NEW SCHEDULE.—(Adaptations of Income Tax provisions as to computation of profits.) (Hansard, 7 July 1937)

HC Deb 07 July 1937 vol 326 cc443-525 443

§ 1. The profits shall be taken to be the actual profits arising in the chargeable accounting period, and the principles of computing profits by reference to any other period and, save as provided in the next following paragraph, of allowing losses sustained in any other period to be carried forward, shall not be followed.

444

§ 2.—(1) Where a person carrying on a trade or business either solely or in partnership has, before the beginning of the first of the relevant accounting periods, sustained a loss (as computed for income tax purposes) in the trade or business, he may claim that so much of that loss shall be carried forward and deducted from or set off against the profits arising from the trade or business in any of the relevant accounting periods as could, under section thirty-three of the Finance Act, 1926, as amended by section nineteen of the Finance Act, 1932, be carried forward and deducted from or set off against the assessable income profits of the trade or business for the year of assessment corresponding to that accounting period:

§ Provided that, in ascertaining the amount (if any) that could be so carried forward and deducted from or set off against assessable income tax profits for a year of assessment corresponding to an accounting period—

(a) the amount of the assessable income tax profits for that year shall be taken to be equal to the amount of the profits arising in that accounting period (computed in like manner as profits arising in a chargeable accounting period are computed for 445 the purpose of the national defence contribution but before making any deduction for wear and tear under the next following paragraph);
(b) the amount of the assessable income tax profits for any previous year of assessment corresponding to a previous relevant accounting period shall be taken to be equal to the amount of the profits (computed as aforesaid) arising in that previous accounting period; and
(c) the amount of the deduction (if any) to be made from the assessable income tax profits under Rule 6 of the Rules applicable to Cases I and II of Schedule D for any year of assessment corresponding to a relevant accounting period shall be taken to be equal to the amount which, under the provisions of sub-paragraph (1) of the next following paragraph, falls to be deducted in computing the amount of the profits arising in that accounting period.

§ (2) Where a person carrying on a trade or business either solely or in partnership has, in any relevant accounting period, sustained a loss in the trade or business (to be computed in like manner as profits arising in a chargeable accounting period are computed for the purpose of the national defence contribution) he may claim that that loss shall be carried forward and, as far as may be, deducted from or set off against the profits arising from the trade or business in the next relevant accounting period and, if and so far as it exceeds the profits so arising in that period, against the profits so arising in the next such period, and so on.

§ In the application of this sub-paragraph to a loss sustained by a partner in a partnership, references to losses or profits shall be construed as references to that partner's share in those losses or profits.

§ (3) For the purpose of this paragraph—

(a) the expression "assessable Income Tax profits" in relation to any year of assessment means the profits or gains of the trade or business assessable to Income Tax under Schedule D for that year;
(b) the expression "relevant accounting period" means any accounting period falling wholly or partly within the five years beginning on the sixth day of April, nineteen hundred and thirty-seven;
(c) the year of assessment following that in which an accounting period ends shall be deemed to correspond to that accounting period.

§ 3.—(1) There may be deducted in respect of any accounting period a sum (ascertained on the like basis as the amount of a deduction for wear and tear is ascertained under Rule 6 of the Rules applicable to Cases 1 and II of Schedule D) which represents the diminution in value by reason of wear and tear during that period of any plant or machinery in respect of which a deduction could be made under the said Rule 6, plus ten per cent. of that sum.

§ (2) Without prejudice to the foregoing provisions of this paragraph. there may, in the case of the first chargeable accounting period, be deducted any sum which, under paragraph

446

§ (3) of the said Rule 6 falls to he added to the amount of the deduction for wear and tear to be made under that Rule in charging the profits or gains of the trade or business to Income Tax for the year 1937–1938:

§ Provided that if the amount of the deduction falling to be made under this subparagraph exceeds the amount of profits arising from the trade or business in the first chargeable accounting period, the excess shall, in lieu of being deducted in that chargeable accounting period, be deducted in the second chargeable accounting period if and in so far as there are profits arising in that period, and so on.

§ 4. The principles of the Income Tax Acts under which deductions are not allowed for interest, annuities, or other annual payments payable out of the profits, or for royalties, or (in certain cases) for rent, and under which the annual value of lands, tenements, hereditaments or heritages occupied for the purpose of a trade or business is excluded, and under which a deduction may be allowed in respect of such annual value, shall not be followed:

§ Provided that nothing in this paragraph shall authorise any deduction in respect of—

(a) any payment of dividend or distribution of profits; or
(b) any interest, annuity or other annual payment paid to any person carrying on the trade or business, or any royalty or rent so paid;

and, for the purpose of paragraph (b) of this proviso, where the trade or business is carried on by a company the directors whereof have a controlling interest therein, the directors shall he deemed to be carrying on the trade or business.

§ 5. Income received from investments or other property shall he included in the profits in the cases and to the extent provided in this paragraph, and not otherwise—

(a) in the case of the business of a building society, or a banking business, assurance business or business consisting wholly or mainly in the dealing in or holding of investments or other property, the profits shall include all income received from investments or other property except—

(i) income received directly or indirectly by way of dividend or distribution of profits from a body corporate carrying on a trade or business to which the section of this Act charging the national defence contribution applies; and
(ii) income to which the persons carrying on the trade or business are not beneficially entitled;

(b) in the case of any other trade or business, being a trade or business carried on by a body corporate, the profits shall include all income received by way of dividend or distribution of profits from any other body corporate in which the first-mentioned body corporate has a controlling interest and which is not liable to be assessed to the national defence contribution:

§ Provided that the profits of a body corporate which has a controlling interest in, 447 and directs or is entitled to direct the management of, any other body corporate, being statutory undertakers, shall not in any case include any income received by way of dividend or distribution of profits from those undertakers.

§ 6. Subject to the provisions of the last foregoing paragraph, the profits shall include all such income arising from the trade or business as is chargeable to income tax under Case I of Schedule D, or would be so chargeable if the profits of the trade or business were chargeable under that Case, except income which is, or would be, exempted from income tax by virtue of section thirty-nine of the Income Tax Act, 1918, or section thirty of the Finance Act, 1921.

§ 7. No deduction shall be made on account of liability to pay or the payment of income tax or the national defence contribution.

§ 8. No deduction shall be made in respect of any transaction or operation of any nature if and so far as it appears that the transaction or operation has artificially reduced the profits or created or increased a loss or would artificially reduce the profits or create or increase a loss.

§ 9. In the case of a trade or business carried on in any chargeable accounting period by a company the directors whereof have a controlling interest therein, the deduction to be allowed in respect of the remuneration of the directors shall not exceed fifteen per cent. of the profits arising from the trade or business in that period (computed before making any deduction in respect of the remuneration of the directors), or fifteen hundred pounds, whichever is the greater, so, however, that the deduction shall in no case exceed fifteen thousand pounds:

§ Provided that in relation to a chargeable accounting period of less than twelve months any reference in this paragraph to fifteen hundred pounds or fifteen thousand pounds shall be construed as a reference to a sum which bears the same proportion to fifteen hundred pounds or fifteen thousand pounds, as the case may be, as the length of the period bears to twelve months.

§ 10. For the purpose of the foregoing provisions of this Schedule—

(a) the expression "company" means a company within the meaning of the Companies Act, 1929, or the Companies Act (Northern Ireland), 1932;
(b) the expression "director" has the same meaning as in Section one hundred and forty-four of the Companies Act, 1929, except that it includes any person who—

(i) is a manager of the company or otherwise concerned in the management of the trade or business; and
(ii) is remunerated out of the funds of the trade or business; and
(iii) is the beneficial owner of not less than twenty per cent. of the ordinary share capital of the company;

and, for the purpose of sub-paragraph (b) of this paragraph the expression "ordinary share capital" means all the issued share capital (by whatever name called) of the company, 448 other than capital the holders whereof have a right to a dividend at a fixed rate, or a rate fluctuating in accordance with the standard rate of Income Tax, but have no other right to share in the profits of the company.

