§ 3.45 p.m.
§ Mr. BENSON
I beg to move, in page 21, line 43, to leave out from "Act," to the end of the Sub-section.
I hope that we shall have the sympathy and support of the Chancellor of the Exchequer himself for this Amendment. We are attempting to rescue him from the effects of his own weakness. Had it not been for his inability to stand up to the pressure put upon him by the interests concerned, this Amendment would not have been necessary, because irrevocable trusts would not have been excepted from the operation of the Clause. When the Clause was first drafted, but before it saw the light, the intentions of the Chancellor and his Department that irrevocable trusts should be included in the Clause in order to stop tax avoidance were disclosed. The Chancellor stated quite clearly not only what he intended to do, but his reasons for doing it. His statement was such an excellent one in favour of our Amendment that I propose to state it again. These are the words he used:Suppose we have an irrevocable trust, under whch the taxpayer makes over a certain proportion of his capital to trustees with instructons to them to hold the security in trust for the child, but until the child becomes of age paying the income over to the parent for the purpose of maintaining the child. Is that a case which any hon. Member would wish to defend? "—[OFFICIAL REPORT, 27th April, 1936; col. 686, Vol. 311.]We cannot conceive that any Member would wish to defend that case and, therefore, we are proposing to put that type of trust outside the protection which the Chancellor now proposes to give and to make the disponer liable for aggregation of tax.
This favourable treatment of the irrevocable trust is not a second thought of the Chancellor, due to undiscovered facts which have suddenly come to his notice. A complicated Clause like this is not drawn lightly or rapidly, but is the result 828 of very careful examination by the Chancellor's Department. This tax evasion Clause is the result of very careful investigation of trusts, and there would not be exclusion of the irrevocable trusts had it not been for backstairs influence by hon. Gentlemen behind the Chancellor. I want to examine whether there is any valid ground for the differentiation between the revocable trust, which is caught by this Clause, and the irrevocable trust, which is excluded from the operation of the Clause. Quite frankly, I can find no real, logical ground of differentiation.
As a matter of fact, the gap between the irrevocable and the revocable trust is bridged by a large number of intermediate forms. In the Debate yesterday, hon. Gentlemen opposite were continually bringing forward particular types of trusts which they said it was unfair to include in the Clause and exclude from the benefits of the completely irrevocable trust, and the Chancellor himself was compelled to admit that there was a case for examination. He could not logically draw a difference between the types of trust suggested to him by his friends behind him and the irrevocable trusts which he proposes to benefit under this Clause. There is no logical difference between the revocable and the irrevocable. There is, however, a very distinct social difference. The irrevocable trust is a type of trust which, by its very nature, must be confined to people with a considerable amount of wealth, whereas the smaller and less important revocable trust is one which people of very moderate means could afford to establish. So far, however, as the really irrevocable trust is concerned, it must of necessity be a luxury of the rich, because no one except a rich man can afford to alienate permanently either a serious portion of his income or an amount of capital with which it is worth while to deal.
It has been suggested that the revocable trust, the trust which the parent can revoke if and when he wishes, or in given circumstances, is really aimed, not at the establishment of a trust, but at the avoidance of tax, whereas the irrevocable trust has been established mainly for other motives—for really prudential motives, for motives mainly concerned with safeguarding the future interests of the child. But the Income Tax is not a tax upon motives; it is not a tax which ought to take into consideration motives. 829 It is, on the contrary, a tax which ought to take into consideration results, and results only. But let us assume for the moment that the irrevocable trust really is entirely providential in its object. Let us assume that the disponers who have established their irrevocable trusts had no intention whatsoever of avoiding tax. If that be so, it is no hardship to impose tax upon them, because they have not established their trusts for the purpose of avoiding tax, and, therefore, there can be neither disappointment nor hardship if they find that the income of their trusts aggregates with their own income. As a matter of fact, that assumption is utterly unwarranted. As my authority for that statement I have the hon. Member for Twickenham (Mr. Keeling). Speaking last night—I do not know whether he intended it—he let the cat out of the bag beyond all hope of getting the animal back again. Speaking on this Clause, he made the following statement:Up to the date of a certain decision in the House of Lords, I believe that everybody who wanted to make these trusts was advised by his solicitor that he should make them irrevocable, but when that decision was made a large majority of solicitors advised their clients that it was desirable to make their trusts revocable and that the effect was identical with making them irrevocable."—[OFFICIAI, REPORT, 15th June, 1936; col. 747, Vol. 313.]What was the effect aimed at there? It was the effect of tax evasion. Prior to the decision of the House of Lords on this point, solicitors, according to the hon. Member for Twickenham, had been recommending the irrevocable trust because it would enable tax to be avoided. After the decision they changed their form of trust, because the more flexible form also enabled them, under that decision, to avoid aggregation. The hon. Member, who, no doubt, has far more experience of the establishment of trusts than I have, points out that the motive behind the form of each trust was the same, that is to say, the evasion of tax. But, quite apart from the question of motive, the irrevocable trust avoids aggregation just as effectively as the revocable one, and, as I have pointed out, the irrevocable trust is one in which only a rich man can indulge. The result is that the irrevocable trust, which the Chancellor proposes to omit from the Clause, in all probability avoids tax at a far higher rate than the revocable trust, which may have been established 830 by a small man who could only hope to save thereby a few pounds a year.
