that the "divi" is not a profit on mutual trading. He regards it as a trade expense, and regards the whole of the reserve as liable to taxation. I do not wish to go over the arguments with regard to mutual trading, which have already been put to the Committee at considerable length, but many illustrations of that trading have been given. We are familiar with the people who join together to buy a ton or so of coal, and the fortune, or misfortune, which may befall them in that regard; and I think the Financial Secretary, for purposes of illustration, took a party of co-operators for a ride in a motor omnibus; but, whatever illustration of that sort may be used, the fact remains that the principal business of these trading co-operative societies is the selling of groceries and the like across the counter, and for that purpose they do not require a very large reserve.

If that were the end of the matter, I should be the more willing to accept the view that there is a close equality between these societies and the ordinary trader, but there are three additional respects in which there is a distinction between these co-operative societies and other organisations carrying on the same trade. The first is the fact that in the co-operative society a larger proportion of the members fall below the Income Tax limit. It is, of course, true that in the ordinary trading company a number of the shareholders are probably below the Income Tax limit, but in the cooperative societies the proportion is higher than in other trading organisations. In addition, the co-operative societies act to a considerable extent as thrift societies. It is a most valuable social feature that they help people, who otherwise might not save, to save money at any rate for a few months. There is a third direction in which there is a clear distinction between a co-operative society and other trading organisations. While their share Capttal must be unlimited, it may also be liable to repayment on demand.

For these three reasons, I feel that, with regard to reserves, a co-operative society should have rather different treatment from that which is now accorded to an ordinary trading organisation. We have suggested that they should be allowed to put to reserve free of tax an amount up to a total of 20 per cent. of the Capttal of the society.

It is not possible for me to estimate what would be the Cast of this change if the Amendment were accepted. From the information which is available, and which comes in the main from the reports of the Kegistrar-General of Friendly Societies, I can do no more than make a guess, but I should put the figure at perhaps £50,000 to £100,000. I do not think it would be more because the Amendment is not intended to give any exemption to societies which have already built up large reserves. It is not intended to give an exemption to societies which have passed beyond the mutual stage. We believe that, for the purpose of carrying on mutual trade, a reserve of 20 per cent. of the Capttal is sufficient. If they care to build up reserves beyond that, it must be for some other purpose and then they should be liable to taxation. If I am right in my estimate of what this would cost the Exchequer, some £50,000, that, I think, is a measure of the small extent to which the proposals of the Government infringe the mutual principle, because, if the Amendment were adopted, I believe we should have exempted from taxation entirely all those profits which can be legitimately said to be the result of mutual trading.

In the Clause that we have just dealt with my right hon. Friend has introduced a specific definition of a "divi." I think the result of that must of necessity be that the Inland Eevenue authority, in giving exemption to these societies, will stick absolutely to the letter of that definition. It is necessary that they should do so. The result will be a number of border-line cases; cases where there is doubt whether in equity the societies should not receive a measure of relief. The Debate to-night has also raised many of the same type of cases where there is considerable doubt whether in certain circumstances relief from tax would be given to payments to hospitals or some other activity. I ask my right hon. Friend to give the matter very careful consideration to see whether the empirical method which we suggest of a definite exemption would not overcome these difficulties. So far as our percentages are concerned, we claim no infallibility, but I am sure my right hon. Friend, if he were to agree with the object of the Amendment, would not withhold his guidance as to what would be the most appropriate figure.

11.20 p.m.