§ 11. Where the performance of a contract extends beyond the chargeable accounting period, there shall (unless the Commissioners of Inland Revenue owing to any special circumstances otherwise direct) be attributed to that period such proportion of the entire profit or loss which has resulted, or which it is estimated will result, from the complete performance of the contract as is properly attributable to that period, having regard to the extent to which the contract was performed in that period.—[Sir J. Simon.]

§ Brought up, and read the First time.

§ 8.12 p.m.

§ Sir J. Simon
I beg to move, "That the Schedule be read a Second time"

§ 8.13 p.m.

Mr. Alexander
I understood that on the first day that the Committee dealt with the National Defence Contribution there was an arrangement for a general discussion, but I did not understand that the arrangement was such as to preclude the right hon. Gentleman from making any explanation of the Schedule. I am not quite sure what the arrangement was, but in view of the very great importance of the Schedule and the fact that there are some Amendments to it on the Paper, on which we might like to have the Chancellor's views in advance, will the right hon. Gentleman be good enough to say a few words on the subject?

§ 8.14 p.m.

§ Sir J. Simon
I am sure that neither the right hon. Gentleman nor I wish in any way that the Committee should go beyond the general understanding. I think the understanding was that we should discuss the scheme of the tax as a whole and that when each of its compartments came along, such as this one, we would not have a separate discussion. I think I appreciate the sort of point which the right hon. Gentleman wishes to make, and for which I shall watch. There is, for instance, an Amendment at the bottom of page 1662, in the name of the hon. Member for Twickenham (Mr. Keeling) and other hon. Members—in line 91, leave out "the business of a building society or" —and there is an Amendment before that, in the name of the right hon. Gentleman himself, which raises the question as to whether industrial and provident societies should be specially treated under this scheme or not. 449 If that is the point which the right hon. Gentleman has in mind I had intended to make a statement in reference to it on the Amendment, but I am prepared to fall in with any arrangement which seems good to the Committee.
For the rest, I agree that the Schedule presents a formidable appearance, but hon. Members will recognise that it deals with a very complicated subject and was a very difficult piece of draftsmanship. As hon. Members are, no doubt, aware, in connection with Income Tax several different methods of computation present themselves. For example, generally speaking the Income Tax authorities look at the figures of the previous year when they are fixing the tax for the current year. In this case I did not want to adopt that method. Again, Income Tax practice requires that you should deal with the 12 months and not with the accounting period. That involves a long and elaborate adjustment and it is in that connection that the provisions in the Schedule have had to be carefully drawn so as to allow both for losses and for wear and tear. The effect of it is that as in the case of Income Tax unabsorbed wear and tear is allowed to be set off, however ancient it may be and, as far as losses are concerned, just as in the ca se of Income Tax, you may go back for six years. That is the general scheme, but I think the point which the right hon. Gentleman opposite and no doubt some of his hon. Friends would like to raise can, most conveniently, be raised on his Amendment, and I certainly would put no obstacle in the way of it being considered then.

§ 8.18 p.m.

§ Mr. Barnes
Do I understand from the right hon. Gentleman that if there is no general Debate on the Second Reading of the proposed Schedule, it will be possible to discuss the question of industrial and provident societies and also the question of building societies on the Amendment to which he refers?

The Deputy-Chairman
Perhaps we had better deal with that point when we come to the Amendment in question. I am prepared to hear any reason in favour of discussing the two matters to which the hon. Member referred when we reach that point, but it was my intention to call the Amendment standing in the name of the right hon. Gentleman the Member for 450 Hillsborough (Mr. Alexander) in regard to societies registered under the Industrial and Provident Societies Acts.

§ Mr. Barnes
I wish to know whether it will not be possible to include a discussion on building societies in the discussion on the other societies? There is considerable interest in the Committee in this question, owing to certain statements which have appeared in the Press to-day, and I am sure no one would wish that discussion in reference to the building societies should be ruled out. There is a separate Amendment relating to them in the name of another hon. Member and I think it would be convenient, as there is some similarity between the two cases, that the two Amendments should be taken together.

§ Sir J. Simon
If I may make a suggestion—though this is a matter more for the Chair than for me—when we come to the Amendment in the name of the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) about the co-operative societies, I shall be ready, if it is the desire of the Committee and if you, Captain Bourne, think proper, to make a short statement as to what I have in mind about building societies. May I also say that, having looked up the matter, I find that our agreement in the previous discussion was not limited to the new Clauses of the Bill but included also the new Schedules? On that occasion the Chairman said that he had expressly mentioned the new Schedules because they were as important a part of the machinery of the tax as the new Clause.

§ 8.21 p.m.

§ Mr. Boothby
I beg to move, as an Amendment to the proposed Schedule, in line 45, at the end, to insert: The contribution payable for all relevant accounting periods shall not exceed the amount which would have been paid had the total profits accrued evenly over such periods. I move this Amendment for the purpose of remedying an inequality which, it seems to me, exists under this Schedule. In paragraph 2 it is provided that in this computation, the losses in any accounting period shall be carried forward and set against the profits in the subsequent relevant accounting periods. In the Debate of 21st June last the Chancellor of the Ex- 451 chequer said the Income Tax scheme permitted the carrying forward but not backward of losses. I submit that a serious inequality may arise out of this provision. This is a tax for five years. There are five relevant accounting periods. I give one illustration and leave the Committee to judge of the possible results. Take Company A and Company B, each of which has made a profit of £60,000 during the five relevant accounting periods with which we are concerned. But Company A has made a loss of £50,000 in the first two accounting periods and has subsequently made that up by profits of £20,000, £40,000 and £50,000 respectively in the last three periods. That company will only be required to pay £3,000 in National Defence Contribution.
On the other hand, Company B starts off well and in the first three relevant accounting periods makes profits of £40,000, £50,000, and £20,000 respectively. Then it runs into a slump and suffers losses of £20,000 and £30,000 in the last two relevant accounting periods respectively. But that company will have to pay £5,500 to the National Defence Contribution. I cannot see that such an arrangement is fair. We cannot assume that it is inevitable that there will be a boom at the beginning or a slump at the end of the five-year period, or vice versa. We may be going into a slump—two or three weeks ago many people thought we were. I do not think that my right hon. Friend the Chancellor can justify, in this case, not having a "backwardation" as well as a "forwardation" of losses in this computation, simply on the ground that these companies are going to start badly and end well. We all hope that will be the case, but it will not necessarily be so. It may be that in the last two relevant accounting periods many companies will run into losses. The Amendment is designed to remedy the inequality I have indicated and to put both companies, in such a case as I have described on an equal footing. I hope I have made my point, which is a very complicated one, clear to the Committee.

§ 8.25 p.m.

§ Sir J. Simon
My hon. Friend has made the point, I think, plain to everybody in the Committee, and it is indeed an important point, but as things go it is a fairly simple one. It is just this: Here 452 is a tax intended to be assessed and to be paid annually, year after year, though we are providing that it shall extend over a limited period of five years. We are providing that in arriving at the right amount on which the tax is to be paid, we are to allow deductions in respect of past losses, even losses before the date when the tax begins. The question now is whether we shall also allow in effect deductions in respect of losses after the year in which there has been tax paid on a profit. This is not a new suggestion. It happened in the days of the old Excess Profits Duty. I think it is true to say—I do not wish to charge my memory unduly—but I think it was contemplated in the first form of the National Defence Contribution itself. At any rate, it is not contemplated now. The scheme of this tax is that you should apply the calculation here on the lines of the Income Tax and ascertain, in respect to the first accounting period, whether there is any tax to pay, and, if so. it is to be paid; and the same with regard to the second and third accounting periods. You allow losses even though those losses have arisen before the National Defence Contribution begins, but you could not both allow the taxpayer to get off what would otherwise be his tax, let us say, in the first accounting period because of previous losses, and also allow him later on, because of subsequent losses, to get off this tax then. He cannot have it both ways. You can imagine a case where a man in the year escapes Income Tax because he has previously borne a loss, and in the year 2 he is able to avoid tax because he has not yet exhausted his loss and in the year 3 the business begins to pay and he starts to pay tax. After his return to prosperity, however, the man in his last two or three years make losses. But he will not be entitled, and his executors will not be entitled, to say, "My man has paid too much and you must give him something back." This tax must be dealt with year by year.