There is another point that I want to bring to the notice of the Chancellor of the Exchequer, and that is in regard to the trust which is irrevocable in form but definitely revocable in intention. Thus, whether the form of the trust be revocable or irrevocable, both are aimed simply and solely at the avoidance of tax. The Chancellor himself, in his Budget speech, drew attention to the widespread advertising, by certain types of financial companies, of these particular forms of trusts, and, indeed, they are an extraordinarily simple matter. I have here, on a single sheet of foolscap, two forms of trust, one revocable and the other irrevocable. Quite obviously, a form of trust deed which can be set out in half a sheet of typewriting is a perfectly simple and easily drawn up document, which does not require a solicitor, and these forms have been broadcast throughout the country. The Chancellor may say that that may be true, but that, if a parent has adopted the irrevocable form, he is entitled to the protective effect of the words which I am proposing to omit. But the question whether the parent adopted the revocable or the irrevocable form was very largely a question of luck, according to the particular document that was set before him; and, moreover, the irrevocable form was advertised as irrevocable in form only, and not in actual fact. I have here quotations from a couple of advertisement circulars. The irrevocable form is advocated in these words:Technically you undertake to pay an agreed sum for the joint lives of yourself and child, which means that the trust is terminated on your death or the death of the child. You cannot however bind a minor by deed. As soon as your child reaches 21 he will possess legal authority to discharge you from further liability under the scheme.Another circular with exactly the same idea makes the statement:At 21 the minor can discharge his father's liability. Was there ever an easier way of making money? Father pays nothing but the original Stamp Duty.It is upon irrevocable trusts formed under this sort of advocacy and with that intention that the Chancellor proposes to allow tax avoidance to continue. There is no justification for it whatever. Let me sum up the case that we have against 831 the exclusion of the irrevocable trust from this Clause. To begin with, the exclusion is entirely illogical. There is no justification for differentiation. Secondly, the exclusion of the irrevocable trust definitely favours the rich trustee and is definitely hostile to the poorer. It thus allows the avoidance of Surtax in effect, but prevents very largely the avoidance of Income Tax. It is not introduced into this Clause because the Chancellor or his Department considers it desirable or necessary. It is introduced simply and solely because the Chancellor was unable to stand up to the pressure put upon him.
§ 4.4 p.m.
§ The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)
At the beginning of his speech on this Amendment the hon. Member for Chesterfield (Mr. Benson) stated that his purpose was to rescue the Chancellor of the Exchequer from weakness. I have observed that the course of conduct described as weakness when it refers to one set of circumstances, is described as hard-heartedness and obstinacy when it applies to representations made by the other side.
§ Mr. CHAMBERLAIN
Circumstances alter cases. It depends on which side of the House one happens to be sitting. Anyone who listened to the hon. Member would have failed to appreciate that the exception which is the subject of the Amendment deals with pre-Budget irrevocable trusts and not with fresh trusts of that character. The charge which the hon. Member made against me, that I had changed my mind, was completely
§ destroyed. I still maintain what I said about these trusts in general, as far as they occur in future. There is no difference between revocable and irrevocable trusts except in the case of accumulated income; but it does seem to me that the case of the irrevocable trust entered into at the time when it was not only lawful but encouraged by Statute stands on quite a different footing from the later trusts entered into after the Bill was introduced. A man who entered into an irrevocable trust did so knowing that he was acting entirely in accordance with the law, and on the strength of that fact he has in many cases bound himself by undertakings or entered into engagements which, since the trust is irrevocable, he cannot now get out of.
§ It seems to me that a good case is made out for the fact that an injustice would be committed in the case of people who, had circumstances been entirely altered by a change of the law, were nevertheless in no position to adjust themselves to those altered conditions. With regard to the question of trusts which appear to be irrevocable in letter but which in fact can be made into revocable trusts, I hope we have provided against that by the definition in Sub-section (7), which of course applies to pre-Budget trusts just as much as to post-Budget trusts. That being so, I hope the Committee will see that there is really no reason to support the Amendment, which would commit a definite injustice in particular cases and really would make little difference to the Exchequer.
