HC Deb 01 July 1936 vol 314 cc429-87

Order read for resuming Adjourned Debate on Amendment proposed [30th June] on Consideration of the Bill, as amended:

Which Amendment was, in Clause 18, page 12, line 25, after the word "shows," to insert the words "in writing or otherwise."—[Mr. Wells.]

Question again proposed, "That those words be there inserted in the Bill."

3.58 p.m.


This Amendment arises out of a discussion which took place on the Committee stage as to the procedure to be adopted by the subject in bringing applications before the Special Commissioners, who have to be satisfied that the transfers referred to were not effected mainly for the purpose of avoiding liability to Income Tax. When we were discussing the point, I suggested that there might be difficulty with the machinery if every subject had to appear in person before the Commissioners, but my right hon. Friend said that he did not think that would be necessary in every case. These words are proposed to be put in, in order to make it plain that, in the first instance, the subject who desires to go before the Special Commissioners may make application in writing to the Commissioners.

3.58 p.m.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

On the Committee stage I said to my hon. and learned Friend that perhaps the difficulty which he anticipated was exaggerated, but that I would be very willing to look into the matter. My hon. and learned Friend has put down this Amendment, to which I see no objection, in order to make it clear that the matter referred to can be dealt with in writing. I have much pleasure in accepting the Amendment.

Amendment agreed to.

4.0 p.m.


I beg to move, in page 12, line 28, at the end, to insert: but where the Special Commissioners are satisfied that the transfer and any associated operation were affected substantially though not mainly for some purpose other than the purpose of avoiding liability to taxation they shall have power to remit such proportion of the tax which would otherwise be chargeable as in their opinion is lust having regard to the circumstances of the case. The object of the Amendment is to deal with the case in which there is a doubt as to whether or not a transfer has been made for the purpose of avoiding liability to taxation. As the Clause stands it may be very difficult for the Special Commissioners, or indeed for the right hon. Gentleman's own officials, to decide definitely whether a transfer has entirely been made for the purpose of avoiding taxation, and it may be, therefore, that in a case of doubt the officials concerned or the Special Commissioners may feel that they must come to a decision against the taxpayer. The object of the Amendment is to give them discretion in cases in which there is a doubt. No real harm can come from giving that discretion. It cannot but make the Clause operate more satisfactorily from the point of view of the Treasury, and more satisfactorily to the taxpayer.


I beg to second the Amendment.

I do so because of the presence of the word "mainly" in the proviso which appears on page 12, in line 24, and onwards.

4.2 p.m.


It is clear from what my hon. Friend said in moving this Amendment that what he has in view is not the ordinary case. The transactions against which this Clause is designed are in the great majority of cases perfectly plain cases of tax evasion; they are gross and palpable efforts to avoid taxation. My hon. Friend mentioned, however, that there may be border-line cases, and it is his intention by the Amendment to deal with such cases by allowing the commissioners to apportion the amount of taxation which they think the individual should pay, having regard to the relative quantities. of avoidance and other motives in the transfer. It is very difficult to conceive such a proposal in operation. It, will be difficult to say in any case what is the precise proportion of avoidance and of other elements in the transaction.


Is it not the case that the Chancellor of the Exchequer has in fact put that responsibility on the officials concerned under this Clause by the use of the word "mainly"?


No; that is precisely what we are not doing. By using the word "mainly" we are asking the Commissioners to decide a question of fact, namely, whether the transaction is one which has been entered into mainly for the purpose of tax avoidance. Once that result has been achieved, the other incidence of the Clause follows. That is a very different thing from casting upon the Special Commissioners further discrimination And asking them to say whether there is, for instance, 30 per cent. of proper purpose, and that therefore there should be 70 per cent. assessment. That would be a decision which it would be beyond the powers of any body of men, however able, to make. The word "mainly," as my hon. and learned Friend the Member for Bridgwater (Mr. Croom-Johnson) knows, is a word that frequently does appear, and is a word which has received a good deal of judicial interpretation in the past. I suggest that it is the proper word to use in this particular context.

We are taking the step of asking this body of men, the Special Commissioners, in whom every one has complete confidence, to look at a transaction as a whole, and to decide what is its true character as a, whole. The use of the word "mainly" enables them to come to a broad conclusion on a question of fact, which is essential. The difficulty of apportioning with anything like justice the degree of evasion present in any transaction makes me commend to the House the proposal of the Bill rather than that of the Amendment. It is a perfectly just proposition that, once you are satisfied that a transaction has been entered into mainly for the purpose of avoiding taxation, the income which the individual has the power to control should pay taxation. Amendments of this character rather suggest that some hon. Members are under the misapprehension that this is a penal Clause. It is nothing of the kind. We are merely saying here that if people have power to enjoy an income because of rights which they have obtained by these transfers, they should pay taxation like any one else.

4.7 p.m.


Is not the Financial Secretary's explanation something like the explanations of what the words "genuinely seeking work" mean? You have really to examine the state of mind of the person concerned. Two individuals go through precisely the same financial motions. One is able to tell some skilful story and to satisfy the Commissioners that the transfer was done mainly for some reason other than tax avoidance, and therefore he is not taxed. The second man is not so skilful in telling the tale, and he is taxed. They may be two people whose circumstances are identical, and the one may be taxed far more heavily than the other. It seems to me that you are asking the Commissioners to do an impossible thing, to judge the state of mind of the person concerned in these transactions, which in one case may be honourable and in the other case not so honourable.


I do not wish to press the Amendment: it is not worth while to take it to a Division. I think the Financial Secretary to the Treasury is very optimistic if he thinks he can achieve his object with the Clause as it stands.

Amendment, by leave, withdrawn.

4.9 p.m.


I beg to move, in page 13, line 36, after "kind," to insert: other than property or rights of any kind outside the United Kingdom on the twenty-second day of April, nineteen hundred and thirty-six, and not subsequently transferred inside the United Kingdom. Quite frankly I move this Amendment for the purpose of keeping out of the net a certain type of transfer which I respectfully suggest ought not to be inside the net. When this Clause was first mentioned in the House and when it was discussed in Committee we were told that one of the essentials to bring a transaction inside the net was that there must be a transfer by a person in this country of assets to someone resident or domiciled abroad. A great deal of the discussion of the Clause has been on that basis. But when one comes to read the Clause with great care, one finds that in fact there is in it nothing which appears to confine its operations to transfers by persons in this country of property in this country to persons abroad.

We all know that there must be resident in this country at the present moment many foreigners who, because of our penal taxation as they regard it—Income Tax and Surtax—deliberately, before they have come here to take up a position in this country or to reside here, have made settlements of their foreign property, of which they have had no intention of bringing one farthing into this country—settlements which they have been advised to make in a certain way, and having made them, they have been told, "You can safely go to Great Britain to take up your five years' job or your 10 years' job, or to become resident there, and so far as the Inland Revenue is concerned the income of this property which you leave behind in the foreign country will not come within the net of the Chancellor of the Exchequer."

As I read this Clause, if in fact anybody resident in this country, for a commercial purpose or otherwise, has, on the advice of his domestic lawyers, who knew what our system of taxation was, made such an arrangement, so that he may at any future time be able to enjoy the income or part of the income of that property which he left behind, the whole of the income of that foreign property would henceforth be aggregated with his income here and he would be liable to Income Tax and Surtax on it. It seems to me that that can have only one result, that with this Clause in operation against them foreigners now resident in this country will leave this country and cease to spend the money that they are spending here now. Still more, it seems to me that those foreigners who may contemplate coming to this country to spend their money here, when they are told that it will be useless for them to make any such arrangement as that I have indicated, will obviously not come. They cannot escape under the proviso, because these arrangements are deliberately made for the purpose of avoiding British taxation before they come here.

We know quite well that British subjects who go to reside in certain foreign States which have a very wide net of taxation, in their turn do not want to be taxed on the property that they leave in this country for the benefit of their families and so forth in this country. It seems to me that income from foreign property which has in the past been transferred by a person resident in this country and is never to be brought over here, ought to be allowed to escape out of the net of this Clause. It is not for the general good of the country that foreigners should be put off coming here to spend money or to take up jobs in this country because of a Clause such as this.

Lieut.-Colonel ACLAND-TROYTE

I beg to second the Amendment.

4.14 p.m.


My hon. and learned Friend the Member for Ashford (Mr. Spens) has clearly explained the motive which has actuated him in moving the Amendment. Before I come to the particular case he gave as his reason for the Amendment, I would like to see whether, if we accepted the Amendment, it would not have a much wider effect than that which my hon. and learned Friend indicated as his main reason for moving the Amendment. What the Amendment proposes to do is to alter toe definition of assets which is contained in the Clause, and to exclude from it the property or rights of any kind which on the Budget date were outside the United Kingdom and have not subsequently been transferred inside the United Kingdom.

My hon. and learned Friend will remember that this Clause is designed to prevent the avoidance of taxation by means of the transfer of property abroad. If we were to exclude these foreign properties from the assets described in the Clause, would not that allow the evasion to continue by the transfer of foreign assets instead of British assets? There is no substantial difference between foreign securities and British securities from the point of view of the ease with which they can be sold and transferred, and one great objection to the Amendment is that, while a man would be prevented from avoiding taxation by transferring British securities, it would still be left open to him to do so by transferring foreign securities. There are cases of avoidance, with which we seek to deal in this Clause, in which foreign securities, and not British securities, are used as assets, and I think that, if my hon. and learned Friend reflects, he will realise that there is an advantage in using foreign securities instead of British as the vehicle for these transfers, because foreign securities, if owned by a person abroad, escape not only Surtax but the standard rate as well. I know of one case in which a British subject has transferred a very large block of foreign securities to a company in Canada, and has thereby so reduced his Income Tax at the standard rate and his Surtax liability that he is escaping about £65,000 a year in taxation. Cases of that kind would, if we accepted this Amendment, be permitted.

My hon. and learned Friend based his case upon narrower grounds. He asked us to imagine the case of a foreigner ordinarily resident here who has transferred foreign securities to a foreign company. If the foreigner made that transfer in the past, before he became ordinarily resident here, the Clause would not apply to him, because in its opening words it refers to: individuals ordinarily resident in the United Kingdom. If he has made the transfer since he became ordinarily resident in the United Kingdom, then, of course, it falls to be decided whether he did so for the purpose of avoiding taxation or for other purposes, and, in the case of a foreigner ordinarily resident in this country, the ordinary Income Tax law at the present time charges him Income Tax only on such sums as are actually remitted to this country. In that case, therefore, a fresh element would be introduced before the Commissioners which would enable them clearly to distinguish whether tax avoidance was the motive or not, and, if it was plain that he had some other motive, it would be perfectly easy for the Commissioners to come to a decision in his favour. In the case of a foreigner ordinarily resident in this country, who, while resident in this country, has made a transfer of foreign securities, I would ask my hon. and learned Friend why that foreigner should be put in a better position than a British subject who has done the same thing. It is not easy to see why, when a man resident in this country who makes a transfer of British assets to a company abroad for the purpose of avoiding taxation is to be caught by the Clause, a foreigner who makes a transfer of foreign securities for the same purpose should not also be caught by the Clause. If we are to try to stop this form of avoidance—and my hon. and learned Friend has been of great assistance to us in suggesting methods for making the Clause watertight—the provisions which we enact should apply to all residents in this country, whoever they may be. The Amendment would open too wide a door to evasion in the future, while the injustices of which my hon. and learned Friend complains are not so severe as he supposes, and for these reasons I ask the House not to accept the Amendment.


I desire to thank the Financial Secretary for his reply. The words he has used may be of considerable assistance later before the Special Commissioners in regard to foreigners who, before coming over here, have put their affairs in order so as to try to make themselves only taxable in respect of such money and income as it is necessary for them to have in order to take up positions over here. For the rest, I cannot possibly press the Amendment, and in the circumstances I beg to ask leave to withdraw it.

Amendment, by leave, withdrawn.

4.22 p.m.


I beg to move, in page 14, line 24, to leave out "1935–36," and to insert "1936–37."