§ Mr. Boothby
In view of the right hon. Gentleman's explanation, which seems to me to be very clear and adequate, I ask leave to withdraw my Amendment.

§ Amendment, by leave, withdrawn.

§ 8.30 p.m.

Mr. Alexander
I beg to move, as an Amendment to the proposed Schedule, in line 87, at the end, to insert: 453 Provided also that in the case of a society registered under the Industrial and Provident Societies Acts, 1893 to 1928, the provisions of sub-section (4) of Section 32 of the Finance Act, 1933, shall apply. I was very interested to note in the speech which the Chancellor of the Exchequer has just delivered in reply to the last Amendment that he referred to the fact that the National Defence Contribution in its new form is based upon the principle of the Income Tax. I think it is true to say that the Amendment which I am moving is true to the principles of the Income Tax. We have already, from this side of the Committee, stated our profound objections to mutual surpluses which are not profits being assessed at all in respect to this tax. But now that we come to the Schedule, having disposed, unfortunately to our defeat, of that point, we are entitled to argue, and I think to argue with force, that if industrial and provident societies are to be included within the ambit of National Defence Contribution, the Government should be true to their own statement with regard to the structure of the tax and see to it that, as far as these industrial and provident societies are concerned, they are not treated outside the principles of the Income Tax under which they are assessed to that tax. The effect of the Sub-section of the Act of 1933 to which I have referred will be seen, if I read Sub-section (4), paragraph (a), where it says: 'A registered society is entitled to have the amount of Income Tax which, but for any relief under this paragraph, it would be liable ultimately to bear for any year of assessment, reduced by a sum representing tax on the amount of share interest or loan interest paid in that year by the society without deduction of tax in accordance with the aforesaid provisions of this Section. That secured to the industrial and provident societies at the time when the Government brought these societies within a general assessment to Income Tax that, as they were not permitted—it was not their request; it was the Government's orders—to deduct tax from the interest paid on the shares of their members, they were to be allowed a deduction from their then computation of the amount paid out in share interest, and I take it that the Government at that time settled in their own minds not only that that was to the advantage of the Board of Inland Revenue, but that it was also a recogni- 454 tion that that advantage to the Board of Inland Revenue was based upon the fact that the majority of the members of the industrial and provident societies then to be assessed were below the taxable limit. I take it also that the Government, in coming to that arrangement, settled in their own mind—and I want the Chancelor to listen to this, if he will—

§ Sir J. Simon
I am very interested.

Mr. Alexander
I take it that the Government settled in their own mind that the provisions of Section 32, Subsection (4), were, in their view, just, not only in relation to the members of the co-operative societies, but in relation to the rest of the taxable community; and if this tax is now to be paid, as the Chancellor has just stated, on the principles of the Income Tax, we are not asking anything extraordinary, and we are not asking anything unjust—in fact, we are only asking for a redemption of the principle settled by the Chancellor of the Exchequer of the day in 1933 and, secondly, for a redemption of the pledge that this tax would be based on Income Tax principles—when we ask that these societies shall be allowed to claim the benefit of what the National Government in 1933 said they should be allowed to claim in dealing with Income Tax.
I pass now to my next point. After listening to the various Debates, it is abundantly clear that the effect of the Chancellor's new proposal will be that no company taxed upon its profits for National Defence Contribution will in any circumstances be called upon to pay a larger sum than 20 per cent. of the standard rate of Income Tax for which it is assessed. May I put it this way, that if a company is assessed at 5s. in the £ on a net computation of £100,000, it will pay £25,000 in tax? On that basis the same company on the same computation—arrived at, of course, before the amount of Income Tax is assessed and paid—will, for the purpose of National Defence Contribution, pay £5,000, that is, 20 per cent. of the amount to be paid in Income Tax. When we examine the incidence of this tax on co-operative societies registered under the Industrial and Provident Societies Acts, a different picture presents itself. If we are not able to secure the Amendment for which we are asking, and which will provide that we shall be allowed, as 455 in the case of Income Tax, to charge our share interest against the net computations for tax, we shall have a larger field of taxation brought into assessment for National Defence Contribution than, is allowed to be brought into computation for Income Tax. That is an absolute denial of the pledge of the Chancellor that this tax is based upon the principles of Income Tax.
Suppose we substitute for a company an industrial and provident co-operative society, and suppose again that the net sum to be assessed for Income Tax is £100,000, the tax upon which for Income Tax is £25,000. On the average, from the computation that we have worked out, if we are not allowed the deduction of share interest for which we are asking in this Amendment, instead of our National Defence Contribution being, as in the case of a company, £5,000, it will be nearer £9,000. In other words, instead of paying 20 per cent. of the standard rate of Income Tax as our National Defence Contribution, we shall pay about 35 per cent.—and that in spite of the fact that the very arrangement which the Government entered into in 1933 in regard to industrial and provident societies is proof positive that they recognised that the majority of the shareholders of those societies are below the taxable limit. I say that that is an injustice that ought not to be tolerated. The answer which the Chancellor made to arguments which I and my hon. Friends put up on this question at an earlier stage of the Finance Bill did not satisfy me at all. They certainly brought my societies no relief. In view of the fact that, as my hon. Friend the Member for South East Ham (Mr. Barnes) has mentioned this evening, there appeared in the Press this morning a notice that it is hoped that there will be a concession by the Chancellor to building societies, I hope that the arguments which we are now addressing to the Chancellor may have a more sympathetic and effective hearing than they had when we were speaking in an earlier part of these Debates.
I want to stress that those of us who are pleading for this elementary piece of justice to industrial and provident societies have no desire to try and prevent the Chancellor from giving equal 456 justice to those people who have also had their Income Tax basis settled in the past and who are in the building societies. We have no desire to prevent it; rather we want to see that whatever piece of justice is due to the non-taxable members of the building societies, shall be rendered to them by the Chancellor; but when one comes to the merits of the industrial and provident societies' case, I want to submit that they are just about equal to those of the building societies. I want the right hon. Gentleman to address his mind to the points in which our case resembles so closely the case of the building societies. Let us first look at the nature of the share capital for which we are asking for treatment in National Defence Contribution computation on the same basis as for Income Tax under the 1933 Act. What, after all, is the share capital of industrial and provident societies? It is in no sense the limited fixed share capital that we get in the case of a registered company under the Companies Act. It is not of the nature of a company's shares which go on for ever until the company is liquidated or there is some special order of the Court. The shares of industrial and provident societies are contributed to day by day and week by week, as well as by the more or less fortuitous savings affected by the co-operators in their mutual trading. They are all withdrawable, some at short notice, some upon demand. A very large proportion of the share capital of industrial and provident societies is available to the poorest of the poor by their simply walking into the secretary's office and saying, "I want some money." If there is any case at all for the treatment of building societies on a special basis in that regard, there is 100 per cent. the same case for the treatment of the share capital of the industrial and provident societies.

The Deputy-Chairman
I realise that it is difficult for the right hon. Gentleman to keep separate his Amendment and the Amendment in the name of the hon. Member for Twickenham (Mr. Keeling) in line 91, to leave out "the business of a building society or." The positions are not the same, but, roughly speaking, both of them under the Income Tax law have certain exemptions by which they pay less Income Tax than a company. I think that it is going to be difficult to 457 keep this discussion free from a discussion on building societies, and I suggest that the Committee might take a general discussion on the two Amendments.