§ Question put, "That the word 'except' stand part of the Clause."
§ The Committee divided: Ayes, 196; Noes, 102.835
|Division No. 234.]||AYES.||[4.7 p.m.|
|Acland, Rt. Hon. Sir F. Dyke||Briscoe, Capt. R. G.||Clarke, F. E.|
|Acland, R. T. D. (Barnstaple)||Brown, Rt. Hon. E. (Leith)||Collins, Rt. Hon. Sir G. P.|
|Acland-Troyte, Lt.-Col. G. J.||Brown, Brig.-Gen. H. C. (Newbury)||Colville, Lt.-Col. D. J.|
|Adams, S. V. T. (Leeds, W.)||Browne, A. C. (Belfast, W.)||Cook, T. R. A. M. (Norfolk, N.)|
|Albery, I. J.||Bullock, Capt. M.||Cooke, J. D. (Hammersmith, S.)|
|Aske, Sir R. W.||Burgin, Dr. E. L.||Cooper, Rt. Hn. A. Duff(W'st'r S.G'gs)|
|Atholl, Duchess of||Burton, Col. H. W.||Cooper, Rt. Hn. T. M. (E'nburgh, W.)|
|Baldwin, Rt. Hon. Stanley||Butler, R. A.||Courthope, Col. Sir G. L.|
|Barclay-Harvey, C. M.||Cartland, J. R. H.||Craddock, Sir R. H.|
|Baxter, A. Beverley||Carver, Major W. H.||Critchley, A.|
|Beaumont, Hon. R. E. B. (Portsm'h)||Cary, R. A.||Croft, Brig.-Gen. Sir H. Page|
|Beit, Sir A. L.||Cazalet, Thelma (Islington, E.)||Crooke, J. S.|
|Bennett, Capt. Sir E. N.||Chamberlain, Rt. Hn. N. (Edgb't'n)||Crookshank, Capt. H. F. C,|
|Birchall, Sir J. D.||Channon, H.||Cross, R. H.|
|Boulton, W. W.||Chapman, A. (Rutherglen)||Crossley, A. C.|
|Bowater, Col. Sir T. Vanslttart||Chapman, Sir S. (Edinburgh, S.)||Crowder, J. F. E.|
|Braithwaite, Major A. N.||Christie, J. A||C[...]lverwell. C. T.|
|Dawson, Sir P.||Kerr, H. W. (Oldham)||Reid, Sir D. D. (Down)|
|Denman, Hon. R. D.||Kerr, J. Graham (Scottish Univs.)||Remer, J. R.|
|Denville, Alfred||Keyes, Admiral of the Fleet Sir R.||Rickards, G. W. (Skipton)|
|Despencer-Robertson, Major J. A. F.||Kirkpatrick, W. M.||Ropner, Colonel L.|
|Dorman-Smith, Major R. H.||Lamb, Sir J. Q.||Ross, Major Sir R. D. (L'derry)|
|Duckworth. W. R. (Moss Side)||Lambert, Rt. Hon. G.||Ross Taylor, W. (Woodbridge)|
|Dugdale, Major T. L.||Latham, Sir P.||Ruggles-Brise, Colonel Sir E. A.|
|Dunglass, Lord||Law, R. K. (Hull, S.W.)||Runciman. Rt. Hon. W.|
|Elliston, G. S.||Leckie, J. A.||Russell, A. West (Tynemouth)|
|Emmott, C. E. G. C.||Leech, Dr. J. w.||Russell, S. H. M. (Darwen)|
|Emrys- Evans, P. V.||Lees-Jones, J.||Salt, E. W.|
|Erskine Hill, A. G.||Lennox-Boyd, A. T. L.||Samuel, Sir A. M. (Farnham)|
|Evans, D. O. (Cardigan)||Levy, T.||Samuel, M. R. A. (Putney)|
|Everard, W. L.||Lewis, O.||Sandeman, Sir N. S.|
|Flldes, Sir H.||Lloyd, G. W.||Sandys, E. D.|
|Fraser, Capt. Sir I.||McCorquodale, M. S.||Savery, Servington|
|Gllmour, Lt.-Col. Rt. Hon. Sir J.||MacDonald, Rt. Hn. J. R. (Scot. U.)||Shaw, Major P. S. (Wavertree)|
|Gledhill, G.||McEwen, Capt. J. H. F.||Shepperson, Sir E. W.|
|Graham, Captain A. C. (Wirral)||McKie, J. H.||Shute, colonel Sir J. J.|
|Grattan-Doyle, Sir N.||Macnamara, Capt. J. R. J.||Sinclair, Rt. Hon. Sir A. (C'thn's)|
|Gridley, Sir A. B.||Macqulsten, F. A.||Smiles, Lieut.-Colonel Sir W. D|
|Griffith, F. Kingsley (M'ddl'sbro, W.)||Magnay, T.||Smith, L. W. (Hallam)|
|Grimston, R. V.||Maitland, A.||Somervell, Sir D. B. (Crewe)|
|Gunston, Capt. D. w.||Makins, Brig.-Gen. E.||Spens, W. P.|
|Guy, J. C. M.||Manningham-Buller, Sir M.||Stanley, Rt. Hon. Oliver (W'm'l'd)|
|Hacking, Rt. Hon. D. H.||Margesson, Capt. Rt. Hon. H. D. R.||Stewart, J. Henderson (Fife, E.)|
|Hamilton, Sir G. C.||Meller, Sir R. J. (Mitcham)||Strauss, E. A. (Southwark, N.)|
|Hanbury, Sir C.||Mills, Sir F. (Leyton. E.)||Strickland, Captain W. F.|
|Hannah, I. C.||Mills, Major J. D. (New Forest)||Sueter, Rear-Admiral Sir M. F.|
|Hannon, Sir P. J. H.||Mitchell, Sir W. Lane (Streatham)||Tasker, Sir R. I.|
|Harris, Sir P. A.||Moore, Lieut.-Col. T. C. R.||Taylor, Vice-Adm. E. A. (Padd., S.)|
|Hartington, Marquess of||Moreing, A. C.||Touche, G. C.|
|Haslam, H. C. (Horncastle)||Morris, O. T. (Cardiff, E.)||Tree, A. R. L. F.|
|Heneage, Lieut.-Colonel A. P.||Morrison, G. A. (Scottish Unlv's.)||Ward, Lieut.-Col. Sir A. L. (Hull)|
|Hepburn, P. G. T. Buchan||Morrison, w. S. (Cirencester)||Ward, Irene (Wallsend)|
|Hepworth, J.||Neven-Spence, Maj. B. H. H.||Warrender, Sir V.|
|Herbert, Major J. A. (Monmouth)||Orr-Ewing, I. L.||Waterhouse, Captain C.|
|Herbert, Captain S. (Abbey)||Patrick, C. M.||Wedderburn, H. J. S.|
|Hills, Major Rt. Hon. J. W. (Ripon)||Peake, O.||Wells, S. R.|
|Hoare, Rt. Hon. Sir S.||Penny, sir G.||White, H. Graham|
|Holdsworth, H.||Perkins, W. R. D.||Williams, C. (Torquay)|
|Hopkinson, A.||Petherick, M.||Williams. H. G. (Croydon, S.)|
|Horsbrugh, Florence||Pickthorn, K. W. M.||Windsor-Clive, Lieut.-Colonel G|
|Howitt, Dr. A. B.||Plugge, L. F.||Wise, A. R.|