The principle underlying this Amendment is simple. I imagine that every one of us desires to stop tax avoidance of the kind which in the Icing run merely transfers the burden avoided to taxpayers who are more honourable and honest in their transactions. But people have been permitted to do certain things; certain assessments have been closed and settled; and it seems to me to be all wrong that, once an assessment has been made in accordance with one set of rules.—although the rate of tax payable on that assessment may be varied, because the fixing of the tax may take place at a later date, as is the case with Sur-tax—it seems to me to be all wrong that the rules should be altered in the middle of the match. [An Hon. MEMBER: "It is not a match; it is a game."] It is a game out of which a large number of skilful people do very well. I do not understand the game myself, but many people on both sides seem to do rather well out of it. The question at issue is a constitutional issue—whether we should re-open a closed assessment; or, in other words, whether we should make a tax retrospective. Judging by the views expressed by persons so eminent and cautious as the financial editor of the "Times," and, I think, also the financial editor of the "Financial Times," this seems to be thoroughly bad in principle.

I see that the Chancellor of the Exchequer has on the Paper an Amendment which apparently will take Income Tax out of these assessments, but will leave Surtax in. His Amendment is a concession to finance, but not a concession to principle. Certain people will gain by it, but I am not concerned with whether they gain or lose, but with the constitutional question whether we are going to accept a re-opening of past assessments. If it were proposed to reopen the assessments of the general body of Income Tax payers once they had been made, a political situation would result that would make it impossible. If that bad principle is applied in this case, it will only be because the number of people affected is small, and their political influence, therefore, is not very great, but it seems most unfortunate that the Chancellor should be making this proposal because of his necessities for revenue. What they are in this case I do not know, because it is not easy to understand from the Financial Statement exactly how much he expects to get out of Clause 18 this year, since it is mixed up with other matters. There is no clear indication of what would be the loss of revenue this year and next year if these assessments were not re-opened, and I hope that some indication will be given in reply to this Amendment as to what the financial commitment is—in other words, how much it is going to cost if the Chancellor remains a financial purist, or, shall I say, a constitutional purist. I know that in responsible circles outside this House there is a very strong feeling that, although these provisions have a very strong justification, there is no justification whatsoever for making them retrospective.

4.27 p.m.


I beg to second the Amendment.

I do not know whether I shall be in order in referring to the Chancellor's Amendment which my hon. Friend has mentioned—in page 14, line 27, at the end, to insert: Provided that for the year 1935–36 no income shall be charged to tax at the standard rate by virtue of the provisions of this Section, but surtax shall be assessed and charged as if any income which would, but for this proviso, have been charged as aforesaid had in fact been so charged. If I may be permitted to refer to it, I think it would be very useful to do so. Sub-section (7) of Clause 18 says: The provisions of this Section shall apply for the purposes of assessment to Income Tax for the year 1935–36.… That, obviously, is a retrospective provision, because the Income Tax for 1935–36 was assessed in the autumn of last year, and was payable on 1st January this year, being for the year which has already closed, and which was closed before this Bill was brought in. To my mind the question is one of principle; it is not a question of the amount. On the question of evasion I should support the Chancellor very strongly, but I sincerely hope that retrospective legislation, in respect of taxation especially, will not be extended. The Chancellor has very kindly considered the matter, and has put down his Amendment which I have already quoted. I gather that it means that Income Tax, so far as these interests are concerned, is left as it is under the assessment for 1935–36, but that as regards Surtax, which is payable on 1st January, 1937, the assessment shall be so adjusted and varied as to include these interests. Of course, technically, that is really retrospective, because in a question of this kind it does not matter so much when you have to pay the tax; the question is in respect of what period it is assessable; and in this case the period for which it is assessable is admittedly the year 1935–36, although it is payable on 1st January, 1937.

Therefore, strictly speaking, it is a variation of the principle that we ought not to make it retrospective. The Chancellor, no doubt, will say that, as the tax has not to be paid until 1st January, 1937, there is a difference between that and the assessments which have already been concluded and paid, and that, therefore, this is not strictly speaking a retrospective Clause. I do not agree with that in principle, but of course there is to a certain extent a prima facie case for it, and, as the Chancellor is extremely good in giving us even a morsel on this point, I myself should be inclined to accept the half loaf that is offered to us, and to advise the House to accept it rather than go to any hostile Division. Nevertheless, on the question of principle I wish to make a protest, in spite of the concession which the Chancellor has made.

4.30 p.m.


I think that in principle this Amendment, with which. I have associated myself, is correct. The argument that has been made on previous occasions when Surtax has been under discussion, that the assessment is different from that of the ordinary Income Tax, does not convince me in this case. The alternative Amendment makes it clear that Income Tax is not to be subject to reassessment and retrospective legislation, but the other matter is left over. The Chancellor's Amendment suffers from that kind of ailment which is so constantly exhibited in the phraseology devised by the Treasury. The tax law has so many technicalities that ordinary language appears to be inapplicable without upsetting something else, so that we cannot have the law governing taxation in simple language. As this matter affects particularly Surtax, and not in any great degree the great body of the community, these matters go on and no remedy is applied. I wish to express my agreement with the last speaker that we should be wise in the circumstances to accept what is offered to us by the Chancellor of the Exchequer and not press the matter on this occasion.

4.34 p.m.


I am sorry that I cannot agree with my hon. Friend the Member for Cambridge University (Sir J. Withers) that on a question of principle, that is to say, retrospective legislation, half a loaf is better than no bread. On a question of principle of this kind no distinctions can be made. I consider that what applies to Income Tax in this connection applies equally to Surtax, which is only an increased form of Income Tax, and the matter is made worse when we remember that Surtax of Super-tax payers have already, owing to what I can only describe as a very slim device, been mulcted in two payments of Super-tax or Surtax for the same year. By making the period for the payment of Surtax a different one from that of Super-tax, it was provided in the Finance Act, 1927, that both impositions should be payable in respect of the same year by the same person, or perhaps I should say by the same estate, because the person might possibly be dead. It was felt that, if the same people had to pay the same tax twice in the same year instead of once, there would be such an uproar that the House of Commons, as representing the people of the country, and representing what is fair and equal in the way of taxation, would not stand it, so it was put in such a way that it almost looked as if the Super-tax payer was getting a concession but, as a matter of fact, Super-tax was assessed and paid and Surtax was made payable in the next year for the same period.

I have always thought that that was a very slim device and I do not think it was very creditable to the officials of the Treasury or to the then Chancellor of the Exchequer. When we remember that, it makes it more reprehensible that we should now have retrospective legislation with regard to the Surtax payer, because the assessment of Surtax has been made and is completed, although the actual date of payment has not arrived. I appeal to the Chancellor, who, I know, takes a very strong view as to his responsibilities in seeing that fair play is meted out to all classes of the community, and who, I am sure, would not countenance anything that would be unfair to however small a body of taxpayers, to see that, if it is not fair for the ordinary Income Tax payer to have legislation of a retrospective kind, the same argument equally applies to the Surtax payer.

4.40 p.m.


The subject that has been discussed on this Amendment was also discussed in Committee and, although I was not present on that occasion, I have since had the opportunity of studying what was said. I recall that my hon. Friend the Member for Colchester (Mr. Lewis) moved an Amendment which was intended to have practically the same effect as that which I have put down. The supporters of that Amendment felt that, although they were not prepared in any way to defend the practices which had taken place and which had made this Clause necessary, and even though the effect of the Amendment would be to allow them to escape for one more year from the liabilities placed upon those who have adopted devices of this kind, it was worth while to make that sacrifice in order to preserve the principle of not making legislation retrospective. On further consideration I came to the conclusion that the argument against retrospection and against the possibility of setting up precedents is one that ought to have consideration. I have drafted an Amendment, which I shall presently move, to meet what I believe to be the real weight of the charge.

Do not, however, let us make a fetish of this idea about retrospective legislation. Let us consider what really is at the back of the principle. I suggest that, in the case of Income Tax, the principle that you want to protect is that, once a man has had his tax assessed and has paid it, he should be free to spend what remains to him as he likes, without being exposed to any further charge by the State in respect to that income. There is in question here both what we commonly know as Income Tax and what we commonly know as Surtax. The Income Tax charge applies only to certain foreign and colonial securities and to British securities on which tax is not deductible at the source. Where tax is deductible it has already been collected, and there is no question of any re-opening of the assessment, but where those other securities have been handed over to a foreign company they have escaped Income Tax at the standard rate and, as the Clause stands, the assessment would have to be re-opened and a further charge would be made. By the Amendment which I shall move that further charge will not now be made and no assessment that has once been made will be re-opened.

But when my hon. and gallant Friend the Member for South Croydon (Mr. H. G. Williams) says you ought not to change the rules in the middle of the match, I think he is carrying the analogy rather beyond the actual facts of the case. What are the rules, and who is observing the rules in this case? Is it in accordance with the rules of the match that a person should be allowed to avoid Income Tax by receiving income in a form which in law is called capital, namely, redeemable debentures? It is altogether stretching the facts of the case to suggest that that is playing according to the rules and, although I know my hon. Friends have quoted judgments to the effect that an individual is allowed to arrange his affairs in such A way as to attract the smallest amount of taxation, still I think that, if it were laid down that, whatever happens, there would never be any retrospective legislation, that would really be an invitation to devise further and still more ingenious methods which would be very undesirable.

The case of Surtax is entirely different from that of Income Tax. In the case of Surtax no assessment has been made. The rate of Surtax itself is not fixed until this Bill becomes law. It is laid down in Clause 15 of the Bill, and it is not yet law. Therefore, there can be no question of retrospection there. The retrospective principle can only be brought about in the case of Income Tax at the standard rate. That is why I have made a distinction between Income Tax at the standard rate and Surtax in the Amendment which I propose to move, and why I could not accept any suggestion such as that made by my hon. Friend the Member for South Kensington (Sir W. Davison), that there is in effect any breach of any principle of retrospective legislation in the case of Surtax, which has not yet been assessed, and the amount of which has not yet been fixed, I understood from what my hon. Friend the Member for Cambridge University (Sir J. Withers) and the right hon. and gallant Gentleman below the Gangway said that they propose to withdraw the particular Amendment we have under consideration in order that I may move the Amendment which I have put down, even though it does not go as far as they would like it to go. In moving that Amendment, I would wish to make it quite clear that I do not consider that, in the future, people will be entitled, if they find new methods of Avoiding taxation of a similar character to these which are dealt with here in this Bill, to say that they are protected by anything I do now from retrospective legislation. I give them Air warning, and after that fair warning I think that they will have no reason to complain if retrospective legislation should be found necessary in this particular class of case.

4.47 p.m.


The Chancellor of the Exchequer has based his argument upon certain views of a number of judicial dicta which contrast the views which have been expressed by hon. Members who sit behind him, and for that reason I express my gratification that he has taken the line that he has followed this afternoon. Hon. Members in these Debates have quoted statements from judgments to the effect that any citizen who can find some legal method of avoiding Income Tax is doing something which is not blameworthy, and which is in no way contrary to the rules of good citizenship. These views have been quoted and given approval by a number of hon. Members on the opposite side of the House. The opinion of one of His Majesty's judges as to what is legal is one to which we in this House would listen with respect, but as to the judgment of what is proper and decent between one Income Tax payer and his fellow Income Tax payers, or between one member of the community and other members of the community, the judgment of this House is far better than the judgment of any judge in the courts of law. I am very glad, therefore, of the general spirit of the observations of the Chancellor of the Exchequer and of the more specific observations of the Financial Secretary to the Treasury in a recent Debate, which I took to mean that, to devise by skilful methods highly artificial arrangements by which you find a loophole in the law, which amounts to some dodge or trick by which you can avoid Income Tax, and yet because of that loophole not get caught in the meshes of the law, may be legal, is not good citizenship, and is not proper and decent, and ought not to be encouraged in this country.

4.50 p.m.


The Chancellor of the Exchequer reminded the House on the Committee stage that I moved an Amendment in other words designed to achieve the same object as the Amendment standing in his name. The Chancellor of the Exchequer, as he said, was not present at that time, and I express my gratitude to him for having been kind enough subsequently to consider the argument then put forward and for bringing his Amendment before us to-day. There is in this matter a very clear distinction between Income Tax and Surtax, and I very much appreciate the action of the Chancellor of the Exchequer.

Amendment negatived.

Amendment made: In page 14, line 27, at the end, insert: Provided that for the year 1935–36 no income shall be charged to tax at the standard rate by virtue of the provisions of this Section, but Surtax shall he assessed and charged as if any income which would, but for this proviso, have been charged as aforesaid had in fact been so charged."—[Mr. Chamberlain.]


The next Amendment which I am taking is that in the name of the Chancellor of the Exchequer, on Clause 20.

CLAUSE 20.—(Amendments of 12 and 13 Geo. 5. c. 17. s 21, as respects investment companies.)

4.52 p.m.