§ Sir J. Simon
I shall be ready to do that if it is desired. I would only utter a word of warning that I do not take the view that the situations of the cooperative societies and that of the building societies correspond, but that is a matter which we shah have to discuss.

§ Mr. Holdsworth
I submit that we should take them separately. I agree that there is a similarity, but there is also a difference, because building societies work under an Act of their own.

The Deputy-Chairman
If the Committee wish to tike them separately, I have no option but to follow the Committee, but it will be difficult for the right hon. Gentleman to carry on his argument if we say that building societies should not be mentioned on his Amendment.

§ 8.45 P.m.

§ Mr. Barnes
Further to that point of Order. I was rather under the impression that we had largely settled this difficulty by an understanding on all sides of the Committee that on this Amendment the Chancellor would make a statement which would inform the Committee of the terms he proposed for building societies and that the Chair would not adopt too rigid an attitude regarding references to the Chancellor's statement.

§ Mr. Holdsworth
I do not press my opposition. I am quite willing to fall in with the suggestion, but I still submit that there is a difference as far as the Act is concerned.

The Deputy-Chairman
The hon. Member will not be precluded from raising a point which is under the Act dealing with building societies. All I am anxious to do is to secure that we should not have overlapping discussions and the arguments repeated on the Amendment of the hon. Member for Twickenham (Mr. Keeling) and therefore I suggest that we should take the discussion on this Amendment, leaving it open to the hon. Member for Twickenham to move his Amendment formally, because it is very difficult to distinguish these two questions— 458 I do not say in detail, but in general principle.

§ Mr. Keeling
I am quite agreeable to that suggestion.

Mr. Alexander
I am very much obliged to the hon. Member for Twickenham. As you, Captain Bourne, have clearly perceived, in view of the announcement in the Press this morning that concessions are to be made to building societies it would be very unfortunate if, after we had discussed and taken a decision on this Amendment, we then had to discuss building societies, because if a concession were given to them we should then have no redress. Therefore, I am obliged to the hon. Member, and I am sure that the decision to deal with the matter in this way will not in any sense injure his case, because my hon. Friends on this side are just as anxious that justice should be done to building societies as we are insistent that justice should be done to the industrial and provident societies. I do not want to repeat my arguments, but I think it is incumbent upon me to emphasise that in its nature and in the handling of it the share capital of an industrial and provident society is in all respects similar to that of a building society. It is within the definition of the well known Dunedin judgment, given in a building society case, but does not come within the usual description of share capital from the point of view of an ordinary company. I stress this—and this is the case the Chancellor has to answer—that whatever concession is made to the share capital of a building society must in justice, if justice is to be done, be given to an industrial and provident society.
There is this further point, that in the co-operative movement we are exceedingly active in the very class of work which is being done by building societies. We have within the movement the fifth or sixth largest building society, which is working under the Building Societies Act. That by no means ends the interest of the co-operative movement in the problem of housing, because we are just as eager to assist the working classes to provide themselves with houses, and do our best in that direction. From that point of view, also, we claim that whatever concessions may be made to the building societies—and we hope they will be made—shall be made also to the industrial and provident societies. 459 I come back to the point to which I referred in my opening remarks. We have been given to understand that the whole structure of the National Defence Contribution is drawn up on the basis of the principles underlying Income Tax. The principles of Income Tax as applied to co-operative societies were settled for us by the Government under the Act of 1933, and it is a gross injustice that that basis should be departed from in this new tax. If the shareholders of a company were persons who, in the main, were below the taxable limit, I have no doubt that the Board of Inland Revenue would be pressing very urgently that companies should be put on the same basis of computation as is applied in the case of industrial and provident societies, but that is not done because the shareholders of companies are in the main not persons below the taxable limit. The shareholders in the case of co-operative societies are in the great majority of cases below the taxable limit, and yet the societies are being asked to bear a higher ratio of National Defence Contribution to their Income Tax Contribution than in the case of a company under the General Companies Act.
I suggest to the Chancellor that there is a way out for him which would give no cause of offence to any company, building society, industrial or provident society or any other class of taxable citizens. If he wants to achieve that simple method of taxation which he has arrived at in this second edition of National Defence Contribution, let him leave the tax as it is, if he likes, but let him add the rider that in no case shall a firm, company or society be called upon to pay more than one-fifth of the sum it would have to pay by way of Income Tax. In the case of companies that could lose him no revenue. Not a single company will pay more. If in the case of a building society he takes the actual amount of the Income Tax which is paid under the special arrangement for building societies and asks them for no more than one-fifth of that amount as National Defence Contribution, there will be no great cause of complaint. If, in the case of industrial and provident societies, he says, "You will not pay more than one-fifth of the sum which we thought we had justly assessed you for as Income Tax in 1933," he will be treating us exactly 460 as he ought to treat us. Then it will be only a very small portion of the justice we ought to have, for what we ought to have is a complete exemption of societies which do not trade for profit and do not make a profit but which return to their members the whole of the surplus which they create in spending their taxed incomes. This concession is only a part of the justice we ought to have, and we hope that the Chancellor will give what I have said very careful consideration.

§ 8.54 p.m.