|Hudson, Capt. A. U. M. (Hack., N.)||Ponsonby, Col. C. E.||Young, A. S. L. (Partick)|
|Hulbert, N. J.||Pownall, Sir Assheton|
|Hunter, T.||Radford, E. A.||TELLERS FOR THE AYES—|
|Hurd, Sir P. A.||Raikes, H. V. A. M.||Mr. James Stuart and Lieut.-Colonel|
|James, Wing-Commander A. W||Ramsden, Sir E.||Llewellin|
|Keeling, E. H.||Rathbone, J. R. (Bodmin)|
|Adams, D. (Consett)||Groves, T. E.||Mathers, G.|
|Adams, D. M. (Poplar, S.)||Hall, G. H. (Aberdare)||Maxton, J.|
|Adamson, W. M.||Hall, J. H. (Whitechapel)||Montague, F.|
|Anderson, F. (Whitehaven)||Hardie, G. D.||Morrison, R. C. (Tottenham, N.)|
|Attlee, Rt. Hon. C. R.||Henderson, A. (Kingswinford)||Oliver, G. H.|
|Banfield, J. W.||Henderson, J. (Ardwick)||Parker, J.|
|Barnes, A. J.||Henderson, T. (Tradeston)||Parkinson, J. A.|
|Barr, J.||Holland, A.||Pethick-Lawrence, F. W.|
|Benson, G.||Hopkin, D.||Potts, J.|
|Bevan, A.||Jagger, J.||Richards, R. (Wrexham)|
|Brooke, W.||Jenkins, A. (Pontypool)||Rlley, B.|
|Brown, Rt. Hon. J. (S. Ayrshire)||Jenkins, Sir W. (Neath)||Ritson, J.|
|Burke, W. A.||Jones, A. C. (Shipley)||Roberts, Rt. Hon. F. O. (W. Brom.)|
|Cape, T.||Jones, Morgan (Caerphilly)||Robinson, W. A. (St. Helens)|
|Charleton, H. C.||Kelly, W. T.||Rowson, G.|
|Cluse, W. S.||Kennedy, Rt. Hon. T.||Salter, Dr. A.|
|Compton, J.||Kirby, B. V.||Sexton, T. M.|
|Cove, W. G.||Kirkwood, D.||Shinwell. E.|
|Daggar, G.||Lansbury, Rt. Hon. G.||Short, A.|
|Davies, D. L. (Pontypridd)||Lathan, G.||Sllkin, L.|
|Day, H.||Lawson, J. J.||Smith, Ben (Rotherhithe)|
|Dobble, W.||Leach, W.||Smith, E. (Stoke)|
|Dunn, E. (Rother Valley)||Lee, F.||Smith, Rt. Hon. H. B. Lees- (K'ly)|
|Edwards, Sir C. (Bedwellty)||Leonard, W.||Smith, T. (Normanton)|
|Gallacher, W.||Leslie, J. R.||Sorensen, R. W.|
|Gardner, B. W.||Logan, D. G.||Stewart, W. J. (H'ght'n-le-Sp'ng)|
|Garro Jones, G. M.||Lunn, W.||Taylor, R. J. (Morpeth)|
|Gibbins, J.||Macdonald, G. (Ince)||Thurtle, E.|
|Graham, D. M. (Hamilton)||McGhee, H. G.||Tinker, J. J.|
|Green, W. H. (Deptford)||MacMillan, M. (Western Isles)||Walkden, A. G.|
|Griffiths, G. A. (Hemsworth)||MacNeill, Weir, L.||Watkins, F. C.|
|Griffiths, J. (Llanelly)||Marklew, E.||Watson, W. McL.|
|Westwood, J.||Williams, T. (Don Valley)||TELLERS FOR THE NOES.-|
|Wilkinson, Ellen||Young, Sir R. (Newton)||Mr. Whiteley and Mr. John.|
|Williams, E. J. (Ogmore)|
Question, "That the Clause stand part of the Bill," put, and agreed to.
§ Amendments made: In page 21, line 43, leave out "an irrevocable," and insert "a."
§ In page 22, line 2, at the end, insert "which immediately before that date was irrevocable."
§ In line 5, leave out "section," and insert "subsection."—[Mr. Chamberlain.]
§ Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill.
§ Mr. PETHICK-LAWRENCE
I rise to ask for a short account of the precise meaning of the very complicated Subsection (4), which is legislation by reference carried to a high degree. I hope we shall get an explanation which will enable us to understand what is the intention of it.
§ 4.18 p.m.
§ Sir ARTHUR MICHAEL SAMUEL
The discussions on this Clause have shown that the Chancellor of the Exchequer has had the sympathetic support of everyone on this side. What we have done is to endeavour to point out where there will arise, I will not say flaws, but unforeseen contingencies which will bring about results that might be regarded as undesirable. I think my right hon. Friend must be glad that we have tried to point out defects. He will be anxious to make the Clause work without friction and above all, will want it to be just and to be constructed in such a manner that there will later on be no necessity for taxpayers to go to the Courts to have it explained. I remember quite well taking part as a back bencher in the discussions and deputations that brought about Section 20 of the Act of 1922. I know that Section almost by heart. It is referred to in the most complicated way in Sub-section (4) of this Clause. I have tried to grasp it and have found it utterly unintelligible. One might as well try to find out the thoughts in the mind of the Sphinx as try to unravel what is meant by this Sub-section (4). I agree that it is difficult to make a Finance Clause work as intended, and at the same time make it intelligible. But the duty of any Department is to make its Bills intelligible to ordinary people. This Subsection contains four "as ifs"—four 836 conditionals. It compares "this" Section with "that" Section of the Act of 1922 and vice versa, and there are variations of references and conditional effects. I do not know whether my right hon. and gallant Friend the Member for Ripon (Major Hills) can disentangle it. I doubt whether he can. The only way to get anything like lucidity is to repeal the 20th Section of the Act of 1922; then take out of it such operative statements as you wish to put into this Bill and re-enact the result as a new Clause without references, giving the whole thing a fresh start.