I beg to move, in page 17, line 42, to leave out "been," and to insert "being."

This is purely a drafting Amendment. The Clause refers hack to Section 21 of the Finance Act, 1922, and if hon. Members will look at the words in the Clause of the present Bill they will see that it is necessary to reproduce in that Clause the identical words of the Section previously referred to.

Amendment agreed to.

Further Amendments made: In page 19, line 18, after "twenty-one," insert "of the Finance Act, 1922."

In line 32, after "twenty-one," insert "of the Finance Act, 1922."—[Mr. W. S. Morrison.]

CLAUSE 21.—(Provisions as to income settled on children.)

4.54 p.m.


I beg to move, in page 22, line 15, to leave out "has arisen under the settlement," and to insert: by virtue or in consequence of the settlement has been paid to or for the benefit of a child of the settlor, or dealt with as mentioned in Sub-section (2) of this Section. In the case of the irrevocable post-Budget capital settlement, income spent on the maintenance of an infant child is being charged under Clause 21 as the parent's income. On the other hand, income accumulated for the future benefit of the child is not being so charged, and, in view of that distinction, it would be easy for the taxpayer to arrange that capital should be paid for the benefit of the child and that income should be accumulated. Paragraph (b) of Sub-section (3) is introduced to deal with that particular case, and to provide the necessary safeguards. But the settlement might cover other beneficiaries beside the children of the settlor, and in that case the words the aggregate amount of the income which has arisen under the settlement. will include not only the income which had been paid to or been accumulated for the benefit of the children, but also the income paid to or accumulated for the benefit of other persons. What we want to compare is the total sum paid for the benefit of the child of the settlor, on the one hand, and, on the other hand, the actual amount of the income under the settlement paid to or accumulated for the benefit of the children. This Amendment and the following Amendments are designed to secure this object. They operate, of course, in favour of the taxpayer by limiting the amount of charge which can be made under Sub-section 3 (b).

4.56 p.m.


May I ask, purely for information, the exact. point of having these words "by virtue or in consequence"? Are they intended to cover something indirect, or is it merely tautology?


The hon. and learned Gentleman puts me in rather a difficult position. I am not sure that I appreciate his point as to the use of these words. They appear to be the best words and are adequate for the purpose.


I understand the words "by virtue of the settlement," that is to say, any payment because there was a settlement so made. But I am not quite certain why the words "or in consequence" are required, that is all.

The ATTORNEY - GENERAL (Sir Donald Somervell)

The best answer that I can make is that the words occur in the Act of 1922. It may be that the double phrase does not add much to the meaning of the single phrase, but as those words occur in that Section it was thought better to follow that precedent.

Amendment agreed to.

Further Amendment made: In page 22, line 16, leave out "it," and insert "the settlement."—[Mr. Chamberlain.]

4.58 p.m.


I beg to move, in page 22, line 18, at the end, to insert: (4) Income paid to or for the benefit of a child of a settlor shall not be treated as provided in Sub-section (1) of this Section for any year of assessment in which the aggregate amount of the income paid to or for the benefit of that child, which, but for this Sub-section, would be so treated by virtue of the foregoing provisions of this Section, does not exceed five pounds. This Amendment is intended to exclude from the operation of Clause 21 any cases where the income of a child of a settlor does not exceed £5, and has been introduced at the instance of the National Savings Committee, who have made representations to me with regard to the effect of the Clause upon the savings of children. The effect of the Amendment will be that a child can accumulate savings by way of gifts from parents up to an amount which would produce £5 a year, say, £200 in the Post Office or a trustee savings bank, and no charge will thereby be incurred by the parent. It will also have the advantage that it will not be necessary for the Inland Revenue to analyse these small cases, and see how much of the amount has been due to gifts from parents, and how much due to gifts from other people.

Amendment agreed to.

4.59 p.m.


I beg to move, in page 22, line 35, to leave out person," and to insert "party to a settlement. This Amendment deals with another point. On the Committee stage, my hon. Friend the Member for Twickenham (Mr. Keeling) moved an Amendment to leave out the words "any person" and to insert: any settlor or trustee of any settlement to which this Clause may apply. What he complained of was that the Subsection would enable the Commissioners to make inquiries from any person whether or not that person was directly concerned or interested in the settlement. My hon. and learned Friend the Attorney-General replied on that occasion. The Amendment, I think, meets substantially the point that was made. The Commissioners will only be able to make inquiries of a party to a settlement, that is the settlor or trustees, who are the only persons who can give any information about it. The next Amendment which I propose to move provides that only particulars relating to the settlement may be asked in case there should be any idea that the Commissioners should extend their inquiries to matters altogether outside.

5.0 p.m.


In regard to the second Amendment—in page 22, line 37, after "particulars," to insert "relating to the settlement"—I suggest that the words are too narrow. The words might well be held to exclude particulars relating to payments made by virtue or in consequence of the settlement, which words we have just inserted. It would be very undesirable if some limitation was imposed as regards giving a fairly wide power of inquiry into payments as to which it may be doubtful whether they are or are not related to the settlement. That might very well be a question into which the Commissioners desired to inquire. The suggested Amendment would make it possible for a person to withhold those details and say: "These do not relate to the settlement," and the Commissioners would not be able to make inquiries to see whether they did relate to the settlement, which is the very object of the requirement. As the first Amendment limits inquiries to persons or parties to the settlement, and requires them to answer inquiries, they ought to answer inquiries generally and not merely inquiries which they say relate to the settlement. The second Amendment would put a certain power in their hands. I imagine that the question addressed to them would be somewhat in the following form: "You are required to answer the following question as regards particulars relating to the settle- ment." They could get out of answering that, quite honestly, if they took the view that the particulars which the Commissioners desired did not relate to the settlement, and some action would have to be brought against them to determine whether or not the particulars did relate to the settlement.

I suggest that the Chancellor of the Exchequer should either adopt some wider words than the words "relating to the settlement," or that he should leave out the words altogether. Provision is being made specifically as regards the person who is to be interrogated, and once you have decided that, you want a wide area over which you can interrogate such person. If he cannot answer questions which in his view do not relate to the settlement, then you are excluded from finding out the delimitation of the area of payment, which is the thing that you require. Therefore, I would ask the right hon. Gentleman to withdraw the second Amendment and to be satisfied with the first Amendment. If he finds it necessary in another place to put in some other words, he can do so, but to insert the words of the second Amendment would undoubtedly limit the powers of the Commissioners.


I am much obliged to the hon. and learned Member. I am inclined to agree with him and to accept his suggestion. Therefore, I will not move the second Amendment.

Amendment agreed to.

5.4 p.m.


I beg to move, in page 23, line 4, after the first "or." to insert "during the life of the settlor to."

This Amendment is intended to cover one specific type of settlement which ought not to be made a revocable settlement by virtue of the definition in the Clause. In a number of cases there are settlements which have been made before marriage and after marriage, settlements which were made years ago, where people have settled sums of money on trustees for the benefit of their children, and those settlements contain a power for the trustees, if the settler dies and the income of the widow does not amount to a certain figure, to apply part of the children's income to make up the income of the widow to a certain sum during the life of the widow. As paragraph (a) is drafted that would be a settlement under which the income of the children might possibly reach the wife of the settlor, and my suggestion is that that particular type of settlement, made years ago and which had nothing to do with any avoidance of tax, ought not to be made revocable by virtue of the definition. It is in the interests of these persons that it should be possible to make a bona fide settlement on the children, but providing that if the surviving spouse requires part of the children's income, the trustee should be able to apply that income for the benefit of the surviving spouse.

I suggest that the definition might be modified by making it apply to payment during the life of the settlor to the wife or husband of the settlor, but where the settlement provides that part of the children's income may be applied to the benefit of the widow or the widower, then in those circumstances the settlement should not be hit. I do not think that this provision will affect any substantial number of settlements, but they do exist. One specific instance was brought to my notice where a post-nuptial settlement was made 20 years ago. The settlor put aside certain stock for the benefit of his children, but there was inserted in the settlement power to the trustee if after the death of the settlor his widow's income amounted to less than a few hundred pounds, to apply during the remainder of her life a part of the children's income for her benefit. That type of settlement had nothing whatever to do with tax evasion.


I beg to second the Amendment.


This matter has been considered. In view of what my hon. and learned Friend has said there is undoubtedly a case of hardship, and we think that the Amendment can be accepted.

5.8 p.m.


I fail to see the logic behind the argument of the hon. and learned Member. His case is that when the trust was originally established there was no intention on the part of the settlor to avoid taxation. If the Amendment were not carried and this particular trust attracted tax at the aggregate rate, no damage would have been done to the original idea behind the settlement, because it was not made for the purpose of avoiding aggregation. Why then should we give it specific advantages which it was not designed to obtain? Hon. Members talk as if this Clause is going to upset settlements. It will do nothing of the kind. All that is proposed under the Clause is that settlements should aggregate for tax purposes, and if the income is income for the benefit of the child I see no reason why that income should not aggregate irrespective of the motives behind the establishment of the trust. The main basis of our taxation ought to be enjoyment of income. The Amendment proposes that income settled by the parent for the benefit of his children is to be enjoyed by himself. For that reason, I hope that we shall vote against the Amendment.


I hope the Governmente will give some reply to my hon. Friend. There has been no debate on the Clause. The Amendment has been moved and the Financial Secretary has simply said that it has been considered and that he would accept it. I do not think that the matter should be dealt with in that summary fashion. There has been an argument adduced from this side of the House and it ought to be answered.

5.10 p. m.


I intended no disrespect to the House—

Mr. DEPUTY-SPEAKER (Sir Dennis Herbert)

The hon. Member can only speak again by leave of the House.


By leave of the House, I should like to say that I intended no disrespect to the House in not speaking at length on the Amendment. The only case that one could really make for resisting the Amendment is that this settlement is not an outright settlement on the children for life, but a provision whereby the surviving spouse can benefit. When one is considering a question of that character one is well away from tax avoidance, and consequently the point is narrowed. It is a comparatively small matter and does not affect any large number of settlements. Therefore, I do not think that the fact that part of the income may go to the surviving spouse gives any ground for making a settlement revocable which is otherwise irrevocable.

5.11 p.m.


That does not seem to be quite a satisfactory answer. I understood the point made by the hon. and learned Member who moved the Amendment to be that in regard to a settlement made 20 years ago there is a power that the trustees may pay to the widow a certain amount of money. Everybody has great sympathy with widows and with children left without a father, but the Amendment would surely apply to future settlements and to settlements made quite recently, and not merely to settlements made 20 years ago. In those cases there would be a method by which one could evade tax, because one could have so framed the settlement as to make moneys payable to the widow in the event of death of the settlor. In those circumstances there would not be any difference as to whether the money is payable back to the husband or the widow, or payable to one or the other on the death of one of them.

Naturally, one has sympathy for a widow, but perhaps not the same sympathy for a widower who is left behind because usually he is capable of earning money. The Amendment applies to the husband or the widow who is left behind. I do not see the logic of making the incident of the death of one or other of the married persons a means of distinguishing for taxation purposes between an aggregation of incomes in the household in one case and not in the other. If the husband is left behind and there happens to be a Clause in the trust settlement by which a portion of the children's income can be paid to the husband on the death of the wife, what difference does that make from a taxation point of view?

Why should a man who has not put a certain provision in a settlement have to pay, and a man who has, although his wife is still living, not have to pay Income Tax. It seems to me that it will mean a distinction for taxation purposes as between two identical families living side by side, a man and wife with three children. In one case there is a settlement on the children which makes provision for the payment of part of the money to the husband or the wife on the death of one of them. In that case the measure of taxation is quite different to the measure of taxation in the case where no such provision is in the settlement. It is not the death which will make a difference in taxation; it is the form of the settlement. If there is a provision that a payment may be made after death, it is that type of settlement which will he dealt with differently from a settlement in which there is no such provision. You will have two families treated differently for taxation purposes, merely because in the one case the draftsman has put some phrase into the settlement which has not been put in the other. That seems to me to be quite illogical.

I appreciate and sympathise with the case of a widow, that she should not be in a less advantageous position. I can understand that case; but that is not the position. This Amendment is to operate at all times once a settlement is made in that form, and it makes a wholly erroneous distinction on a perfectly false basis between families in precisely similar circumstances, and it will create an anomaly which will arise from the mere form of the drafting of the deed. I should be much obliged if the Attorney-General will tell me on what basis you can justify a differentiation in taxation between two identical families, simply because in the one case such a provision has been put in the settlement and in the other case it has not.