§ Sir J. Simon
I think it will be for the convenience of the Committee if I say something at once—I have the Attorney-General beside me—because I agree that this is a matter which we shall have to thresh out. I will divide what I have to say as nearly as I can into parts. First I should like to say a word or two on the subject of computing this charge on Income Tax principles. It may be partly my fault, because I think I used rather loose language about this point, but I will use accurate language now, and I hope that I shall be able to satisfy completely any impartial man. The language of the Clause which we have already passed, is: For the purpose of the National Defence Contribution the profits arising from a trade or business in each chargeable accounting period shall be separately computed, and shall be so computed on Income Tax principles as adapted in accordance with the provisions of the Schedule "— which we are now discussing.
I would ask the Committee to observe that, so far as industrial co-operative societies are concerned, you may look at the Schedule from one end to the other, and you will not find any provision in it about industrial and provident societies at all. Nothing has been done, in framing this tax, to alter Income Tax principles, which apply for the purpose of computing the charge against co-operative societies. You will not find anywhere in the Schedule something which says: "But, in the case of co-operative societies, something special must be done." The right hon. Gentleman showed in his speech that he perfectly appreciated that, although we have said nothing about it, unless something is done the co-operative societies will be taxed. It is completely wrong to suggest that we, the Government, have introduced into the Clause some special 461 provision to catch co-operative societies. We have never mentioned them from beginning to end in our Schedule, and the language of the Clause applies without any qualification whatever.
It is not true that our Income Tax law provides that there shall be no charge on the profits made by mutual trading except so far as they are not distributed. The Section which has to be looked at is Section 31 of the Finance Act, 1933, which says: In the application to any company or society of any provision or rule relating to profits or gains, …any reference to profits or gains shall he deemed to include a reference to a profit or surplus arising from transactions of the company or society with its members which would be included in profits or gains for the purposes of that provision or rule if those transactions were transactions with non-members. That is to say, in 1933 the Finance Act came along and said—I am not discussing whether rightly or wrongly, and I perfectly understand that the right hon. Gentleman reserves his protest—that notwithstanding that a co-operative society is carrying on its business by way of mutual trading with its members, this is what the law calls profits, and we shall henceforward regard the result of that trading as profits. Section 31 does not say that there shall be no charge of Income Tax against a co-operative society except in so far as they do not distribute their profits; it taxes the whole of their profits. It is not we who have introduced something special about co-operative societies, but the right hon. Gentleman who is seeking to modify the charge. I am sure there is a perfectly genuine misunderstanding.
After the Finance Act, 1933, had made the charge upon the whole of the profits made by co-operative societies, it went on, in the next Section, to say: A registered society shall be entitled to have the amount of Income Tax which, but for any relief under this paragraph, it would he liable ultimately to bear for any year of assessment, reduced by a sum representing tax on the amount of share interest or loan interest paid in that year by the society without deduction of tax in accordance with the foregoing provisions of this Section. That was to say that it is true that the society is charged on the whole of its profits but, none the less, it shall not be required to pay on the whole of them directly but only on the portion which it does not distribute to its shareholders. That left the Inland Revenue to deal 462 with the shareholders who had received their share of profit, who were within Income Tax limits and were themselves liable to the payment of tax. In other words, in the case of a limited company you not only assess it but you make it pay on the whole of its profits. If it distributes part of the profits to its shareholders, when it declares a dividend it is entitled to pay the dividend less tax. The machinery which was adopted in the Finance Act, 1933, did pot charge a cooperative society only on its undistributed profits, but on the whole of its profits. It went on to say that, as a matter of machinery, where the co-operative society paid tax on so much of its profits, that would be sufficient discharge but that the members could be looked to to pay their respective portion of Income Tax themselves, because the dividend was paid free of tax.
The proposal which I am putting forward is simply an application of the law which says that just as co-operative societies are charged on the whole of their profits, so they shall be charged for the purposes of the National Defence Contribution. The assertion has been so often repeated that I hope I have made it plain that we are not introducing anything exceptional to catch co-operative societies but merely applying what is in the ordinary law. The Finance Act, 1933, said, as a matter of machinery: "Get the tax, first by getting from the co-operative societies themselves the portion charged on the profits that were not distributed, and secondly by going to the individual cooperative society member and collecting the tax from him." I have no doubt that a very large number of co-operative society members would be below the Income Tax limit and that this machinery was felt on the whole to be more convenient. It is only fair to say that.
At the same time, it does not follow that, because you receive a distribution from a co-operative society as a shareholder, you have not to pay Income Tax on what you receive. You certainly have to pay Income Tax on what you receive, unless you can show that you are below the limit. Therefore, if I may say so, the right hon. Gentleman is in error when he says that the Amendment would apply the Income Tax code. If we were to accept what the right hon. Gentleman now proposes, we should, in the first place, 463 limit the charge against co-operative societies to that portion of their profits which they do not choose to distribute; and, secondly, we should have no remedy against any one of the shareholders who receives his portion of the profits. I think I have shown to the Committee that it is a mistake to suppose that in our proposal we are going out of our way to do something strange at the expense of the cooperative societies. The real question before the Committee is whether the large number of people who are interested in that class of enterprise and who are people of small means who would not be liable to Income Tax can on that account claim to be treated more favourably than the ordinary limited company?

§ Mr. Barnes
Not more favourably.

§ Sir J. Simon
I will say "differently." The real point for the Committee to decide is whether the co-operative societies, in view of the fact that so many of their members are people of small means, are entitled to get out of the ordinary application of the law. This is not a tax like Income Tax, with elaborate provisions for exemptions and abatements to individuals who are persons with small incomes. It may be said that it would be a better tax if that were the case; it would certainly be a much more elaborate tax, since there would have to be provisions for exemption or abatement as in the case of Income Tax. This tax, however, addresses itself directly to the enterprise, whatever it is—it may be a firm, it may be a limited company, it may be a co-operative society—and it says: "If you, during the next five years, make a profit, I call upon you, the enterprise, to make a contribution which is calculated on that profit. I do not inquire what you are ultimately going to do with that profit. You may be a company which is going to distribute the profit to an enormous number of shareholders each of whom holds one share; or you may be a company which will distribute its profit to a very small number of much richer shareholders; or you may not be going to distribute it to shareholders at all, but may be putting it to reserve. But in the case of an enterprise which makes a profit, in view of the heavy burden that is falling on the country as a result of the special expenditure which we have to incur in connection with the defence of the country, which affects you just as much as it does me, which affects 464 the poor man and the rich man alike, I ask for a certain contribution from the enterprise itself."
That is what makes it a simple tax on profits. The suggestion has already been made that it might work very hardly on the ordinary shareholder, and I agree. I can imagine the case of a poor man who holds two or three shares in some industrial company, and who, for aught that I know, is quite within his rights in getting exemption or abatement as far as income tax is concerned; but that is not the way in which this tax works. It is much more like what we may call a levy or a licence which is paid by the enterprise itself as a condition of carrying on its profitable undertaking during the next five years, and consequently it would not be in accordance with the nature of the tax to treat the co-operative society as though it were entitled to exceptional treatment owing to the fact, which I agree is a fact, that to a very large extent its members are people of small means.
I hope I have made plain to the Committee the basis of the tax, because, if we do not understand that, we may get into all sorts of confusion. It is open to anyone to say that it is not the sort of tax that he approves of, but I think that broadly speaking, in the exceptional circumstances, and, I agree, with a certain roughness of administration, it is the right kind of tax to apply. At any rate, I proceed on that basis, and, if it be right, I do not believe there is any case for saying that you have to consider how the money is going to be distributed after it has been taxed. There is no question at all of putting a tax on loans, which are excepted by the general provision which we have made in the case of all enterprises unless they happen to be engaged wholly or mainly in lending money at interest; but I really do not see any justification for making the exception that is now suggested in the natural operation of the law.
I promised the hon. Member for East Ham, South (Mr. Barnes) that I would take the opportunity of saying how building societies were affected. It is only fair that I should do so now, especially as you, Sir, have allowed the two matters to be dealt with side by side. I quite see that, while the right hon. Gentleman does not wish building societies any harm, if 465 there be an argument to be drawn from any special treatment which they might receive he is entitled to know what it is while we are discussing the co-operative societies. It seems to me that there is one particular in which building societies stand quite apart from the general scheme of the tax. It is not a. question whether the members of a building society are poor people. It is a wholly different point. It seems to me fair for the Committee to consider when the time comes whether or not a building society, which discharges very special and very important functions to the State as a whole in assisting the building and owning of houses, which is a thing which I wish to promote, should come under the full force of the tax. I am not proposing to exempt them, I need hardly say.
I have heard suggestions that co-operative societies should be exempt, that building societies should be exempt, indeed that all sorts of enterprises should be exempt. But it appeared to me that it might be fair in this case to say, You have three sorts of income. You have first of all the income which is the interest paid by those who borrow from you. There is a large fund coming into the societies in the form of interest on the money that they have lent. In the second place you have interest which you pay in profits to your shareholders, and in the third place you may have a balance which you put to reserve. If you were to apply this National Defence Contribution to building societies without drawing any distinction at all you would not treat the interest that they get from their borrowers as part of their income for this purpose but you would apply 5 per cent. to the profits that they distributed to their members and the profit that they put to reserve. I think that a case is made out having regard to the special functions that building societies perform and the nature of their business, for saying that they ought not to bear the whole burden of the tax. What I have in mind is that we should add to the two items which would bear tax a third, namely, the interest that they receive from borrowers, and then we should apply a substantially lower rate of duty than 5 per cent. to the gross figure. Instead of applying 5 per cent. to the net figure apply a lower percentage to the gross figure.
466 Now I want to discuss with the Committee whether or not that relief which I think it would be fair to give to building societies in itself makes a case which would otherwise not exist for relief to cooperative societies. Of course, it would obviously apply to the great building society to which the right hon. Gentleman referred, the Co-operative Building Society, but a co-operative store is manifestly carrying on a business which is in the most active competition with similar businesses carried on by firms and companies. I should find it very difficult to justify giving co-operative societies relief and at the same time insisting on the full tax being paid by firms and companies in the same business. I know the technical argument—and I do not minimise it—that mutual trading is not really a profit, but once you have Parliament taking the view it has taken ever since 1933 that, notwithstanding that the profits of a co-operative society are mutual, they must be treated as profits for the purpose of Income Tax, I cannot see why you should draw a distinction between these two enterprises. I cannot see why a co-operative boot factory should be favoured as compared with another boot factory belonging to a partnership or a company. I do not see that there is a justification on that ground for exceptional treatment.
A building society is in quite a different case. A building society is not in active competition with someone else. It is organised under a special Act of Parliament in order to give a particular kind of assistance to people, very often people in humble circumstances, and we are bound to ensure that we do not upset the whole financial foundation of the enterprise. Nothing would be more serious than to force them to increase the rate of interest which they charge to those who borrow from them. Therefore I think there is a perfectly good case for their being treated more lightly, but I do not think that would justify the application of a similar method to co-operative societies. Will the Committee forgive me for a moment? I am told that I made a statement which was not quite right and that I spoke of interest received by building societies from borrowers when I should have said interest paid by the societies.