I rise to support the Amendment which has been moved by my hon. and gallant Friend the Member for Dumbartonshire (Commander Cochrane), from the wording of which it will be clear that we who are supporting it recognise that the co-operative societies, in the matter of taxation, have, in. fact, a position of privilege which has been admitted on both sides of the Committee. We think that the position should be regulated and adjusted, but that in the adjustment of this privileged position the Government should be sure that the regulation is patently equitable to all parties concerned. If, as I understand the situation, it is the intention of the Chancellor of the Exchequer to put the co-operative societies exactly on all fours with private trading or limited liability companies, and, at the same time, as was suggested by my hon. and gallant Friend, to leave those societies under statutory-limitations to which a private trading company is not subjected, the solution of this great problem cannot be called one which is patently equitable to all parties concerned. The word "equity," I have heard this afternoon, is defined in the dictionary as meaning "moral justice." I suggest to the Chancellor of the Exchequer that in his endeavour to remove-one injustice he is now creating another,. and the ordinary answer to that is that, two blacks have never made a white. Either it is a fact, or it is not, that the co-operative societies are evading or escaptng taxation by carrying on trade-which cannot be considered to be covered by the principle of mutuality. If it is a fact, surely the extent to which co-operative societies are carrying on trade outside without the principle of mutuality should be ascertained. As far as I know, that extent has not yet been ascertained, and in that respect I suggest that the-Chancellor of the Exchequer has not made out a case for the legislation which we- are asked to support, unless, as seems to be the case, the Government have decided to jettison the principle of mutuality.


The hon. Member cannot discuss the question of mutuality upon the Amendment which is now before the Committee.


I apologise if I have transgressed. I was only trying to point out that we have put forward the Amend-ment in an honest endeavour to meet a difficulty. It is not a destructive Amendment, but one which we hope may be considered as constructive. The principle of mutual trading was described by the hon. Member for Stockton-on-Tees (Mr. Macmillan) as one of fiscal convenience. I venture to cross swords with him upon that definition. In point of fact, the principle of mutual trading is the principle upon which, the co-operative movement has been built for a generation or more and which has been supported by numerous Chancellors of the Exchequer, Law Officers of the Crown, and other high authorities in the past.


The hon. Member is now discussing a point on which the Committee has already come to a decision. He must confine himself to the Amendment as to whether a certain proportion of the reserves should be exempt from taxation.


I must again apologise, and I will endeavour to confine myself strictly to that point. I will content myself by saying that in this Amendment we think we have found an equitable solution of this long and bitterly fought conflict. We believe that the Amendment will safeguard the principle of mutuality while at the same time it will be a more effective safeguard of the other principle which we seek to protect. I regret that the arguments that I have been attempting to adduce in order to commend our Amendment are out of Order. We do not consider that the percentages indicated in the Amendment are sacrosanct, but we put them forward as a constructive solution of the impasse and we hope that even at this late stage the principle of our Amendment will commend itself to the Chancellor of the Exchequer.

11.27 p.m.

Viscountess ASTOR

I hope the Chancellor of the Exchequer will accept the Amendment. By now I think he must have seen that there is a great body of opinion in the House which supports the National Government, even Tories of Tories, who feel that, although there may be some justification for what the Government are doing, it is not very popular. I am not running away from my position, but I am certain that there is a great body of opinion which thinks that the Government are going too far.


The hon. Lady must confine herself to the Amendment.

Viscountess ASTOR

May I not give reasons why I am appealing to the Chancellor of the Exchequer? It would be a great relief if he could accept the Amendment. The whole thing pleases no one. The Government are getting little money out of it, and they have not proved that they need the money. We are afraid that the Government are not taking the right course in regard to the Co-operative Movement. We believe in the Cooperative Movement for reasons very different from those which influence hon. Members above the Gangway. We believe in it because we believe that it will kill the Socialist movement, but they believe in it because they think that it will give funds to the Socialist movement. Co-operation and Socialism cannot go together, can they Captain Bourne?


Whether that is true or not, this is not the moment to discuss it.

Viscountess ASTOR

They are fundamentally different. Co-operation is a Capttalistic trading society, which has its roots in the country. It is one of the very best movements, while Socialism is an economic policy which has never been proved.


The hon. Lady must confine herself to the Amendment, which has nothing to do with the merits of Socialism or co-operation.

Viscountess ASTOR

I beg the Chancellor of the Exchequer to please his many supporters and backers, and admirers, by accepting the Amendment. We admire his courage and his directness.