5.10 p.m.


The hon. and learned Member for Bristol, East (Sir S. Cripps) has asked whether the Amendment applies to the future as well as to the past. It does for this limited purpose: It makes an alteration in the definition of what is to be deemed to be an irrevocable settlement, and will come into the future to this extent only, that it will come in only in so far as under settlements funds are accumulated. It does not deal with the ordinary case where the income is, in fact, expended year by year for the benefit of the children. That is a fairly narrow field. The Amendment is designed to meet this case. Assume that a settlement provides for some extra income going to the wife on her becoming a widow. Under the Bill without the Amendment that would be deemed to be a revocable settlement, with the consequences. It would not have the advantage of the letting out of the accumulations which can be claimed by irrevocable settlements. The Amendment would allow these cases to have this advantage without making the settlements revocable. That is what the Amendment effects.

The hon. and learned Member for Bristol, East says that the argument is not so strong if the extra money is going to the husband on the death of his wife. Of course it is not so strong, but it is also true that such settlements are not likely to occur. It is rather unusual to provide that the husband on the death of his wife should have extra payments. The hon. and learned Member also pointed out that the Amendment might cover certain cases outside the general intention of the Clause. We will consider these points and if this concession, which is designed to meet a genuine case, can be used for some sinister purpose, in order to take certain payments out of the general provisions of the Clause, we will consider whether such a loophole can be stopped. The Amendment, I think, meets a case which the House would desire to meet, and we will keep our eye on any sinister purposes for which it might be used.


The Attorney-General has referred to this as dealing with a very narrow area, but in view of the fact that in the future only a certain type of trust will be allowed is it not likely to become a much wider area?

Amendment agreed to.

Further Amendment made: In page 23, line 7, after the first "or," insert "during the life of the settlor of."—[Mr. Spear.]

5.24 p.m.


I beg to move, in page 23, line 16, to leave out "any person," and to insert "the settlor."

As the Clause stands it provides for the case of the payment of "any penalty by any person." We think that the words "any person" are too wide and propose to substitute the payment of "any penalty by the settlor." The Clause is really directed to the sort of trust where the settlor purports to undertake an obligation by way of annual payments towards the trust but has in it a provision whereby he is discharged from his obligation on the payment of a comparatively trifling penalty. That is a form of trust which may be used for the purpose of tax evasion. The Amendment is directed to cases where you have a trust deed and the penalty is to be paid by the settlor in the event of his not carrying out his obligations.

5.25 p.m.


Surely the Government are again doing a rather foolish thing. There is a simple way of evading this provision by saying that the penalty shall be paid by the settlor or some other person on his behalf. The Amendment lays it down that the penalty must be paid by the settlor, but if the penalty is to be paid by some other person on behalf of the settlor it would not come within the Amendment. The Clause as drafted would cover the case where someone was given a discretionary power to release a. settlor of a penalty, but with the limitation which is being put in the Clause would apply only to the actual penalty payable by the settlor in person, and not if it is payable by someone else on the settlor's behalf. Suppose a third party was nominated to pay the penalty in the event of the settlor failing to comply with the provisions of the agreement? It would be perfectly possible to put such a provision in an agreement, and it seems to me that if this is going to be limited to the penalty being paid by the settlor himself it is a simple thing to put in a provision in the settlement that "A" shall pay the penalty in the event of the settlor not complying with the agreement. That would be sufficient to get out of this proposal; and it would be a perfectly valid form of agreement.

Surely it is much wiser to leave these words in. I am sure they were put in for this purpose, that whatever the form of penalty payable by whatever person, if it is to release the settlor from complying with the provisions of the settlement, it is not to be allowed as an irrevocable agreement. I suggest to the right hon. Gentleman that here again it would be much wiser to make the wording "payment of the penalty by any person," because it is limited to a failure by the settlor or some person such as a trustee to make a payment out of it. I understand that the object is to see that the payments are duly made and that there is no way of avoiding them by a mere subterfuge. If any person is to be able to release the payments by making a penalty payable under the agree- ment—whether it is the trustee, the settlor or a third party—a loophole will thereby be given for those payments not being made in accordance with the settlement. Therefore a subterfuge would be made for avoiding the tax. I hope the right hon. Gentleman will not press his Amendment.

5.31 p.m.


I hope the Chancellor will press the Amendment. It is true, as my hon. and learned Friend the Member for East Bristol (Sir S. Cripps) said, that the Amendment may conceivably open a new loophole, but I understand that the objection to the Clause as it is at present is that in every Scots settlement there is a general provision according to which any trustee, if he fails to carry out any minor or major matter of the trust, may be relieved of liability on payment of a certain stated penalty. That is a common provision in most Scots settlements. As the Clause is at present, it would bring within its scope every settlement containing such a provision. It is true that we wish to make these very improper settlements, under which a settlor undertakes obligations and then says he can get out of them if he pays 5s. to the trustees—


Would not the position which the hon. and learned Gentleman is stating be met if there were payment of a penalty by any person in the event of the settlor failing to comply?


My hon. and learned Friend has got ahead of me. I am bound to say that I would prefer to have the Amendment rather than the Clause as it is, so as to make it clear that there are not roped in those curious penalty clauses which exist in Scotland and which have not as their object the evasion of taxation. I hope the right hon. Gentleman will press the Amendment.

5.33 p.m.


Sub-section (7, c) states that: For the purposes of this Section, a settlement shall not be deemed to be irrevocable, if the terms thereof provide … for the payment of any penalty by … and my right hon. Friend proposes to insert "the settlor." The class of ease at which this Sub-section is aimed is that in which the settlement provides for annual payments, but provides that on payment of some penalty—often a nominal one—by the settlor the annual payments may cease. In future those annual payments will be brought in, so that this really deals only with existing settlements. All the settlements that have been brought to our notice are settlements in which the provision regarding the penalty is a provision for a penalty by the settlor. In the Committee stage it was suggested that, in that case, the words "by any person" were unnecessarily wide, and that has been remedied by the Amendment on the Paper. This point is quite distinct from that which the hon. and learned Gentleman the Member for Ashford (Mr. Spens) raised concerning Scots settlements, which 'will come on the next Amendment.

Amendment agreed to.

5.35 p.m.


I beg to move, in page 23, line 18, to leave out from "settlement," to the end of line 21.

It is this Amendment to which the remarks of my hon. and learned Friend the Member for Ashford (Mr. Spens) apply. In the Committee stage my hon. and learned Friend moved to leave out Sub-section 7 (c) altogether, and he referred particularly to the provision for the indemnification or exoneration of the trustee in the event of his failing to enforce the provisions of the settlement. I have subsequently had information to the effect that in Scotland practically every deed that is created according to law contains a provision of this character providing total or partial exoneration for the trustee in certain circumstances. The reason for the almost universal inclusion of this type of provision in the Scots deeds is that the law of Scotland is extremely severe in this connection and it would be impossible to get trustees to fill their often thankless office if they were exposed to the full rigours of the law. Now, the House will realise that here we are dealing with pre-Budget settlements. We have come to the conclusion that the inclusion of the provision for partial indemnification or exoneration, which exists as we are told in a great number of well-drawn deeds here and exists universally in Scotland, should not make the settlements revocable if they are otherwise irrevocable. For that reason, we propose that the words in this Sub-section concerning the case of total or partial indemnification or exoneration of any person should be left out.

5.37 p.m.


The Financial Secretary has stated that in this Clause we are dealing with settlements already created. That is not correct. Settlements already created may have been in the minds of the Chancellor and his advisers when this Section was drafted, but under Subsection 3 (a) it is still possible to create irrevocable trusts of a certain type, and as far as I can see it is possible that if these words are left out a loophole can be made for tax evasion. I will give the hon. and learned Gentleman one case. There may be set up a capital trust the income of which does not aggregate unless it is paid for the benefit of the children. So far as I can see there is nothing about aggregation in the Clause. The income aggregates only if and when it is paid in any year for the benefit of the children. Under this Clause and under the Amendment of the Chancellor, it is possible to set up such a trust with the object of accumulating the income of the capital funds for the children until they are 21, but a provision can also be added to the trust which entirely indemnifies and exonerates the trustees in the case of their failing to carry out the terms of the trust. If the trustees pay the money over for the benefit of the children the aggregation occurs, but if they are entirely exonerated no matter what they do, they can hand it back to the parents as a free gift. In that case they would be violating the terms of the trust, but they could be exonerated by another provision in the trust.

The result is that a trust can be set up which lays down that the income shall be accumulated, the trustee can violate the terms of his trust by handing back the income as a free gift to the settlor, and it does not aggregate because it is not the income of the settlor and has not been applied for the benefit of the children. The hon. and learned Gentleman may say that that is an entirely fantastic and artificial arrangement. That is true, but on the last five Clauses we have been dealing with equally fantastic and artificial arrangements. There is definitely a loophole here, and as far as I can see Sub-section 3 (a) is the only possible educational trust that can be now set up. Therefore, I think it is highly desirable that we should take every step to see that Sub-section 3 (a) is not used in the future, as educational trusts have been used in the past, for the avoidance of aggregation.

5.42 p.m.


The case to which the hon. Member has referred may be a possibility, but his whole argument depends on the legal validity of a provision giving total exoneration to the trustees for carrying out a trust which they have undertaken to carry out. It is unfortunate that there is no decision of the courts, as far as I know, as to the validity of a provision giving total exoneration to trustees, but if I were a betting man I should have very little doubt as to what such a decision would be. I do not believe that our law would ever recognise as valid a trust under which Mr. X undertook to carry out certain duties as trustee and then relied upon a clause which said that he was to be entirely exonerated for carrying out that trust. I do not believe for one moment that such a clause would be recognised as valid in this country. There will either be no trust at all, or the trustee can be liable for breach of trust or embezzlement.


There are in this Clause the words "total indemnification." Does the hon. and learned Member suggest that would invalidate the trust if it came before a court of law? The point is that it would never come before a court of law until the beneficiary was of age and capable of suing. During the whole of that period aggregation would have been avoided, and the question as to whether the trustee is liable or not is a matter on which, as the hon. and learned Member said, there has not been a decision. The trustee might be the parent himself, who has handed over the income to himself and who might rely upon the good will of his child in not suing him.


Suppose you had a trust containing a clause giving total exoneration to the trustee, I venture to think that within a month there would be a case in the courts to establish whether that trust was valid or not. There is no trust that does not contain some partial exoneration in some connection or other, and I would remind the House, as I did earlier, that there is a statutory exoneration of trustees who have acted honestly and reasonably but have committed certain breaches of the trust. It was mainly because of that provision that I objected to the concluding words of this Subsection. I do not think there is any real danger of a loophole being available in the future but I fear that if these words stand a great deal of injustice may be done.

Amendment agreed to.

5.46 p.m.


I beg to move, in page 23, line 21, at the end, to insert: Provided that a settlement shall not be deemed to be revocable by reason only—

  1. (i) that it contains a provision where-under any income or assets will or may become payable to or applicable for the benefit of the settlor, or the wife or husband of the settlor, on the bankruptcy of any such child as is mentioned in paragraph (a) of this Sub-section or in the event of an assignment of or charge on that income or those assets being executed by such a child; or
  2. (ii) that it provides for the determination of the settlement as aforesaid in such a manner that the determination will not, during the lifetime of any such child as aforesaid, benefit any person other than such a child, or the wife, husband, or issue of such a child; or
  3. (iii) in the case of a settlement to which Section thirty-three of the Trustee Act, 1925, applies, that it directs income to be held for the benefit of such a child as aforesaid on protective trusts, unless the trust period is a period less than the life of the child or the settlement specifies some event on the happening of which the child would, if the income were payable during the trust period to him absolutely during that period, be deprived of the right to receive the income or part thereof."
It is easier to follow this proviso if one reads Sub-section (7) of the Clause, leaving out the two negatives in the second line. It is intended that for the purposes of this Clause a settlement shall be deemed to be revocable if it contains certain incidents, and one of the incidents which will make it revocable under paragraph (a) of the Sub-section is any payment whatever during the life of the child to the settlor or his wife. It was brought to my right hon. Friend's attention in the Committee stage that certain provisions were normally inserted by draftsmen in trusts, intended to be irrevocable for all ordinary purposes, which owing to the general nature of the words in paragraph (a) would cause the trusts to be deemed to be revocable for the purposes of this Clause. It is to meet that class of case that I am now moving this proviso. For example, it is a common clause in settlements of this kind that in the event of the bankruptcy of the child, which, of course, could not occur until the child is over 21, or in the event of the child making a charge upon the income, the settlor has a power of resettling. It was argued that the mere existence in a trust of a clause of that kind might cause it to be deemed to be revocable under paragraph (a). It is not the intention that those trusts which are irrevocable in their main provisions should be deemed to be revocable merely because they contain a provision of that kind, and that case is dealt with in the first paragraph of the proviso.