Mr. Alexander
On deposit.

467

§ Sir J. Simon
The watchful people who guard me tell me that I made a mistake, and I hope I may be forgiven. Those are the reasons why I think that the method which I suggest is proper. I do not think there would be any justification at all for treating co-operative societies on the basis that for the purpose of the tax the only income that should come under review is their undistributed income. That is one of the reasons why the ingenious formula of the right hon. Gentleman will not do. He says, "Why do you not say that no one is to pay more than a fifth of what they would pay to Income Tax?" I do not think he appreciates that a co-operative society is charged on the whole of its profits.

Mr. Alexander
What company will pay more than a fifth of its Income Tax?

§ Sir J. Simon
The point is that a cooperative society itself is charged to Income Tax on the whole of its profits. To give a simple illustration, if a cooperative society makes £100,000, by Section 31 of the Finance Act it is charged Income Tax on £100,000. The right hon. Gentleman thinks it is only charged with that portion which it chooses to distribute. It is not true. That is the very reason why you do not find in the scheme that I am putting forward any special provision for the purpose of charging National Defence Contribution on the whole profit of the societies. I do not need any. They come into it naturally. The same is true of a limited company. If a limited company makes £100,000 it also will be assessed in the same way. The fallacy of the position of hon. Gentlemen opposite is that they will regard a co-operative society as though it had no responsibility in respect of Income Tax save in regard to that portion of its profits which it does not distribute. That is mere machinery. The law says that all profits of a co-operative society have to be taxed. It then goes on, as a matter of machinery and convenience, to say: "If you will pay tax on that part of your revenue which is not distributed we will look to your members for the part necessary to make up the total." Therefore, the conclusion I have come to is that I do not see any justification, the tax being what it is, a levy or toll or licence on an undertaking which is making profits, why the tax should not be paid by co-operative societies along 468 with their competitors and rivals. But a case can be made in the special circumstances of the building societies, not indeed to relieve them altogether, but to give them a substantial measure of assistance.

§ Mr. Broad
Will the right hon. Gentleman tell us clearly what his proposal is in regard to building societies now that he has been corrected?

§ Sir J. Simon
Yes. If building societies were to be assessed to the National Defence Contribution just like anybody else you would first of all subtract from the gross total of profits interest paid and you would apply the tax, five per cent., only to the balance. My suggestion is that in the case of building societies you would not allow them to subtract the interest paid to depositors, but you should add that to the balance of profit, making therefore a bigger total, but that having got that bigger total you should charge on that bigger total a smaller percentage. That is my suggestion. I will tell the Committee definitely what sort of percentage it will be as soon as I know precisely. The general effect will be that building societies will be saved a substantial part of the tax which would otherwise fall upon them.

§ Major Milner
When the right hon. Gentleman refers to depositors does he mean also those commonly termed shareholders in building societies, or not?

§ Sir J. Simon
Profit that will be paid to shareholders on distribution of dividend comes under the tax anyhow.

§ 9.28 p.m.

§ Mr. Barnes
This is the third occasion when I have had the privilege of listening to the Chancellor dealing with this point, and in my judgment the issue has been evaded on every occasion. When we are dealing with the exemption of small businesses earning up to £2,000 a year profits the Chancellor can see and appreciate reasons that should differentiate between this type of business and other enterprises of a similar character. When it comes to the question of enterprises earning up to £2,000 profits the enterprises earning up to £2,500 or £3,000, although they may be in the same type of business and competing with each other the Chancellor can discover plenty of reasons for exempting 469 that type of business. When we were discussing the exemption of the professions, again the Chancellor could see many reasons why persons and concerns—architects, chartered accountants, the medical profession and others—earning large incomes should be exempted from the tax. When we were discussing the exemption of utility companies, although they are engaged in business and in competition with similar undertakings, many of them making large profits, the Chancellor could discover considerable reasons why they should be exempted from the tax. When we were discussing insurance companies the Chancellor could see the reasons why that proportion of the profits returned to policy-holders should be exempted from this tax.
Now when we arrive at the problem of the building societies, although we have not been given the new calculation, the Chancellor has admitted, but has not stated specifically the functional reason except that they perform the social service of providing housing for the people and giving easy facilities for encouraging decent housing for the people, that he can see adequate reasons for departing from the principle of the 5 per cent. tax and agreeing to a lower computation. I welcome the decision of the Chancellor to make this concession to the building societies. This is not the occasion to discuss his concession, but it appears to me that if he departs from the principle of the 5 per cent. tax—I am glad that he is departing from it in the case of the building societies—I should have thought that it was a stronger reason for putting building societies among the exempted groups completely rather than taxing them 1 or 2 per cent.
Let me now deal with the equity point I have stressed all the way through these discussions and compare building societies with industrial and provident societies. In the case of building societies there are roughly 2,009,817 share investors and the capital they own is £480,582,675. The average holding of shareholders is £239 2s. 4d. That is for the year 1936. There are 777,031 depositors and the capital liabilities are £141,279,020. The average share is £181 16s. The average shareholding of members of industrial and provident societies for 1935 worked out at £18 3s. per member. I put this to the members of the Committee. There 470 is no dispute from any side of the Committee that building societies should receive this advantage, but does anyone suggest for a moment that, if a case is made out for differentiation in the case of shareholders of building societies— because that is the way it will operate in a case of this kind—the Chancellor of the Exchequer is justified in getting up at that Box and arguing that he is entitled to differentiate in respect of small businesses up to £2,000 profit, wealthy professional people whose incomes may be anything from £5,000 to £20,000 a year, to differentiate when it comes to public utility companies, the shares of which are very often held by exceedingly wealthy people in this country—to differentiate with regard to building societies when the average shareholding, as I have indicated, is £239, or 10 times the average amount of the share investment in the industrial and provident societies. The thing to me is untenable.
I will deal with the point of machinery. We are not discussing here the general argument on Income Tax law such as the Chancellor of the Exchequer tried to ride off upon, on this issue, but the operation of this tax as the fact. In the case of one co-operative organisation under the Growth of Profits Tax, that society would have paid £40,000, but under this new proposal it will pay £120,000. Can the Chancellor of the Exchequer get up at that Box and defend a position of that kind? This tax was commenced for the purpose of recovering to the State some of the excess profits being made to-day out of the necessity of the country, but owing to the political pressure of big business organisations in this country and the financial interests of the City of London the Government and the Cabinet have been compelled to go back upon their major tax proposal in the Finance Bill and to withdraw it. When the Prime Minister withdrew that tax proposal he said that the principle of the tax on profits would be retained. Now we have the position where we get all these exemptions, and yet the Chancellor of the Exchequer cannot find any ground for differentiating in the case of the Co-operative Society.
I come back to the machinery point. In 1933, when the principle of mutuality was destroyed as far as industrial and provident societies were concerned—we 471 are not arguing that now; it was settled on the previous Amendment—the Treasury, for their own convenience, as the Chancellor of the Exchequer has pointed out, recognised that, if the average shareholding in this type of organisation is £18, there must be millions whose shareholding amounts to only £1, £2, or £3 as the case may be. If you take a large co-operative society operating in an industrial area in the North of England where the shareholding for voting is £2, you will find thousands of the members of such a society who cannot even qualify for a vote because they do not hold the £2 membership share. That being the case, the Treasury recognise that it was not practicable, and they could not justify bringing this share interest into taxation at the source, and they decided, for the convenience of the State and that membership, that the tax should be levied in the hands of the recipient.
The Chancellor of the Exchequer has pointed out that because of that practice the State loses nothing, because any shareholder who draws interest from his investment in the co-operative society, if he is liable for the payment of Income Tax, has the interest derived from the cooperative society added to his income, and he pays Income Tax on that particular sum. Therefore, the State does not lose anything in the form of revenue. In the case of a limited liability company, as my right hon. Friend the Member for Hillsborough (Mr. Alexander) pointed out, there is no alteration in practice or in the incidence of this tax, but because of the inconvenience to the Treasury they exempted that large proportion of share interest that is not liable to tax. As a result of this method which is adopted they bring back that share interest into our accounts and levy the tax before that share interest is disbursed, and that is where the differentiation is practised.
That is the position we are asking the Chancellor of the Exchequer to meet, and that is the position which the Chancellor of the Exchequer so far has deliberately evaded. What difference is there in practice or principle in the Chancellor of the Exchequer meeting that point and meeting the other difficulty of the building societies? I venture to suggest that the Chancellor's meeting of the building 472 societies has nothing to do with the equity of the claim of the building societies at all, and that the main influence is that the Government are afraid to face the hundreds of thousands of depositors and borrowers associated with building societies in this country. It would represent a typical political problem if they had had their rates of interest increased from 4 ½to 5 or 5½- per cent. I suggest that that has been a greater influence in the Chancellor of the Exchequer meeting the problem of the building societies, and is the reason why he will not meet the case of the cooperative societies.
In the case of the member of the building society the effect of the tax would have been felt immediately with the borrower from the building society, and then you would have seen that the principle of the tax is to pass it on to the consumer. In the case of the borrower from the building society the real difference between this tax and the original National Defence Contribution would have emerged. It is a tax which could be passed on to the user or consumer or the borrower or the buyer, as the case may be. In the case of a borrower from a building society the society would have had to pass it on to the mortgage interest rates and the public would have seen the effect of the tax. I want to remind the Attorney-General that when he was answering that point on a previous Amendment he stated that the principle is a tax on profits and not on individuals; 5 per cent. on the profits of a company. My right hon. Friend the Member for Hillsborough has pointed out that in the case of a cooperative society it amounts to more than 5 per cent. under the sum that they paid under the Income Tax law prior to the introduction of this tax.
Prior to the introduction of National Defence Contribution the operation of Income Tax law on a co-operative society on its undistributed profits yielded a certain sum. Now in the case of a company the yield under National Defence Contribution will be 5 per cent. and in the case of a co-operative society more than 5 per cent. on the sum paid to the Treasury prior to the introduction of National Defence Contribution. I submit to the Chancellor of the Exchequer that he is evading that issue all the way 473 through, and I sincerely trust that between now and the Report stage he will n ot continue to turn a deaf ear to the reasonable, practicable, equitable case we have made, and that he will again look into the matter; that if he cannot agree to the proposal of my right hon. Friend he should ensure that we shall not pay more than 5 per cent., and that he himself will device some method of a machinery character to avoid this penalisation of industrial and provident societies.