I referred last night to a point which, I think, had not been foreseen by the Treasury, that is, the case of a young wife of 18. Under this Bill as it stands an infant who marries comes out of the operation of the Bill. Yet if a girl of 18 marries in the early part of an assessment year, say in May, if she has enough to add to her settlor-parent's income to make Surtax payable, her income, instead of being aggregated to that of her husband, will be aggregated for n months—from May until the next April—to her settlor-father's income. That seems to be wrong. We think the Clause will work pretty well, but that Sub-section (7) will also have to be redrawn and clarified. We hope that the representatives of the Treasury will consider what we have said in Debate and will improve Sub-section (7) in the way in which we have indicated it can be improved, to make it work so that people may not be taxed unfairly.
§ 4.25 p.m.
§ Mr. CROWDER
I should like to endorse the request that has been made to the Chancellor to do his best to clarify the wording of this difficult Clause. Very few lawyers who have been consulted can say for certain whether any particular deed that is put before them is irrevocable or not. I consulted one the other day and he told me that all the deeds he had drawn were irrevocable as far as he understood the word, but he could not tell me if such a deed would be held to be irrevocable by the Inland Revenue if the Bill passed as now worded. That may be an exaggeration but I feel that, unless the wording is considerably altered, it will be rather hard on the ordinary taxpayer, because he will have in nearly 837 every case to consult his lawyer and get into communication with the Revenue authorities and argue the point out with them. The wording of the Clause has been devised with the object of giving the Revenue power to say in practice that nearly every deed is revocable. It seems to me rather like loading the scales in favour of the Revenue. In every case the onus will be on the taxpayer to make the Revenue believe that the deed is irrevocable. If the Chancellor could see his way to word the Clause so that any ordinary deed which has been held up to now to be irrevocable will be so held unless it contains an obvious Clause which anyone can understand that it can be revoked at any time, the taxpayer would know where he stood.
I understand that the Revenue will be flooded with these documents shortly and asked to adjudicate as to whether they fall within the terms of the Bill or not. If the wording could be made clearer, it would be a great help to the taxpayer. After all, there cannot be so many borderline cases as regards deeds made before 21st April, 1936. I should like to see the Clause altered to read more or less that such deeds made before 21st April, 1936, will be deemed to be irrevocable unless they contain certain specific clauses which obviously make them revocable. I, and many of my friends, do not like this idea, of retrospective legislation. I hope the Chancellor will give every reasonable chance to those who executed deeds before 21st April, 1936, who thought they were making irrevocable deeds. We do not complain of legislation dealing with deeds made after that date, because everyone knows where he is. But many people will be penalised unless the wording is made clearer and borderline cases are allowed to be called irrevocable if it was obviously the intention of the settlor to make them irrevocable.
§ 4.29 p.m.
§ Mr. KEELING
When a similar very abstruse Section of a previous Finance Act was before the courts, Mr. Justice Rowlatt said:The section is perfectly unintelligible to any layman or lawyer who has not made a prolonged study with all his law books at his elbow, and it is a growing scandal that legislation by which the public is taxed should appear on the Statute Book in an unintelligible form. I am told by the Attorney-General that it is only by legislation by reference that the Statute can be carried through at all. Then 838 all I have to say is that the price of getting this legislation through is that the people of this country are taxed by laws which they cannot possibly understand, and I think this is the worst possible example of that kind of thing ever put on the Statute Book.It is on record that in the reign of Edward III the Chief Justice, accompaned by another judge, went to the House of Lords and asked them, as they had lately passed a Statute, what they intended thereby. If that expedient were available at the present time the Lords would be kept even busier than the Commons.
I would like to comment on a suggestion made by my hon. Friend the Member for Farnham (Sir A. M. Samuel), that the old Section in an Act which it is intended to amend should be repealed and that a new Section reproducing the old Section with the desired Amendments should be enacted in its stead. The obvious objection to that course is that if you put the whole of the old Section into your Bill, you throw into the melting pot not only the parts you want to amend, but also the parts you do not want to amend, and that must prolong debate. But I make this suggestion for the consideration of the Government: It involves an alteration of Standing Orders, but I do not think that ought to be impossible. My suggestion is that when you want to amend a Section of an old Act, but only want to amend a few words in it, you should print the parts of it which you do not want to amend in a special type, or underline them, and that a Standing Order be passed that those parts which are so printed or underlined shall not be the subject of amendment or debate.
This matter of abstruse legislation is a matter to which the Income Tax Codification Committee, in its recent report, devoted a great deal of attention. They said:we have referred to the chaotic condition in which we found the legislation which it has been our task to codify, and have indicated that this was largely due to the haphazard process of amendment to which the law has been subjected. Should the result of our efforts to reduce this incoherent accumulation to some semblance of order meet with acceptance, we confess that we view with apprehension the prospect of the renewal of the same unsatisfactory process, with the consequent reproduction of the state of matters which we have sought to remedy. It is not within our province or our competence to suggest any alteration 839 in the present system of income tax legislation which would obviate this result, but it is manifestly desirable that such alterations and adjustments as may from time to time be found necessary should be so effected as to preserve the consistency of the scheme as a whole.The adoption of my proposal would largely obviate the danger to which the Committee draw attention, and I would ask the Government whether they will not consider this question of amending the Standing Orders and printing Bills in the way I have suggested.
§ 4.34 p.m.