The second paragraph of the proviso, deals with a case which was put forward by the hon. Member for Dundee (Mr. Foot) during the Committee discussions. He drew attention to the case of a settlement which provided for the handing over, in certain circumstances, of the money to the child, and he suggested that that might be held to be a determination of the settlement. It was further pointed out in discussion that Section 33 of the Trustee Act contains certain provisions as to what is to happen to the money in the event of some act being done which divested the beneficiary of his right under the trust. It is not an uncommon thing to incorporate by reference that Section of the Trustee Act in settlements of that kind. A settlement which provided for the bankruptcy of the child, as referred to in paragraph (i) of the proviso, might incorporate Section 33 of the Trustee. Act which carried the matter a little further. Therefore, it is considered better to have paragraph (iii) of the proviso in order to prevent someone saying that the mere existence of a reference to Section 33 of the Trustee Act makes a, settlement revocable because it incorporates the statutory provision by which a settlement may be revoked on the performance of the divesting act. It is a matter of some little complexity, but I think I have indicated the nature of the cases which it is intended to meet by the three paragraphs of this proviso.

Amendment agreed to.

6.54 p.m.


I beg to move, in page 24, line 8, at the end, to insert: (e) a child shall be deemed to be an infant only while under the age of sixteen years or while, being over the age of sixteen years and under the age of twenty-one years, he is not maintaining himself from income which he earns. In the Bill as it now stands the settled income of the child can be aggregated with the income of his father as long as the child is under 21 and unmarried. I want to show that the effect in some cases will be absurd and oppressive, an effect which I do not think is intended by the Chancellor of the Exchequer. The vast majority of young people, even those belonging to the richer classes, start earning their own living long before the age of 21. A man may give a son aged 18 money with which to start business, or a son may set up. in business himself, at the age of 18 or even of 16, with the aid of an allowance settled on him by his father. In many cases that boy will live apart from his father. He may even go to the other end of the world. Yet the Bill provides that the settled income of that child is to be aggregated with the income of the father and that the father is to be required to pay Surtax not only on his own income in excess of £2,000, but also on any income which he has settled on his child, over which he might have no control whatever. I can conceive a case in which a parent would become liable for a total sum in excess of his own income, in which case the Chancellor of the Exchequer would require the parent not only to pay over the total of his own income but would fine the miserable worm for venturing to be alive.

There is a further anomaly. A husband and wife, as long as they remain together, have their incomes aggregated, but the moment there is a divorce or even a separation the incomes of the two are treated separately. Yet under the Bill a son who—it may be very properly and even necessarily—lives away from his father, has his settled income added to his father's income for Surtax purposes. Surely the Chancellor of the Exchequer ought not to regard with a more kindly eye a husband and wife who are living apart—a relationship which is abnormal in the eyes of Church and State—than a father and son living apart. In Committee I moved that the settled income of the child should be aggregated only as long as the child continued at a school or other educational establishment. That is the condition which qualifies a parent to receive the £60 allowance after the child reaches the age of sixteen. I suggested that when a parent ceased to have that allowance it was reasonable that he should cease to have the settled income of the child aggregated with his own. The Financial Secretary objected to my Amendment on the ground that it would discourage higher education. I doubt whether it would do so, but to meet my hon. and learned Friend's point, I have put down this Amendment which is in a narrower form and is not open to that criticism. My hon. and learned Friend admitted that the purpose of my Amendment in Committee was a very proper one. I hope he will see his way, on this occasion, to translate that benevolent admission into beneficent action by accepting the present Amendment,

5.59 p.m.


I beg to second the Amendment.

I think there is a case of considerable substance behind this proposal and I am grateful to my hon. Friend for having moved the Amendment. In this Clause we are applying what might be called an inverted means test. It is true that for the moment we are only dealing with settlements but we are establishing a new principle. I regret that the right hon. Gentleman the Member for Epping (Mr. Churchill) is not here, because this question might have had some interest for him. For example, there was the case where his own son, under 21, according to what appeared in the newspapers, was paying Surtax. It would have been rather interesting if that income had been aggregated with the income of the right hon. Gentleman. We are getting on to dangerous ground, because we are already liable to pay our wife's Income Tax, and before we know where we are, if we do not watch this Clause, we may find ourselves liable to pay the Income Tax of our children, wherever they may be or whatever they may be doing.

I think we should apply some limit, and when a child ceases to be a child in the ordinary sense of the term, as distinct from the legal sense, my hon. Friend wants the child to be regarded as a separate person from the point of view of Income Tax. I think that summarises what he seeks to do by his Amendment. It becomes rather absurd if, when a child is starting in business, he is still to be regarded as being the same person as his father from a taxation point of view. There is no magic about the age of 21. It is convenient for many purposes, but it is not the age at which most people start to earn a living, and, honestly, when people reach the stage of starting to earn a living, they ought then to be regarded as separate persons from their parents, otherwise you will have this extraordinary position, that a child will be earning money and liable to Income Tax on it, and simultaneously, in respect of another part of his income, somebody else will be liable. It is a great anomaly, and I hope the Chancellor of the Exchequer will give more serious consideration to this Amendment than he has given to some previous Amendments this afternoon.

6.2 p.m.


My hon. Friend the Member for South Croydon (Mr. H. G. Williams) has been indulging what I might term a somewhat prolific imagination. He suggested that this Clause is only the beginning of a process which he pictured as ending, or perhaps proceeding, to the aggregation of the incomes of all the members of a family with that of the parent. We are in fact a very long way from anything of the kind. This is a Clause which deals with a, settlement under which income may be paid for the benefit of a child, and in certain circumstances the income settled is to be aggregated with the income of the parent for the purposes of Income Tax. The provisions are only to apply where the child is an infant and unmarried at the beginning of the Income Tax year. An infant for this purpose means a child under 21, and one of the purposes of the Amendment is to alter the definition and make it apply only to children under 16, and where they are earning their own living over that age, it suggests that the moneys payable for their benefit under a settlement should not be aggregated with the income of the parent. I am afraid I cannot accept that Amendment, because it seems to me to be open to exactly the same objection as was found by my hon. and learned Friend the Financial Secretary to a somewhat similar Amendment moved on the Committee stage. The fact is that this would really penalise the parent who was encouraging his children to proceed with their education after 16 years of age. In a case where the education of the child was continued after the age of 16, under the Amendment the income of the settlement would be aggregated with the parent's income, but if the child had ceased his education and had started to earn his own living, then the parent's tax liability would be reduced. That seems to me to give the parent relief where he least needs it to be given, and I should have thought that that was not a course which my hon. Friend would wish to advocate and that it would create a new and very serious anomaly.

Amendment negatived.

6.6 p.m.


I beg to move, in page 24, line 12, after "made," to in-sent "or entered into."

This is purely a drafting Amendment. Amendment agreed to.

CLAUSE 32.—(Provisions as to Road Fund.)

6.7 p.m.


I beg to move, in page 30, line 12, to leave out the Clause.

On 16th June during the Committee stage we had a long discussion on the Road Fund, but I do not intend going over all the points that we then discussed. I believe there is genuine concern about this change regarding the Road Fund. The Chancellor of the Exchequer told us that the reason of the change was that he should have complete control of all moneys coming into the Road Fund, and when the Minister of Transport was sent for, he said he agreed with it as a democratic proposal. Yesterday there was published a "Memorandum on Broadcasting," and what is done there is quite inconsistent with what the Chancellor of the Exchequer said ought to be done with regard to moneys which come to the Treasury. On page 4 of the Memorandum, in paragraph 8, we read: The Government accept the view of the Committee that there should be some increase in the initial assignment of revenue to the Corporation. They propose to fix this at 75 per cent, of the net licence revenue—. That is absolutely contrary to what the Chancellor of the Exchequer said when he was trying to make the point that the Treasury should have complete control over all moneys which the State levied. We are not satisfied that the same amount of money will be spent on the roads when the Chancellor gets control of this fund. It is a very interesting thing to note that the number of accidents is still mounting. It is more true to-day than ever to say that there is a great necessity for better roads in the country, and I am absolutely certain that there is a serious danger of the Chancellor of the Exchequer using the money which comes in from licences, etc., not for the specific purpose of seeing that the roads are kept in good order and that new roads are created, but in some other way.

I should like to know whether we shall still receive a report on the administration of the Road Fund year by year, and I ask that particular question because, reading through the Debate on 16th June, I see that the Chancellor of the Exchequer made a reply to the hon. Member for Ebbw Vale (Mr. A. Bevan), but it is not quite clear to me whether it is this particular report that is going to be published year by year. We put down two Amendments on this point, which I understand are not to be called, but this report is valuable to anybody interested in road matters. All sorts of particulars are given in the report, and we also know from it what is being devoted to each particular area, and I think it is essential that the House should continue to receive that information. It is a striking thing, for example, to see the rate poundage spent by the different authorities in the different areas. I have a list here, in which I find Middlesex with a 9d. rate for highways, and the list goes right down to the Holland Division of Lincolnshire, with 9s. 6d. in the £ spent on highways. It is an interesting thing also to examine the list and to find that whereas on highways and bridges Middlesex has a 9d. rate, for education, police, and health it has a 5s. rate, and then we go down to Carmarthen, with 9s. on highways and bridges and 10s. 8d. for the remaining three items.

Some of these authorities are spending a tremendous amount of their total income on highways, and I understand that some 17 county councils have passed a resolution to the effect that they cannot work the five years road plan because the burden on their rates will be increased. Therefore, I want to ask for a specific answer to that question, whether the House will be in receipt, year by year, of the report, which I understand is a statutory obligation. I want to know whether that is to be altered, or whether it will remain the same, in order that Members may form a true judgment as to what is being done and as to the burden which is being cast upon particular authorities.

I also want to say, quite candidly, that in spite of what the Chancellor said, I cannot accept the statement that Parliament will have more power with the change in the direction of this particular fund. I think the right hon. Gentleman found it very inconvenient indeed, and that other Chancellors have also found it inconvenient, to have to face the protests of this House when money was being taken from the Road Fund for other purposes. It is inconvenient for a Chancellor to defend a raid on the Road Fund, but it is not so inconvenient to defend a grant, and now you are substituting the obligation of defence, which the Chancellor had to make when money was taken from the fund, by a sort of gift which he makes in a particular year. He will now be able to say, "I am giving you this," and that is a much easier thing for him to do.

It was interesting to me to listen to the speech of the Financial Secretary on the Committee stage of this Bill, when he said that Parliament would have complete control. In theory that is correct, but we all know how it works in practice and that no private Member of the House can move an increase in expenditure. That is in the power of the Treasury Bench alone. We did know before that a certain amount was going to the Road Fund, but now we are to be dependent upon the generosity of the Chancellor of the Exchequer, or, to put it another way, I think we shall be dependent upon what expenditure there is in a particular year and upon the small amount that he can afford to give to the Road Fund. This change of principle is bad because the necessary expenditure which ought to be made on roads will not in future years receive that consideration which it ought to receive. With the present Chancellor we shall have to be prepared to accept what he gives us, for the right hon. Gentleman is not noted for giving way when once his mind is made up. I wish the Government were the same in other directions. We should know then what we were doing. I am genuinely afraid that under this new system the amount that will be spent on the roads will be inadequate.

6.16 p.m.


I beg to second the Amendment.

The only reason that I can imagine which influenced the Chancellor of the Exchequer to make this alteration in regard to the Road Fund is that he is tired of humiliating himself year by year and asking the House in an apologetic manner, as he has done on several occasions, to allow him to raid the Road Fund; so fearing that he might be convicted as an habitual thief, he has asked the House to alter the law relating to the Road Fund so that he can get complete control of it and cannot be accused of making another raid on it. I know the theoretical justification which can be put forward for bringing the revenue derived from the Road Fund into the general pool. Everybody admits that the constitutional arguments have a great deal to be said for them. In fact, they may be sound, but what I think the House feels, not only on these benches but, as we discovered in previous discussions, on the Conservative benches, is that the past record of the Government in this matter shows that the result of this alteration of control will be that less money will be spent on the roads than has been spent in the past.