§ 9.45 p.m.

§ Mr. Spens
No one could possibly hope to put more clearly than did the Chancellor of the Exchequer the point that has been raised in connection with the co-operative societies. When one case has been put quite clearly from one side of the Committee, as it was put by the right hon. Member for Hillsborough (Mr. Alexander) and the hon. Member for East Ham, South (Mr. Barnes), and it has been answered quite clearly by the Chancellor of the Exchequer, and there are two entirely different points of view, and it is then said that: the Chancellor of the Exchequer has evaded the point, it is very difficult to try to make the point more explicit to the Committee.
The hon. Member for East Ham, South, had two main points. He referred to certain cases in which the second edition of National Defence Contribution appears to bear more hardly on companies than the first edition. He referred to one cooperative society where he said the tax on the growth of profits had been £40,000 under the first National Defence Contribution, and under the present edition it will be £120,000. That will be the same for many trading companies throughout the country. Therefore, if co-operative societies are rightly taxable, that is not a matter that is peculiar to them, but is one general to every company and every firm that is being taxed. The main point of the right hon. Member for Hillsborough was the question about that portion of the profits of the societies which goes in paying the interest on the share capital. Let me remind the right hon. Gentleman that when he refers to the holdings of share capital in co-operative societies he is referring only to the holdings of individuals. He is not referring to the holdings of other co-operative societies in co-operative societies. There 474 is no limit of the amount of share capital under the law, I think I am right in saying, in—

§ Mr. Barnes
The hon. and learned Member is going astray. The whole capital held by the co-operative societies works out at £18 per member.

§ Mr. Spens
I am speaking of the holdings of co-operative societies. It is often said that there is the £200 limit under the Act on the holding of share capital in co-operative societies, but it must be remembered that that is the limit on individual holdings and not on the capital which other co-operative societies may hold in one co-operative society. Dealing with that point, the Chancellor of the Exchequer was perfectly right when he said that that sum of money which is earned profit and which goes to the shareholders as part of the total profit comes under Income Tax law, and it is more convenient that that income should be paid without any deduction of tax, just as you have certain public stocks in this country—I think there are some—on which the income is paid without the deduction of tax, and the Revenue has to collect it from the individual who receives it. So in the case of this particular sum of money which is distributed each year by co-operative societies, it is all assessed for Income Tax, but the Revenue has to collect the Income Tax from the recipients, whereas as regards Income Tax on the undistributed profits it collects that direct from the society.
It is untrue for members of co-operative societies to suggest that there is anything other than Income Tax principles being applied in the application of National Defence Contribution. I do not want to put it more strongly than that. Exactly the same amount of profits as is assessable for Income Tax is being subject to National Defence Contribution, but inasmuch as National Defence Contribution is a tax not on the individual member of a society or the individual member of a company, but is a tax on the business, the society has to pay the whole amount direct to the Treasury. As regards the Income Tax payable in respect of the society's profits you have two different types of machinery. It is exactly the same for a society under the Industrial and Provident Societies Act as it is for a company under the Companies Act. I 475 think the right hon. Member for Hillsborough and the hon. Member for East Ham, South, both said that the people who would feel this tax would be the shareholders of the societies.

Mr. Alexander
Hear, hear.

§ Mr. Spens
That is true. They will feel it indirectly, but not directly. The right hon. Gentleman realises that. He realises that in almost every society it will be paid out of what is at present the undistributed profits available for other purposes. The societies will continue to pay their interest exactly at the same rate. The individual members of the societies will not suffer from it. What will happen will be that the net undistributed fund of profits in the hands of the society will be less by the amount which has gone to the Treasury under National Defence Contribution. That is what will happen in the case of these societies under the Industrial and Provident Societies Act. Therefore, to try to spread about the country the idea that every single, wretched member of an industrial provident society will directly suffer as a result of this payment, is a gross exaggeration.
What will happen will be that the society will pay their perfectly fair share of National Defence Contribution in the same way as every other company, and they will have a less net sum left for the purposes for which they employ their undistributed profits, in the same way as any ordinary trading company will have a smaller sum left for reserve. Let me say, I hope without egotism, that I made my maiden speech in favour of a tax on co-operative societies in 1933, and I should like to add to-night what I said then, and I believe it to be the truth now as then, that even if there were a direct burden on the members of co-operative societies in respect of National Defence Contribution, I believe that 90 per cent. of those individuals would like to think that they were bearing their share of the burden.