§ Mr. ALBERY
Several hon. Members learned in the law have complained of the drafting of this Clause. I, as an ordinary layman, have found it extremely difficult to understand, and I imagine that there are many others in the Committee who, like me, do not know exactly what we are doing here or what the effect of this Clause is. When you go to get a will drawn by a lawyer, he usually draws it in a form which you cannot understand, but if you tell him that you insist on having your will drawn in such a way that you, and possibly your wife also, can read and understand it, he is quite capable of doing it. Therefore, I am not convinced myself that it is beyond the wit of the Government draftsmen so to frame Bills that they can be reasonably understood by an ordinarily intelligent person. During the Second Reading of this Bill, my right hon. Friend the Chancellor of the Exchequer assured the House that he would willingly answer in detail the many difficult points which arise in it. I wish to say that the right hon. Gentleman and his very able lieutenant, the Financial Secretary to the Treasury, and also the learned Attorney-General, have given lucid replies—I imagine they were lucid, though I have not always understood them—to the questions which have been addressed to them. At any rate, they have remained good tempered, and we have nothing to complain of in the way in which they personally have met our attempts at criticism.
Criticism of this Clause from an ordinary Member has been almost impossible, and that brings me to the main reason which brought me to my feet. The right hon. Gentleman has intimated his intention, for which I think most of 840 us are grateful, of reconsidering many portions of this Clause and of moving many Amendments on the Report stage. It was difficult enough to understand what was intended by this Bill when we had it presented to us for the Committee stage, but how on earth are we to understand what will be intended when we come to the Report stage and have submitted to us the draft of this Bill as it goes out of the Committee with none of the Chancellor's intended Amendments included in it? I want to ask the right hon. Gentleman whether he will at any rate give us an assurance that his proposed Amendments will be put down at an early date, at least some four or five days before the Report stage of the Bill is taken.
§ 4.37 p.m.
§ Mr. H. G. WILLIAMS
I would like to reinforce the complaints which have been made as to the unintelligibility of this Clause. A good deal of it arises from the fact that in Acts of Parliament we have very long sentences instead of short sentences. I believe that when sentences are broken up, what was unintelligible becomes intelligible. But the real proof of the unintelligibility of the Clause was found in the Debate last night on this and the preceding Clause, which occupied about three hours and in which practically every speech was read, although the Standing Orders say that they should not be read. Those speeches included all those made from the Treasury Bench, because neither Ministers nor Members could make speeches on this subject without elaborately prepared briefs. I gather that the Chancellor of the Exchequer dissents from that statement. At any rate, the original reply which a Minister gave us was read, and subsequently he did the best he could. I am not blaming him. The sad thing is that we have to have a Clause like this at all.
I knew nothing about this method until a year ago. Let there not be any misunderstanding. It is not only Conservative Members who have had to do with these settlements, but Members of the Labour party as well. [HON. MEM-BEES: "Name."] It would not be proper to name any hon. Member, but I know Members of the Labour party who have made these settlements. As I say, I knew nothing about it until a year 841 ago, and it then seemed a good idea, so I started in. Those happy times have come to an end. To be serious about it, however, why do people enter into this kind of settlement? Obviously because taxation is so unreasonably high. If it were on a reasonable level, we should not have people trying to indulge in these efforts, not to evade taxation, but to avoid it. There is all the difference in the world between the two. You are entitled to arrange your affairs so that you pay the minimum amount. There is not one hon. Member opposite who, in his daily transactions, does not try to arrange them so that he gets the maximum value for every penny that he spends. It is perfectly honourable and legitimate to find out what the law is on any subject and then to arrange your affairs so as to get the maximum benefit.
There is no impropriety in that. But I knew, when I signed one of these documents a year ago, what would happen. I said to myself, "I wonder how long this will last." I knew that some Chancellor of the Exchequer was bound to stop a -device of this kind, which ultimately was involving him in a loss of several millions a year, otherwise everybody else in due course would have joined in and thus have reduced to a complete absurdity the proposal that the allowance in respect of a child was to be £60. In common with a great many other hon. Members, I shall lose when this becomes law, but I think we are in duty bound to vote for it, because obviously, although what we were doing was proper, it was nevertheless destroying the original purpose of the scheme of allowances and the rest of it. My point is, however, that people would not attempt to do these things if we pursued in this country a more moderate policy in regard to expenditure. It is the intolerable burden of expenditure, leading in turn to an intolerable burden of taxation, that forces the hands of people to try and adopt methods which are intended to avoid burdens imposed by Parliament. I hope that the lesson of this Clause will be borne in mind in inducing Members not to be so willing to support extravagant propositions in the future.
§ 4.41 p.m.
§ Mr. TINKER
It has been pointed out by the hon. Member for South Croydon (Mr. H. G. Williams) that he understood 842 that several Members of the Labour party had made use of this method of tax avoidance. That might be so, but behind the objection of hon. Members opposite is not so much a feeling against the unintelligible appearance of the Clause as the fact that the Chancellor of the Exchequer has attempted to do something to make an inroad on their incomes, and that a large number of them will have to find more money for taxation than they have found in the past. Behind all their arguments is this thought, that certain concessions ought to be made. They say that they agree that this evasion ought to be stopped, but that all those who have taken advantage of the position hitherto should be allowed now to go free, that all those who have signed these agreements should not be penalised. At any rate, that is what I understand they are trying to get from the right hon. Gentleman. All of them seem to agree that this evasion wanted blocking some time ago, but one by one they have been taking advantage of it because the law allowed it.
I wanted to think that many of them were really anxious that this Clause should foe intelligible, so that everybody could understand it, but I am not now altogether satisfied on that point. The hon. Member for Finchley (Mr. Crowder) was against the unintelligibility of the Clause, but he wanted the Chancellor to allow that those agreements that had been made in the past should not be interfered with. I listened very carefully to what he said, and behind it all was that point of view, that all those who had entered into these agreements should not be interfered with. It is evident that many hon. Members opposite have been making use of the position and trying to evade what I think are their responsibilities. Surely giving so much money to your children out of your income that would never have been given if you had not to pay tax on it means that you attempted to evade taxation. If the Chancellor of the Exchequer had not attempted to block this kind of thing, practically all their money would have been given to their children in this way, and there would have been nothing left for the Chancellor, until probably later on some of those children would not have been true to their parents and would have got away with it, as a lot did over the death duties. The same thing happened 843 there. Many people made allocations to their children, and it was found out afterwards that the children were not responsive to it, and people lost their money on it, which closed that kind of thing.