No one would mind that if the roads were adequate, but everybody knows that the roads are most inadequate and that, as a result of that inadequacy, every year hundreds of people are being killed and injured who need not be killed and injured. No one suggests that the bad state of the roads is the sole or major cause of accidents, but it is a cause. There are narrow congested streets which ought to be by-passed, corners which ought to be rounded off, and any number of needed improvements on our road system which, without question, would bring about a fall in the number of road casualties if they were made. That is why the House as a whole is so alarmed at this proposal of the Government. The accidents on our roads are, unfortunately, not falling. From figures which I have worked out I find that in Great Britain roughly one person is killed on the roads every hour and 45 are injured. In view of these appalling figures, nobody can be complacent at the prospect of the roads being improperly managed and not adequately improved.

Why do I say that there is justification for believing that the control of the Road Fund by the Chancellor of the Exchequer rather than by the Minister of Transport is likely to bring about a diminution of money spent on the roads? There is very good reason in the history of the last few years to substantiate that statement. The Treasury, who are now going to be in almost sole control, in 1931, when what some people called "the crisis" was affecting the life of this country, stopped road improvements which were urgently necessary for the saving of life. In the view of everybody with knowledge of the road position that action was utterly unjustifiable, but, in spite of protests from all quarters, road improvements were stopped. As a result, many people who should be alive to-day are now dead, killed on the roads which should have been improved or bypassed. When the Treasury grudgingly agreed that certain roads should be improved or certain bridges built, they did it in such a manner as to make the improvements of doubtful benefit. I would remind the Parliamentary Secretary to the Ministry of Transport of one road improvement in London close to this House which was affected in this way. I refer to Lambeth Bridge. It was proposed to make it an 80-foot bridge, but the Government said "There is a financial stringency," and, not understanding the road problem, insisted that that bridge should be built only 60 feet wide, instead of 80 feet, as was proposed. Even now that bridge is almost congested and will soon be inadequate, and she money that was spent on it will, to a large extent, be wasted.

In 1933, again, we saw the Treasury handicapping the improvement of our road system by bringing in a new system of road grants. Fortunately that has recently been altered as a result of pressure and negotiations between the Ministry of Transport and various highway authorities. In that year the the Treasury and the Ministry of Transport introduced a new grant system under which the grants for roads in built-up areas were materially reduced. In fact, in London, and doubtless in the provincial cities, instead of the local authorities getting a 50 per cent. or 60 per cent. grant on certain road schemes, the formula was 20 altered that they got sometimes less than 20 per cent., and even 12½ per cent. out of the Road Fund. The Treasury said they would give grants from the Road Fund only on the site value of the property cleared. The hon. Member for South Shields (Mr. Ede), who is chairman of the Surrey County Council, doubtless agrees with me from his personal experience that that serious curtailment of grant had a definitely handicapping effect on the improvement of roads in the big cities.

The most alarming aspect of this question is the view which the Chancellor of the Exchequer holds in regard to the necessity of building new roads. The fountain head of the Treasury said in the House only a few weeks ago that he was doubtful whether new roads were necessary or desirable. I would like to quote the right hon. Gentleman's words: I do not subscribe to the theory that you can measure the safety of the roads by the amount of money you spend on them. The proof of that is to he found in the fact that the more money that has been spent on the roads the larger has been the number of accidents. Later he said: I certainly do say that the more roads there are and the more cars there are on the roads contribute to the accidents, and that if you make more roads you make more opportunities for accidents."—[OFFICIAL REPORT, 28th April, 1936; col. 788, Vol. 311.] As I understand it, the Road Fund in future will pass more and more under the control of the Treasury than ever in the past. We have the view of the Treasury on the necessity for new roads and the improvement of existing roads, and if we may judge from the Chancellor's speech, they are doubtful whether new roads are wanted at, all. It is a very serious outlook not only for the motor industry, but for the whole population which now uses the roads as passengers of private cars or charabanes and as pedestrians. The Road Fund will pass snore under the control of the Treasury, although they have such dangerous and reactionary views on this question.

6.26 p.m.


I want to put before the House an aspect of this question which I do not think has received adequate attention. The case for the Chancellor's proposals is that this change really makes no difference at all, inasmuch as the Road Fund has only been spent with the approval of the Treasury. When the Minister of Transport has been able to make out a good case for a road, the Treasury have allowed him to use the Road Fund for the purpose; and when he has not been able to make out a good case, the money has remained in the Road Fund, and later the Chancellor has felt justified in taking the money and using it for other purposes. The Government say that that is really going to be the situation in future, and that when the Minister of Transport makes out a good case for expenditure on roads, the Treasury will allow him to have the money precisely as is the ease with all the other services of the State. They say that where it is a question of other services of the State it is the practice of the Treasury to give all the money adequate for the purpose, and they ask why there should be any difference between expenditure on the roads and expenditure on other services of the State.

It is to that argument that I want to address myself, because I think I can show that there is a fundamental difference between money voted for other purposes of the State and money voted for the new road system. In other services of the State there is a more or less automatic necessity for money to be spent. When you are dealing with education, the number of children, the number of classes, and the growth of any particular locality dictate the growth of the educational services. The services under the Ministry of Health increase according to certain conditions that arise automatically, over which the Minister and the Treasury have no control. The Treasury may be able to pair off a little more here and the Minister to demand a little more there, but, broadly speaking, the needs of the services are automatically dictated. In the case of the Inland Revenue Department the staff required and the expenditure to which the Department is put are a necessary corollary of the services to be rendered to the State in collecting revenue. We have laid down certain rules and regulations under which pensions are granted, the latitude which the Minister of Pensions is allowed in giving a little more or a little less is seriously circumscribed, and the Treasury has to provide the amount required for that Department.

When we come, however, to the question of expenditure on new roads I suggest that the situation is entirely different. So far as the Road Fund has to contribute to the more or less automatic expenditure on road repairs it may be true that it is similar to any other service, but as regards building new roads and bridges there is a very wide distinction. The question of a new bridge across the Forth is one in which the Financial Secretary, as a Scotsman, and I, as representing a Scottish constituency, are very much interested. That is a matter on which there will be room for the exercise of wide discretion on the part of the Treasury. The provision of a large new road is not one of those automatic services for which the Treasury will have necessarily to find the money; it is a matter on which it will be open to the Government to exercise great discretion.

Therefore I claim that the analogy between the expenditure on roads out of the Road Fund and the expenditure on the ordinary services of the country is very far from complete. In fact there is a wide divergence between the two cases, and it was for that reason, I suggest, that the House, in its wisdom, decided to place the Road Fund on a different footing, basing the amount that it was desirable to spend upon the roads not upon the year-to-year decisions of the Treasury in allowing or disallowing expenditure which the Minister of Transport would like to incur, but upon an entirely different basis, the total number of motor vehicles on the roads. In spite of everything the Chancellor of the Exchequer has said I submit that there is a very close connection between the roads which the country requires and the number of motor vehicles. When the number of motor vehicles is large and increasing it is most important to be able to undertake considerable expenditure upon roads and bridges.

The proposals in this Clause would sweep away that connection. It would make the expenditure on the roads entirely independent of the amount of money collected from motor taxation. I think the decision of Parliament in days gone by that the expenditure on the roads ought to be connected with the amount of money received from the motor vehicle duties was a sound one, and that the divorce of that connection is an improper divorce, and that the ground on which it is based that these services can be treated in the same way as other services, and that the Treasury can be trusted to use its discretion, is a quite unsound basis. Therefore, even at this eleventh hour of our discussions on the Finance Bill, I would make one more appeal to the Financial Secretary and the House to omit this Clause and allow the Road Fund to remain in the form in which it has so long existed.

6.36 p.m.

Viscount WOLMER

; I am not sure that the argument of the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) very much helps his case, because, as he admitted at the beginning of his speech, there have been as many raids on the Road Fund in the past as there are likely to be in the future.


I said that there had been raids in the past, and that I thought they would be greater in the future.

Viscount WOLMER

I apologise if I misrepresented the hon. Member. I have really risen to say that while I have great sympathy with the objections to the plan proposed by the Government and the financial purists, I do not think the system with which we are parting was by any means ideal. I am surprised that my hon. Friends opposite who have spoken have not made more use of the analogy of the wireless licence fees. It seems to me to be a very strong analogy. The State gets the fees which wireless listeners pay, and the money so collected is administered by an independent corporation which has to pay a certain proportion of the fees to the National Exchequer. Those who wish to avoid raids on the Road Fund should try to get a system of that sort. These motor duties are, in many respects, analogous to the fees paid for wireless licences. The origin of the duties was to provide improved roads such as the advent of the motor car necessitated, and undoubtedly the raids on the Road Fund in the past have been felt by motorists to be a great grievance and injustice. I regret the step the Government are now taking, because it seems to me that it will facilitate the taking of money originally intended for the upkeep of the roads for other purposes.

I would prefer to see the question dealt with on the same basis as the wireless fees, which are administered by an independent corporation, who act under charter, are not the plaything of party politics, and not subject to fluctuations in policy with a change in Government. Such a corporation would be able to coordinate the whole road system of the country and bring the various local authorities together.

It seems to me that the roads are not going to be helped by this new proposal, though I admit to the full the strength of the arguments which the Chancellor of the Exchequer and financial purists have advanced in favour of it. It really means that the Treasury will have a tighter grip over the expenditure on the roads than it has had in the past, and I am afraid the Treasury will be likely to take a shortsighted view and to pursue a penny-wise policy. I say so on account of the experience I had when I was at the Post Office. The Treasury was constantly preventing the Post Office from incurring capital expenditure which would have resulted, very shortly, in great economies. The Treasury, by the very tight grip it kept over the Post Office, prevented capital expenditure which would have brought a very good return. The Post Office has now secured some emancipation, as a result of the Bridgeman Report, and already we have seen the benefits of that emancipation. I am afraid the Ministry of Transport and the whole road system of the country will be put under that penny-wise Treasury control.

Let us remember how exceedingly weak the Minister of Transport is when he is fighting against the Chancellor of the Exchequer. The Minister of Transport is not even in the Cabinet—I do not think he ever has been in the Cabinet; at any rate he is very seldom in the Cabinet. What chance has he got in fighting for this money against the Chancellor of the Exchequer? Let us remember another factor. When the Chancellor of the Exchequer—I am not talking about this Chancellor, but all Chancellors, because they are all very much the same when they get down to their job—is considering his Estimates and his Budget he has big demands made upon him by powerful colleagues who are in the Cabinet representing the War Office, the Admiralty, the Air Ministry, the Ministry of Agriculture and the Ministry of Labour. The poor little Minister of Transport is not in the Cabinet at all. The Chancellor has to disappoint somebody, because there is never enough meat to go round to satisfy the whole hungry family, and I venture to predict that those Ministries which are not represented in the Cabinet will always suffer when it comes to deciding how the money is to be spent.

Therefore, the tendency of the step now to be taken will be, I am afraid, further to restrict the amount of money spent on the roads, and that I should regard as a real tragedy. The quotation made from the Chancellor's speech was, no doubt, a very entertaining one. He said the more roads we built the more people we killed, and that, no doubt, is perfectly true, but if we do not build more roads there will be a great many more people killed. There is no halfway in this matter. We cannot abolish the motor car from this country. I believe that in certain West Indian islands one is not allowed to import a motor car, or to drive a motor car, because the people do not want the expense of building roads. That is a possible policy, but it is a policy which is no longer possible in England, and, therefore, we must provide adequate roads for motor cars. Motor cars are being turned out by the factories at the rate of several thousands a week, and they will force, and are forcing, pedestrians and everybody else off the old road system. The only way to deal with the problem is to provide adequate roads and bridges. Unless that is done thousands of people will be unnecessarily killed, and the motor car industry itself will be throttled.

I have recently been in the United States of America, and I was very much impressed by the way in which they have tackled this problem. They raised huge loans to build new road systems, and they calculate that the increase in motor cars which has resulted from this vast improvement of the road system more than pays the interest and sinking fund on the loans. In America, the construction of highways is regarded not as a costly business, but as a profitable investment by the State legislatures. If I thought the Treasury would regard it as such I would not mind, but I am very much afraid that the effect of this proposal will be to discourage the spending of money upon the roads. I hope that my hon. and learned Friend will be able to give us some assurance on this matter.

6.46 p.m.