After all he has faced this problem while many others have only been playing a political game. Strong men are not afraid to give in. It is not too late even now, and he would bring great joy to many Members of the House of Commons and to thousands of co-operators in the country, who detest the political side of the co-operative movement and who desire to back the National Government.


Captain A. RAMSAY

I desire to associate myself with the hon. Member who has moved the Amendment, and I hope that he will press it to a Division. Those of us who have opposed this legislation a little more whole-heartedly than the hon. Member feel that if the Amendment is accepted a great deal of what we believe to be an injustice will be removed. It cannot be said with any accuracy that all these reserves represent taxable money, and the proportion suggested would in our opinion exempt most of the non-taxable money. If the Amendment is refused it will not be unjust if people in the country say that a definite tax has been put upon thrift. But if the right hon. Gentleman cannot accept the Amendment I hope he will make some modification in the Bill which will allow that a reasonable proportion of money, which is the outcome of mutuality alone, shall not be taxed merely because it has not been distributed, but has been used in an ordinary sound financial policy strictly related to mutuality.



I support the Amendment, and I do so although I approve whole-heartedly of the attitude of the Chancellor of the Exchequer in reference to co-operative societies. I support the Amendment for this reason. I realise the tremendous benefits of cooperative societies when confined to their own purposes, and I should be sorry indeed if the Legislature rendered it impossible for other similar societies to grow up. If a body of men and women who 'proposed to form a co-operative society found that they would have to pay the full rate of taxation on all their profits, they would think twice before they started such a society; and, in addition, if the Amendment were accepted any society which would be started in the future would be a proper mutual trading society. The Chancellor of the Exchequer has rather mistaken the situation when be compares co-operative societies with ordinary incorporated companies. There is a considerable difference. The functions of a co-operative society are in some ways more limited and in other ways more extended. A cooperative society must accept any person as a member, and must accept whatever his share Capttal may be.

Further, every co-operative society must have a certain percentage of its funds in liquid form, so that it can repay its depositors at once. Therefore, it is necessary that such societies should have every encouragement from the Government, and should be in a position to carry on its trade properly. It can do so if it is allowed to accumulate tax free a reasonable percentage to carry on its work. If, after having got that percentage, all the projects made belong to the shareholders or the contributors as individuals, then it is a proper cooperative society. In other words, the co-operators are deriving the whole of the benefit from their mutual trading. Such a society would differ from many of the big industrial concerns. I ask the Chancellor of the Exchequer to consider the difference between a co-operative society and the ordinary incorporated company, and if he would give effect to the Amendment the revenue would not suffer to any considerable extent.

11.36 p.m.


I take a somewhat different view from that which has been disclosed by hon. Friends of mine who support this Amendment, but at the same time I think that from another point of view there is a good deal to be said in favour of the proposition of the Amendment. I do not agree with my hon. Friends at all that the measures that the Chancellor of the Exchequer is taking now are in any way unfair, or that they unduly infringe the principle of mutual trading. I gave my general views on the subject on another occasion. One of the subjects that concerned me not a little when I saw the members of my own co-operative society was that co-operative societies are under certain quasi-statutory obligations in the way of putting money aside for the purpose of reserve. They have to submit their rules to the Registrar of Friendly Societies, and they have to submit to a kind of audit which no public company has to bear. That puts them in a different position from an ordinary public company.

Although I do not think that the rigid form of this Amendment is quite the right way in which to do it, I do suggest to the Chancellor of the Exchequer that it might be possible between now and Report to look into the matter with a view of seeing whether it is possible, by way perhaps of reducing the standard rate of tax upon all such portion of the reserve as represents compliance with some statutory order or some order of the Chief Registrar, to recognise that this obligation rested on these societies. I do not think there is any way in which the Chancellor of the Exchequer can better give effect to what, I am sure, is in his own mind. I am certain that he has not, and never has had, any intention of penalising the principle of mutuality. If by some steps of the kind suggested in the Amendment it is possible to show in a practical way that the exceptional circumstances in which the co-operative societies find themselves in regard to reserves were recognised, it would be giving effect to the generosity and the fairness with which we all desire to see these societies treated.