I am very pleased that the Chancellor of the Exchequer has seen his way to checking these inroads that have been made on what ought to have been legitimate taxation, and I trust that when it comes to reviewing Clause 19, he will treat the Members of his own party in the same hard-hearted way as he has treated us on these benches. We asked yesterday for a small concession which would have cost £100,000. On this point I do not think one hon. Member on this side will benefit. I want to rouse the hon. Member opposite to retort and to give us some names. I would urge the Chancellor of the Exchequer to be as flint-hearted towards his own people as he has been towards us. If so, he can depend on our support on Clause 19 when it comes up for review again.
§ 4.45 p.m.
I should like to make a reference to the speech of the hon. Member for Leigh (Mr. Tinker). No one wants to make a revocable settlement irrevocable, but what we want to avoid is that a settlement which was intended to be and was an irrevocable settlement should be made into a revocable settlement by the terms of this Clause. There are cases in which a settlement in fact and in law was irrevocable, but it might be turned into a revocable settlement under the Clause. I should like to put a question with regard to what is known as the educational policy. It is a very common form of settlement to provide for the education of a child and to pay a premium until the child attains school age. After that time for a certain number of years an income is paid for the education of the child. The income goes to the benefit of the child and not to the benefit of the parent, but there is a provision in a great many of these policies that if the child dies before attaining school age and before the insurance payment starts, the premiums, or part of the premiums, are returned to the insurer. Therefore, there is some return to the insurer. I suggest that this is a very proper and useful form of providing for the education of a child. I do not 844 expect an answer from the Financial Secretary now, but perhaps he will consider the matter?
§ 4.47 p.m.
§ Mr. CHARLES WILLIAMS
One remembers the hearty approval with winch the Chancellor of the Exchequer was greeted when he brought in this Clause for the purpose of endeavouring to protect the revenue, but many people have since declared that the Clause is so complicated that there is nothing clear about it. I am convinced that there are at least two things perfectly clear in the Clause. The first is that it is so complicated in its wording that it will be even more complicated when it comes into operation, and the average taxpayer will have to pay a great deal more than usual in order that he may be perfectly certain that he is paying his right proportion of taxation. When taxation is being made so complicated, and is being made still more complicated by this Clause, we are adding a very definite burden in the cost of fees for many people who can ill afford the expense.
The Clause completely changes the incidence of taxation in many cases. Apparently, ven very few lawyers can understand it. When we have a position such as that, it must inevitably mean that there will be a very great number of cases of litigation. I do not know whether those interested in the law courts have yet asked the Chancellor of the Exchequer to celebrate the increase of fees which will follow the adoption of this Clause, but it is certainly hard on the taxpayer to have to face this kind of thing. The House of Commons was instituted primarily for the purpose of protecting the taxpayer, and I am sure the Chancellor of the Exchequer wishes to maintain the traditions of the House. One of the disadvantages of the present time is that there is not an Opposition strong enough and capable enough to enforce upon the Government the necessity of putting their Acts into the clearest possible words, and words that can be understood. There are methods of Opposition under which it would be possible to compel the Government to do that. I think that I should be capable of doing it, but it is not my job.
§ Mr. WILLIAMS
That is the hon. Member's opinion, but it would not apply to those of us who have seen other Oppositions working and have seen them able to do what I suggest. From the point of view of the taxpayer, something should be done between now and the Report stage to make the Clause simple and clear. It can be done and it should be done. After the protests that have been made by many supporters of the Government, all of whom have unanimously supported the Chancellor of the Exchequer in his wish for fairness, I think my right hon. Friend ought to do his best—it could be done by the Treasury, if they wished—to make the Clause simple and clear, so that an unnecessary burden will not be placed on the taxpayer by having to interpret the Clause.
§ 4.52 p.m.
§ Sir JOHN WITHERS
I rise to add my protest against the Clause. It is the most complicated Clause that I have ever had to deal with. I have had to deal with settlements of various kinds for the last 45 years, and I have taken this Clause home and tried to read it and understand it but I have entirely failed. I sent it to the very best Counsel at the Bar and have received several letters from them to say that it is totally unintelligible. That opinion is from the best Counsel at the Chancery Bar. If that be so, what will happen when the Clause comes into operation and these matters come up for interpretation in the courts? I hope and pray that the Chancellor of the Exchequer will put the Clause into some order, and let us know in simple language what it really means, what it covers and what it does not cover.
The ordinary legal practitioner absolutely fails to discover what it means. There has been a Committee of the Law Society studying it. This morning I spoke to a leading member of the Committee and I was told that they are thoroughly puzzled by it. They have made some criticisms on several points, which they have sent to the Chancellor of the Exchequer, and they have given me a copy of their criticisms. There are innumerable other points. It is a hardship that the ordinary man in the street who wants to obey the law should not know what it is. The law ought to be 846 made clear. I do not know what the Clause means or whether it means anything in some parts. If it does mean anything, it ought to be put in simple language, so that we may know what we can do and what we cannot do. The Chancellor of the Exchequer has a clear mind and the Financial Secretary has a clear mind and I would ask them to apply their minds to this Clause and to put it into ordinary, simple language that people can understand.