The hon. Member for North Lambeth (Mr. G. Strauss) made an eloquent appeal for the spending of more money upon the roads, and none of us who heard it will take exception to what he said upon the subject; but we are not invited to decide this afternoon what should be spent on the roads. We are asked to decide whether the amount to be spent upon the roads in any given year shall depend upon the yield of a particular tax, or whether the amount should be determined by the Government in relation to the needs of other public services. One of the strongest arguments that could have been produced against the proposal to delete the Clause was put forward by the hon. Member for East Edinburgh (Mr. Pethick-Lawrence), who purported to be speaking in favour of the proposal. He was at great pains to point out that a large element of discretion enters into the decision as to new roads and bridges, and he was apparently quite oblivious of the fact that he was advocating a method in which there is no discretion at all. If you decide that the amount to be spent on the roads in a given year is to depend upon the yield of a particular tax, there is clearly no discretion in such a method of arranging your expenditure. The arguments of the hon. Gentleman were strongly in favour of the proposal put forward by the Government, in which the element of discretion is all-important.

One of the various suggestions made by the Noble Lord was that we should look to the British Broadcasting Corporation and try to evolve a similar system. I thought he would be perfectly logical and suggest that we ought to re-impose tolls on the roads. The British Broadcasting Corporation lives on toils on the air, and I thought he was going to suggest that some road fund should live on tolls on the roads. Having regard to the Noble Lord's views in matters of progress, I should not have been surprised if he had followed that line, but it is hardly one which would commend itself to the House. The Chancellor of the Exchequer has taken a step which ought to have been taken long ago. I shall be glad to see this anomalous arrangement for the furnishing of funds for the Road Fund done away with.

6.49 p.m.


This topic is now becoming rather threadbare, and I trust that hon. Members will acquit me of any desire to be discourteous if I do not mention again all the arguments in favour of the proposal which is now being challenged. I prefer to say a few words on some of the outstanding points. The hon. Member for South Bradford (Mr. Holdsworth) asked whether the House would continue to have a report from the Minister of Transport. The Minister has a statutory duty imposed in Section 3 (6) of the Roads Act, 1920, and that is not altered in any way by the present proposal. Reports will be furnished as before to hon. Members who desire to see them. I have been asked to what extent this is a financial change and not a change in the Road Fund itself. The whole of the speech of the Noble Lord the Member for Aldershot (Viscount Wolmer) was founded upon the assumption that this change in financial administration would result in less money becoming available for roads or would, in some way, result in a less favourable attitude towards roads. An analysis of the speeches that have been made upon the subject shows that the real ground why hon. Members oppose this change is not so much that they object to the financial change involved. Indeed, the hon. Member for North Lambeth (Mr. G. Strauss) said that the arguments proposed on financial grounds might be sound; I had not expected such support from that quarter. Hon. Members fear that this change is more than that, and that it involves a change in attitude towards the roads, which will in some way be starved.

As far as we can see, this change has nothing whatever in it of that effect at all. When hon. Members talk about the changes proposed, do they visualise the system under which we are living now, and with which they are very reluctant to part? The hon. Member for North Lambeth and other hon. Members who know the work of local authorities argue that the authorities receive only a fraction of that to which they are entitled. That is happening under the present system? When hon. Members speak of Treasury control let them realise the extent to which control is exercised now, and must be exercised, in the public interest, when expenditure is asked for upon the roads. There will be no change in that. The arguments used by hon. Members would be valid only if the Minister of Transport were himself a highway authority, entitled to expend year by year all the produce of the tax which now comes into the Fund, but he is not a highway authority, and it is impossible for him to expend all that money.

An attempt was made by the hon. Member for East Edinburgh to make a distinction between this service and other services, on the ground that expenditure on roads was different from other categories of expenditure. He said that in respect of other categories of expenditure the Treasury had to find money which was generally initiated in some circumstances not under the control of the Treasury and he cited pensions, which were, he said, a fact outside which started the demand for money. He seemed to imagine that roads are in a different category.


New roads.


Even new roads are in the same category. If there is a difference of opinion between us it is that he seems to imagine that the Minister of Transport is the originator in these matters. He is not the highway autho- rity. It is the local authority which is the highway authority, and which is responsible for and must initiate every demand for money for the construction of new roads or the improvement of old roads. It is obviously true that this service, as a voted service, can be every bit as efficient as other funds. When one considers Parliamentary control, how has that been changed? The hon. Member spoke of the lack of Parliamentary control, and contrasted it with the control that Parliament has at the moment over the Road Fund. Making the fund a voted service would increase the control, and the opportunities for discussing the service and insisting upon, its proper administration.

There have been complaints about the raiding of the Road Fund in the past. I can give hon. Members this promise: There will be no more raids on the Road Fund. Hon. Members ought to be very glad to hear that. The Noble Lord drew a picture of one Ministry fighting another, and seemed to consider that we ought to put the roads into the same category as broadcasting. There is no analogy between these two functions of the State, either in relative importance or the amount of money that is involved. If hon. Members still fear that this change means a change in policy, let them apply the proper test, which is, what is proposed to be spent on the roads at the present time? Do the efforts of the Minister of Transport, or the co-operation of the Chancellor of the Exchequer, show any diminution, in the energy which is being spent upon this road problem? There never was a more ambitious programme before the country in regard to roads than there is at the present time. We have a five-year programme, as has already been mentioned.


The money ought to have been spent years ago.


The hon. Member is very difficult to satisfy. If our programme had been a small one, he would have regarded it as negligible, and now that we have a large one he does not give us any credit for it, but says that it ought to have been done long ago. There is no argument in that. I am asking hon. Members not to remain rooted in the past, but to consider what is being done in the present. The five- year programme is an ambitious one for the development of the roads of this country. The schemes already submitted by local authorities represent a total of £139,000,000. Hon. Members will therefore realise that this financial change does not go side by side with any alteration in policy, or any diminution of the Government's energy in tackling this great problem.

6.59 p.m.


I do not think that the hon. and learned Gentleman has done himself justice on this occasion. He is accused of stealing the golden eggs in the past, and he says: "I will get out of that accusation in the future. I will steal the goose. Then there will be no trouble about my coming along for the eggs in future." He made the point that the Minister of Transport was not a competent highway authority and did not initiate schemes, but those who have served on a local authority know that the Minister comes to us and says: "You ought to do this particular piece of

Question put, "That the words proposed to be left out stand part of the Bill."

The House divided: Ayes, 192; Noes, 133.

Division No. 263.] AYES. 7.1 p.m.
Acland-Troyte, Lt.-Col. G. J. Cruddas, Col. B. Hopkinson, A.
Amery, Rt. Hon. L. C. M. S. Culverwell, C. T. Hore-Belisha, Rt. Hon. L.
Anderson, Sir A. Garrett (C. of Ldn.) Davison, Sir W. H. Horsbrugh, Florence
Anstruther-Gray, W. J. Dawson, Sir P. Hudson, Capt. A. U. M. (Hack., N.)
Aske, Sir R. W. Dodd, J. S. Hulbert, N. J.
Assheton, R. Dower, Capt. A. V. G. Hume, Sir G. H.
Astor, Major Hon. J. J. (Dover) Duckworth, G. A. V. (Salop) Hunter, T.
Balfour, G. (Hampstead) Duncan, J. A. L. Inskip, Rt. Hon. Sir T. W. H.
Balneil, Lord Dunglass, Lord Jackson, Sir H.
Baxter, A. Beverley Ellis, Sir G. Jones, L. (Swansea, W.)
Beamish, Rear-Admiral T. P. H. Elliston, G. S. Keeling, E. H.
Beaumont, M. W.(Aylesbury) Emery, J. F. Kerr, Colonel C. I. (Montrose)
Birchall, Sir J. D. Emmott, C. E. G. C. Kerr, H. W.(Oldham)
Blair, Sir R Emrys, Evans, P.V. Kimball, L.
Blindall, Sir J. Entwistle, C. F. Kirkpatrick, W. M.
Boothby, R. J. G. Errington, E. Lamb, Sir J. Q.
Bossom, A. C. Erskine Hill, A. G. Law, Sir A. J. (High Peak)
Boulton, W. W. Findlay, Sir E. Leckie, J. A.
Bower, Comdr. R. T. Fox, Sir G. W. G. Leech, Dr. J. W.
Brown, Col. D. C. (Hexham) Fremantle, Sir F. E. Lees-Jones, J.
Brown. Rt. Hon. E. (Leith) Furness, S. N. Lennox-Boyd, A.T. L.
Brown, Brig.Gen. H. C. (Newbury) Ganzoni, Sir J. Lewis, O.
Browne, A. C. (Belfast, W.) Gibson, C. G. Lindsay, K. M.
Bullock, Capt. M. Gledhill, G. Llewellin, Lieut.-Col. J. J.
Campbell, Sir E. T. Glyn, Major Sir R. G. C. Lloyd, G. W.
Carver, Major W. H. Gower, Sir R. V. Locker-Lampson, Comdr. O. S.
Cayzer, Sir C. W. (City of Chester) Graham, Captain A. C. (Wirral) Loftus, P. C.
Cayzer, Sir H. R. (Portsmouth, S.) Gretton, Col. Rt. Hon. J. MacAndrew, Colonel Sir C. G.
Cazalet, Thelma (Islington, E.) Guest, Maj. Hon. O.(C'mb'rw'll, N.W.) MacDonald, Rt. Hn. J. R. (Scot. U.)
Chamberlain, Rt. Hn. Sir A. (Br.W.) Guy, J. C. M. Macdonald. Capt. P. (Isle of Wight)
Chamberlain, Rt. Hn. N.(Edgb't'n) Hacking, Rt. Hon. D. H. McEwen, Capt. J. H. F.
Channon, H. Hamilton, Sir G. C. McKie, J. H.
Chapman, Sir S. (Edinburgh, S.) Hanbury, Sir C. MacLaren, A.
Clarke, F. E. Hannah, I. C. Macnamara, Capt. J. R. J.
Colfox, Major W. P. Hannon, Sir P. J. H. Magnay, T.
Collins, Rt. Hon. Sir G. P. Harbord, A. Makins, Brig.-Gen. E.
Colville, Lt.-Col. Rt. Hon. D. J. Hellgers, Captain F. F. A. Margesson, Capt. Rt. Hon. H.D.R.
Cook, T. R. A. M. (Norfolk N.) Heneage, Lieut-Colonel A. P. Markham, S. F.
Cooper, Rt. Hn. T. M. (E'nburgh,W.) Hepworth, J. Mayhew, Lt.-Col, J.
Croft, Brig.-Gen. Sir H. Page Herbert, Major J. A. (Monmouth) Mellor, Sir R. J. (Mitcham)
Crooke, J. S. Hills, Major Rt. Hon. J. W. (Ripon) Mellor, Sir J. S. P. (Tamworth)
Crookshank, Capt. H. F. C. Holmes, J S. Mills, Sir F.(Leyton, E.)
Croom-Johnson, R.P. Hope, Captain Hon. A. O. J. Mills, Major J. D. (New Forest)
Mitchell, Sir W. Lane (Streatham Ross Taylor, W. (Woodbridge) Strauss, E. A. (Southwark, N.)
Morrison, G.A. (Scottish Univ's.) Ruggles-Brise, Colonel Sir E. A. Strauss, H. G. (Norwich)
Morrison, W. S. (Cirencester) Salmon, Sir I. Stuart, Hon. J. (Moray and Na[...]n)
Muirhead, Lt.-Col. A. J. Samuel, Sir A. M. (Farnham) Sutcliffe, H.
Neven-Spence, Maj. B. H. H. Samuel, M. R. A. (Putney) Tasker, Sir R. I.
Nicolson, Hon. H. G. Scott, Lord William Tate, Mavis C.
O'Connor, Sir Terence J. Shaw, Major P. S. (Wavertree) Thomas, J. P. L. (Hereford)
O'Neill, Major Rt. Hon. Sir Hugh Shaw, Captain W. T. (Forfar) Thomson, Sir J.D.W.
Ormsby-Gore, Rt. Hon. W. G. Shepperson, Sir E. W. Titchfield, Marquess of
Palmer, G. E. H. Simon, Rt. Hon. Sir J. A. Walker-Smith, Sir J.
Peaks, O. Sinclair, Col. T. (Queen's U. B'lf'st), Ward, Lieut.-Col. Sir A. L. (Hull)
Peat, C.U. Smiles, Lieut.-Colonel Sir W. D. Wardlaw-Milne, Sir J. S.
Penny, Sir G. Smith, Sir R. W. (Aberdeen) Waterhouse, Captain C.
Petherick, M. Smithers, Sir W. Wickham, Lt.-Col. E. T. R.
Porritt, R. W. Somervell, Sir D. B. (Crewe) Williams, H. G. (Croydon, S.)
Radford. E. A. Somerville, A. A. (Windsor) Windsor-Clive, Lieut.-Colonel G.
Ramsden, Sir E. Somerville, D. G. (Willesden, E.) Wise, A. R.
Reed, A. C. (Exeter) Southby, Comdr. A. R. J. Withers, Sir J. J.
Reid, Sir D. D. (Down) Spender-Clay, Lt.-Cl. Rt. Hn. H. H. Womersley, Sir W. J.
Rickards, G. W.(Skipton) Stanley, Rt. Hon. Oliver (W'm'[...]'d)
Robinson, J.R. (Blackpool) Stewart, J. Henderson (Fife, E.) TELLERS FOR THE AYES.—
Ropner, Colonel L. Storey, S. Major Sir George Davies and Mr. Cross.
Adams, D. (Consett) Griffiths, J. (Llanelly) Oliver, G. H.
Adams, D. M. (Poplar, S.) Groves, T. E. Paling, W.
Adamson, W. M. Hall, G.H. (Aberdare) Parker, J.
Ammon, C. G. Hall, J. H. (Whitechapel) Parkinson, J. A.
Anderson, F. (Whitehaven) Hardle, G. D. Pethick-Lawrence, F.W.
Attlee, Rt. Hon. C. R. Henderson, A. (Kingswinford) Potts, J.
Bonfield, J. W. Henderson, J. (Ardwick) Pritt, D. N.
Barnes, A. J. Henderson, T. (Tradeston) Qu[...]bell, D. J. K.
Barr, J. Hills, A. (Pontefract) Richards, R. (Wrexham)
Benson, G. Holdsworth, H. Riley, B.
Bevan, A. Holland, A. Ritson, J.
Broad, F. A. Hollins, A. Roberts, W. (Cumberland, N.)
Bromfield, W. Jagger, J. Robinson, W. A. (St. Helens)
Brooke, W. Jenkins, A. (Pontypool) Rothschild, J. A. de
Brown, Rt. Hon. J. (S. Ayrshire) John, W. Rowson, G.
Buchanan, G. Johnston, Rt. Hon. T. Salter, Dr. A.
Burke, W. A. Jones, A. C. (Shipley) Sexton, T. M.
Cape, T. Jones, H. Haydn (Merioneth) Short, A.
Chater, D. Jones, Morgan (Caerphilly) Simpson F. B.
Cluse, W. S. Kelly, W. T. Sinclair, Rt. Hon. Sir A. (C'thn's)
Clynes, Rt. Hon. J. R. Kennedy, Rt. Hon. T. Smith, E. (Stoke)
Compton, J. Kirby, B. V. Smith, Rt. Hon. H. B. Lees- (K'ly)
Cove, W. G. Kirkwood, D. Smith, T. (Normanton)
Cripps, Hon. Sir Stafford Lathan, G. Sorensen, R. W.
Daggar, G. Lawson, J.J. Stewart, W. J. (H'ght'n-le-Sp'ng)
Dalton, H. Leach, W. Strauss, G. R. (Lambeth, N.)
Davies, D. L. (Pontypridd) Lee, F. Taylor, R. J. (Morpeth)
Davies, S. O. (Merthyr) Leonard, W. Thorne, W.
Day, H. Leslie, J. R. Tinker. J. J.
Dobbie, W. Logan, D. G. V[...]ant, S. P.
Dunn, E. (Rather Valley) Lunn, W. Walkden, A. G.
Ede, J. C. McEntee, V. La T. Watson, W. McL.
Edwards, Sir C. (Bedwellty) McGhee, H. G. Welsh, J. C.
Evans, E. (Univ. of Wales) Maclean, N. Westwood, J.
Fletcher, Lt.-Comdr. R. T. H. MacMillan, M. (Western Isles) White, H. Graham
Frankel, D. Mainwaring, W. H. Whiteley, W.
Gallacher, W. Marklow, E. Williams, D. (Swansea, E.)
Gardner, B. W. Mathers, G. Williams, E. J. (Ogmore)
Garro Jones, G. M. Maxton, J. Williams, T. (Don Valley)
Gibbins, J. Messer, F. Wilson. C. H. (Attercliffe)
Graham, D. M. (Hamilton) Milner, Major J. Windsor, W. (Hull, C.)
Green, W. H. (Deptford) Montague, F. Woods, G. S. (Finsbury)
Greenwood, Rt. Hon. A. Morrison, Rt. Hon. H. (Ha'kn'y, S.) Young, Sir R. (Newton)
Grenfell, D. R. Morrison, R. C. (Tottenham, N.)
Griffiths, G. A. (Hemsworth) Naylor, T. E. TELLERS FOR THE NOES.—
Sir Hugh Seely and Mr. Acland.