11.40 p.m.


Anyone who has listened to this Debate will realise the Sincerity and conviction that lie behind the Amendment. The Mover appreciated that he was trying to differentiate between the co-operative society and the trading company in the terms to be given to them in relation to this matter, and he sought to define the differences which he claimed existed between the two. He said there were three main differences. The first was in the status of the members. He told the Committee that the Majority of the members of the co-operative societies were below the Income Tax limit. So may be the shareholders in any trading company. Tax is exacted in two parts, if I may put it in colloquial language. There is the tax exacted from the individual and the tax imposed upon the company. The company pays tax upon its reserves at the standard rate, irrespective of the status of the shareholders. They may all be above the Super-tax limit or they may all be below the ordinary Income Tax limit; the company pays at the standard rate.

Commander COCHRANE

I thought I made it clear that it was merely a question of proportion. It was clearly not a question of principle on that point. In the co-operative societies, the proportion of those below the Income Tax level is higher than it is in the other case.


The question of proportion is not of importance. The fact is that the company pays Income Tax at the standard rate, irrespective of the proportion of its shareholders who may be above or below the Income Tax level, and so it is with the society. The second ground for differentiation suggested by my hon. and gallant Friend was the ground of thrift. There are many forms of thrift. Some of them may be more or less commendable than membership of a co-operative society. It is reasonable for persons to combine for the purpose of buying goods cheaply, and in so far as the member of a co-operative society has dividends returned to him, having the effect of giving him goods more cheaply, he has the full advantage of his thrift. But in so far as the co-operative society, as an incorporated entity, retains reserves, then those reserves as they are accumulated and put in that position are subject to tax. There is no principle of thrift impaired in that proposition. My hon. and gallant Friend's third ground of differentiation was that the societies had to repay upon demand.

Commander COCHRANE

They may have to do so.


That is a different point. My hon. and gallant Friend says they may have to repay upon demand the share Capttal of their shareholders. That depends on the rules made by the society itself. A society is not compelled by law to repay its shareholders on demand; Therefore, I submit to my hon. and gallant Friend that the three grounds on which he sought to differentiate the societies from trading companies fail. My hon. and learned Friend the Member for Central Nottingham (Mr. O'Connor) suggested a further ground for differentiation. He said that the societies, being incorporated under the Industrial and Provident Societies Act, had certain disabilities. I would prefer to say that they had certain privileges. They are not bound to incorporate themselves under these Acts at all. They incorporate themselves because it is cheaper, but, if they so desired, they could incorporate themselves under the Companies Act, and they would then have none of the privileges which they now enjoy, so that they have a distinct advantage in being able to incorporate themselves under these Acts.

I do not think those who have argued this Amendment, clear as they have been, have made out to the Committee sufficient reason why we should differentiate between the trading profits of a company and those of a co-operative society. If they had made out that case, every argument which they have used would have been an argument for exempting, not as they here ask, 2 per cent. of the amount put to reserve, but everything put to reserve. Why stop at 2 per cent.? If the Committee were convInced that my hon. Friends had made out a case, the whole of the proposal of the Government would fall to the ground. The case of the Government is that there is no distinction in principle to be drawn between the amounts put to reserve by co-operative societies engaged in trading and the amounts put to reserve by ordinary companies. They work on the same basis, they deal with the same commodities, and they are in every respect similar; and so I would ask my hon. Friends to withdraw the Amendment, failing which I would ask the Committee at any rate not to accept it.

Question put, "That those words be there inserted."

The Committee proceeded to a Division.

There being no Members willing to act as Tellers for the" Ayes,"the CHAIRMAN declared the" Noes"had it.