§ 4.55 p.m.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. W. S. Morrison)
There have been a number of criticisms directed against the language of the Clause because of its so-called obscurity. I do not deny that the language used is of a highly technical character in some of its parts, but that to some extent is unavoidable because the Clause deals with trusts, dispositions and settlements. The hon. Member for Cambridge University (Sir J. Withers), whose experience of trusts and settlements is very large, will recollect that the language of the trusts and settlements is not as pellucid as the language which he has been urging us to adopt. Let me say a few words about the so-called legislation by reference, and the technical language. Clarity is a very desirable thing but certainty of meaning is equally desirable. The hon. Member for Twickenham (Mr. Keeling) suggested one reason which led Governments to indulge in legislation by reference. May I suggest another, and that is that where you are introducing legislation which impinges upon a body of law which has been the subject of judicial interpretation, it is well to preserve certain phrases which have acquired through the ages a definite meaning as terms of art, and there is no doubt as to their legal interpretation? If you do sometimes lose in clarity by adopting these terms of art, you do gain in certainty. I would ask hon. Members to accept that assurance.
The hon. Member for Gravesend (Mr. Albery) spoke of going to a solicitor and asking for a will to be prepared, and finding out afterwards that the will bears the common mark of unintelligibility. He said that if you go again to the solicitor and ask him to put it into simple language, he does so. I should not like to cause any anxiety to the hon. Member for Gravesend, but I should not be so 847 certain that the simple version would stand a close analysis. Take the case of the Workmen's Compensation Act, which in certain of its provisions is drafted so as to be intelligible to the workman. It refers to a man being injured by an accident "arising out of or in the course of his employment." That term to the ordinary man would appear as crystal clear as the day, but there are very few words which in use have led to so much expensive litigation. I would ask hon. Members to bear in mind that the use of words which have a special meaning is often a real safeguard against litigation, and to offset that advantage against the loss of clarity to the lay mind.
My right hon. Friend has given an assurance that in so far as that part of the Clause which appears to be obscure, is concerned, namely, Sub-section (7), he is willing to consider between now and the Report stage what can be done to deal with it. The hon. Member for Graves-end asked for an assurance that we would put down these Amendments as early as possible—within the next three or four days. I am not sufficiently aware of the time-table to be able to give a definite assurance with regard to the date, but we shall put down the Amendments at the earliest possible moment so that they will be before the House for the longest possible period.
§ Mr. PETHICK-LAWRENCE
May I ask that the Clause should be treated in some way or other in the new form in which it is to be, so that we can see the Clause as a whole?
§ Mr. MORRISON
I cannot give an assurance at the moment. It will depend, naturally, upon the size and importance of the alterations in the structure of the Clause, but at present I should not think that such a course would be necessary. The criticism has centred round Subsection (7), which defines the irrevocable trust, and it is particularly in that region that reconstruction will take place. I do not think that it will be necessary to adopt the hon. Gentleman's suggestion, but it will be borne in mind, and if we consider that it is for the convenience of the Committee and is necessary, we shall do it. The discussion was originated by the request of the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) that I should attempt to elucidate Subsection (4). My hon. Friend the Member 848 for Twickenham (Mr. Keeling) quoted a passage from Mr. Justice Rowlatt in which he complained that the people were being taxed by Statutes whose language they could not comprehend. That criticism does not apply to this particular Sub-section because it is not a Sub-section which taxes people at all. It is, in fact, nothing new, but merely the perpetuation of a piece of machinery which has been in existence ever since 1922.
Section 20 of the Act of 1922, which is referred to in the Sub-section, is the key to its meaning. That particular Section was one which had considerable effect, in that it caused to be deemed as the income of the settlor, the income which was paid to certain trusts of a revocable character. That Section said that a certain income which hitherto had been supposed to be the income of the child should be considered the income of the settlor, but it provided for this sort of contingency arising, that if a man had paid Income Tax on the assumption that the income was to be for his children or vice versa, those who had paid the tax should recover the amount of Income Tax paid from the person who had actually received the income.
If hon. Members will read the Subsection they will see that it merely applies the machinery provision of Section 20 of the Act of 1922 to the present Clause. It does the same sort of thing, but to a greater extent. A larger range of income supposed to be the income of the child is now deemed to be the income of the settlor. If a parent has to pay additional tax by virtue of the Clause on the child's income, he can recover the amount of the additional tax from the trustee or other person to whom the income has been paid. Subsection (3) of this Section of the Act of 1920 dealt with the converse position where by reason of this change a man might be able to recover more in the way of relief than he otherwise would, and then that excess relief should go back to the child. That is the very ordinary machinery of the provision which is designed to prevent a man or a trust paying Income- Tax when they are not getting the income. With that explanation of this somewhat complicated sounding Clause I hope that the Committee will allow it to be passed. It is one which has been criticised, but I have found a perfectly genuine desire in all 849 sections of the Committee to stop the evasive side of these trusts, and hon. Members who have brought forward suggestions have done so with an equally keen desire that an innocent and proper trust should be protected. I have learned a great deal in the discussion, taken part in by hon. Members in all parts of the Committee, and I hope that the Committee will now let us have the Clause.
§ Mr. KEELING
Will the hon. and learned Gentleman give an assurance that the suggestion which I made, that the Standing Orders should be altered so as to mitigate the evils of legislation by reference will receive the consideration of the Government?
§ 5.7 p.m.
§ Mr. LEWIS
I wish to emphasise the request of my hon. Friend the Member for Gravesend (Mr. Albery), that we should have reasonable notice of Government Amendments on this Clause on the Report stage. The Financial Secretary, although he could not give any undertaking at the time, indicated that they would be put down as soon as possible. I suggest to the Chancellor of the Exchequer that it might be well if he could have a conversation with the Chief Patronage Secretary on the decision as to the period of time. It is unfair to private Members of the House for the Government to put down Amendments to so complicated a Clause, unless the Government give reasonable time to consider them before the Debate. I suggest seriously to the Chancellor of the Exchequer that, if he wishes this Clause to have a sympathetic and reasonably quick passage on the Report stage, it is essential that he should give the House reasonable time to consider his Amendments.