SECOND SCHEDULE.—(Supplementary provisions as to prevention of avoidance of Income Tax by transactions resulting in the transfer of income to persons abroad.)

7.10 p.m.


I beg to move, in page 34, line 13, to leave out "and (subject as hereafter provided)."

This Amendment and the following four Amendments all deal with the same matter. In the Bill as presented to the House and now in the hands of hon. Members, there was a provision by which there could be an appeal from the Special Commissioners to the Board of Referees on the question of fact, which arises under the proviso in Sub-section (1) of Clause 18, which says: Provided that this Sub-section shall not apply if the individual shows to the satisfaction of the Special Commissioners that the transfer and any associated operations were effected mainly for some purpose other than the purpose of avoiding liability to taxation. In the course of the discussion in Committee on this Schedule various hon. Members said that they thought the Bill would be more satisfactory if this appeal were removed and the matter were left to the determination of the Special Commissioners, in whose hands is the determination on other matters of fact. The present Amendments are designed to give effect to that suggestion and to leave this matter, as with other matters of fact, to the Special Commissioners, with a right of appeal on questions of law.

I should like, on behalf of the Chancellor of the Exchequer, to dissociate him, myself and the Government from certain criticisms made by some hon. Members of the Board of Referees. These Amendments are moved in no way on those grounds. They are moved, first of all, on the ground that every additional right of appeal does, or may, involve extra cost, and unless those concerned feel that the right of appeal is one of value to them and are anxious to preserve it, it is better for everybody's interest to have one determination rather than two determinations. It is common ground, I think, in all these matters that the Special Commissioners have the greatest confidence of those who come before them in their fairness and correctness in determining questions of fact, and the general sense seems to be that it would be better in this matter to remove those provisions of the Schedule which provide for this appeal to the Board of Referees, and to leave this matter with other matters of fact to be determined by the Special Commissioners.

7.14 p.m.


I want to thank the Chancellor of the Exchequer for what he has done. I was one of those who suggested this Amendment. No tribunal stands higher than the Special Commissioners, and I am very glad that it has been decided to leave the matter to them, subject, of course, to an appeal to the High Court.

Amendment agreed to.

Further Amendments made: In page 34, line 13, after "assessments," insert: made by the Special Commissioners and to cases to be stated for the opinion of the High Court. In line 24, leave out paragraph 6.

In line 34, leave out paragraph 7.

In line 37, leave out paragraph 8.—[Mr. TV. S. Morrison.]

7.15 p.m.


I beg to move, in page 35, line 2, after "person," to insert: through whom it is alleged any such transfer as is referred to in Section eighteen has been effected, or through whom any income or other property derived from assets so transferred is paid to any individual ordinarily resident in the United Kingdom. This Amendment was put down by myself and my hon. and learned Friend the Member for Bridgwater (Mr. Groom-Johnson) with the object of defining rather more closely the persons whom the Special Commissioners may require to furnish information under Clause 18 of the Bill. It seems to us that it is rather too wide to allow the Special Commissioners to require any person to furnish information, and accordingly we suggest the insertion of these limiting words. I suggest that they would give all the powers that are proper and necessary. Nobody wants a roving inquiry. I want the Special Commissioners to have all the information, and the means of getting all the information, that they need, and I suggest that with these limiting words the power of making proper inquiries in accordance with paragraph 9 of the Second Schedule would not be diminished, although the ambit of the inquiries would be rather limited.

7.17 p.m.


In supporting this Amendment, I only want to say one thing. Most people who have had any experience of them recognise, not only the fairness and ability with which the Special Commissioners discharge all the duties that are cast upon them by the Income Tax Acts, but the extreme care with which they do their work, and the great confidence which the public have in the care which they exercise. In supporting the Amendment, I should not like it to be thought for a moment that I desire to suggest that the Special Commissioners, even if the Clause stands as it is at present, will not take the very greatest care to see that they do not cast their net more widely than is necessary in order to carry the Clause into effect. At the some time, however, it has been suggested to me, by those who have gone into this matter more deeply than I have had the opportunity of doing, that there would be a danger, if the Clause were left in its present wide form, of the possibility of persons who are not really concerned in the transaction being called upon to give information under the powers conferred by the Clause.

7.19 p.m.


I appreciate, of course, the motive that is behind this Amendment, and I appreciate what my hon. and learned Friend has just said with regard to the fact that, even if these words are wider than is necessary, it is not at all likely that the powers will be in any way abused. But the subject-matter of the Clause with which these words deal, namely, Clause 18, is, as the House knows, the transfer of assets into foreign countries, and the whole field is so strewn with nominees, alter egos, one-man companies and aliases—I use the word in no offensive sense—that we think it desirable to adhere to the very wide form of words in the Clause as it stands. I do not want to criticise the Amendment, but, if I did, I should probably be able to show that it might not cover in certain cases the man who was the actual tax avoider, and that he would be able to get the transfer done by someone else. But, especially in view of what my hon. and learned Friend has just said, we feel that it is desirable to keep the general powers as they are in the Clause. If there were any sort of abuse of them, representations could be made and the matter dealt with, but, in view of the subject-matter with which this part of the Schedule deals, we should like the powers to be as wide as possible.


In view of the Attorney-General's explanation, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.21 p.m.


I beg to move, in page 35, line 5, after "excuse," to insert: which in the case of a solicitor shall include any privilege against the disclosure of communications or documents that would be allowed by a court of law. I think the meaning and bearing of this Amendment will be obvious. Under the Bill, a person who refuses information without reasonable excuse is subject to a penalty of £50, and a further penalty of the like amount for every day, after judgment for that penalty has been given, during which the refusal continues. These are very heavy penalties, and I am sure the House will agree that a witness in a matter of this kind who is asked to disclose documents which no court of law could compel him to disclose ought not to be subject to such penalties. I may be told that the matter is covered by the words "reasonable excuse." They may cover it or they may not, but here you have a professional man who has the interests of his clients at heart. It is not in his interest to conceal information; he has no object in keeping back any facts that the Special Commissioners may want; but he feels bound by the honourable practice of his profession to preserve his client's secret. I suggest with some force to the Attorney-General that it would be a good thing to define in clear words the position of a professional man in this matter, and to say that, in the case of a solicitor, he should not be compelled to disclose documents which a court of law would not oblige him to disclose.

7.23 p.m.


I appreciate, of course, the grounds on which my right hon. and gallant Friend has moved this Amendment. but I suggest to him that the words "without reasonable excuse," which occur in the Schedule, are a complete and sufficient answer in case of a refusal to provide information under the terms of the Schedule. I should have thought that there could be no possible manner of doubt that the right of refusal in a court of law, which is recognised by the highest tribunals in the land, would be a reasonable excuse. If we inserted these express words dealing with a solicitor, we should run a very great risk of narrowing the construction which could be put on the general words "without reasonable excuse." Of course, one cannot define at once what exactly would be held to be a reasonable excuse; anyone can suggest borderline cases; but there would be no doubt at all that the ordinary protection that can be claimed in a court of law, whether by way of a solicitor's privilege or otherwise, would be a reasonable excuse as provided in this paragraph of the Schedule, and, therefore, I am very loth to insert words which would throw any doubt on that matter. For this reason, and having regard to what was said on the previous Amendment as to the Special Commissioners not being a body whom anyone really suspects as likely to act, or seem to act, in an improper or oppressive way, I hope that my right hon. and gallant Friend will see his way not to press his Amendment.


In view of the clear statement of the Attorney-General, and of his assurance that the honourable profession in which I passed a good part of my life will not be under any penalty under the Clause, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment made: In page 35, line 18, leave out paragraph 11.—[The Attorney-General.]

Bill to be read the Third time upon Friday, and to be printed. [Bill 147.]