§ 9.53 p.m.

§ Mr. Keeling
I should like to thank the Chancellor of the Exchequer very much for announcing that he is going to make a concession to building societies, the exact terms of which he will state later. 476 I shall therefore not move the Amendments in regard to building societies which stand in my name, and I hope that that will result in the Committee getting to bed earlier than at one time seemed probable. The Chancellor of the Exchequer had very good reasons for distinguishing between co-operative societies and building societies in this matter, and I am sure that in their desire to do justice to co-operative societies the right hon. Member for Hillsborough and the hon. Member for East Ham will not desire to do less than justice to the building societies. In fact, they have said so. We all admit that there are some points of resemblance between them, but that does not justify the inference that in this matter of National Defence Contribution they ought necessarily to be treated alike. My right hon. Friend the Chancellor of the Exchequer mentioned the main reason for different treatment, namely, that co-operative societies compete with private traders who will be paying National Defence Contribution. Over the whole range of trade and industry you have co-operative societies competing with private traders who will pay this tax. In the case of building societies the boot is on the other leg. They get severe competition in the mortgage business from friendly societies who are exempt from the National Defence Contribution. That fact would be a reason for asking that building societies should be entirely exempt from the National Defence Contribution.

Mr. Alexander
If that is a good argument for building societies, and I am quite prepared to admit that it is, why does not the hon. Member apply the same argument to co-operative societies because of the exemptions given to many of their competitors?

§ Mr. Keeling
I was merely explaining why building societies might claim to be exempt altogether: they are subject to severe competition from friendly societies who will not pay the National Defence Contribution. The Chancellor of the Exchequer has said that he is not going to exempt building societies altogether. In the speech I made on the Financial Resolution I did not ask for their total exemption, nor do the Amendments on the Order Paper ask for that. All we ask, and all we are going to get, is some modification of the application of the National Defence Contribution to building 477 societies. Consider what would follow if building societies were subject to the full rate of the National Defence Contribution. It has been estimated that they would pay a total sum of not less than £1,000,000. How are they going to find that sum? It may be suggested that they should reduce the rate which they pay on deposits or on shares, but that would not be possible, because the rate is already very low, and to reduce it still further would undoubtedly dam the flow of money from the public upon which building societies depend for their ability to finance the purchase of houses.
It follows that the only way in which they could provide the necessary £1,000,000 would be to raise the rates on mortgages, but many building societies are debarred by their rules from raising the rate on existing mortgages, and if they could not spread that £1,000,000 over all existing mortgages they would have to raise it by increasing the rate on new mortgages. One of the largest building societies in England has estimated that in order to provide this National Defence Contribution it would have to raise its mortgage rate from 41 to 6 per cent. Not only would such an increase subject it to very unfair competition on the part of friendly societies who would be able to continue to charge 4½ per cent., but it would strike a very severe blow indeed at the whole of the building societies movement. I am glad that the Chancellor of the Exchequer has appreciated the tremendous importance of not doing anything to discourage the building society movement and has announced that he is prepared to make a concession.

§ 10.1 p.m.

§ Sir J. Simon
May I read to the Committee exactly what the proposal is about building societies? I fear that I did not make it quite clear, and I should be sorry to leave it vague. This is the proposal. Under the proposed concession to building societies, the charge to National Defence Contribution will be on the total income less expenses, but without any deduction for loan interest paid to depositors. Thus, if the total income of a building society less expenses is divided into (a) undistributed income, (b) interest paid on share capital, and (c) interest paid on loans and deposits, the concession will take the form of charging a percentage on the totals of (a), (b) and (c), whereas the 478 Committee knows that the general scheme of National Defence Contribution under the Bill as drawn will only be a charge on (a) and (b). My suggestion is that, having regard to the fact that we are adding interest paid on loans and deposits, the charge should be at the rate of 1½ per cent.

§ Mr. Barnes
The hon. Member for Twickenham (Mr. Keeling) has said that there would be a charge of £1,000,000 on building societies. Can the right hon. Gentleman say how much the liability will be under the new arrangements?

§ Sir J. Simon
I shall be glad to ascertain the amount, or the Attorney-General will give it when he speaks.

§ 10.3 p.m.

§ Mr. Broad
I want to reply to some of the remarks of the hon. and learned Member for Ashford (Mr. Spens), who expressed the opinion that a small shareholder in a co-operative society would pay the amount indirectly and, therefore, would not notice it. That is on the same high level of moral principle as a person who would take a penny out of a blind man's tin because he would not notice it.

§ Mr. Spens
I am sure the hon. Member does not want to de me an injustice. The hon. Member for East Ham, South (Mr. Barnes) said the small shareholder would feel it directly, and I was replying to that statement.

§ Mr. Barnes
I am afraid the hon. and learned Member is wrong again. I was pointing out that in the case of the building society borrower he would notice it when the interest charged was passed on, and that in the case of the co-operative member he would not notice it.

§ Mr. Spens
If the hon. Member will read the OFFICIAL REPORT to-morrow he will find that he used a different expression. He said that shareholders in cooperative societies would feel the tax directly. That is what I understood him to say, and that is what I was answering.

§ Mr. Broad
Even if it was put that way there is a precedent for it, because a leading statesman of the last generation said that if you tax a poor man's table he would not know who had robbed him. In this proposal there are exemptions for businesses which make a profit of less than £2,000, and when that is applied 479 to co-operative societies it affects nearly 8,000,000 members, none of whom have more than £200 capital in the society. They get a small limited amount of return on their capital, mainly, about 3½ per cent., at the most it is 5 per cent., and that means that the maximum that any individual can get from his holding in a co-operative society is £10, that is if he gets 5 per cent. Therefore, in the case of one co-operative society, £120,000 is to be taken from the small investments of very small people.
The principle on which the Chancellor proposes to make his concession to building societies is not nearly as strong in their case as it is in the case of the cooperative societies. The building societies compete with the ordinary moneylenders, the finance trusts, and so on, in advancing money. If it is right that the best terms should be given to the workman who wants to buy a house, why should not the same principle apply to those who make the best arrangements they can for buying their bread? Moreover, I would point out that a very big proportion of the members of co-operative societies keep their small savings in the co-operative societies, to accumulate until they are able to get sufficient to put down the deposit for buying a house, and then they borrow the balance from their society. I know of one case where, when the deposit was paid and the remainder borrowed from the co-operative society, the wife wanted the house called "Divi Villa."
It is in that way that the foundations of thrift are being laid in a large proportion of the working class. The co-operative societies are doing an inestimable service to the community and relieving all kinds of public service from burdens which they might otherwise have to bear. Apart from any economic or monetary value which they have, the co-operative societies have done a great deal to develop thrift, self-confidence and mutual confidence in the great mass of the people. There is no real reason why the building societies should get this relief and the co-operative societies should not get it. It is due to a prejudice against co-operative societies on the part of hon. Members opposite. It was pandering to that pettiness and vindictiveness against co-operative societies which caused the present 480 Prime Minister to yield to the entreaties of hon. Members opposite and the present Chancellor of the Exchequer, in spite of all that he has said in the past, to give way now, and follow that policy. Now is the time to take a step in the right direction.
There are other exemptions for public utility societies. In many cases the amount of interest or dividend on shares is limited in the case of public utility societies, but the limit is a varying one, and some of them pay 10 per cent. or more on the basis of a monopoly. It cannot be contended that those public utility societies are not competitive. They offer all manner of goods in competition with the co-operative societies and private traders. There are agents who go round from door to door pestering the women, and telling them all sorts of tales, in order to get them to buy vacuum cleaners, Hoovers and so on from the private concerns, and then the public utility society —in my area, it is the North Metropolitan —takes over the contract from the Hoover people, makes the debt its own, and acts as a debt-collecting agency. It has the power, to the shame of public utility concerns, to add the hire-purchase instalments to the price of the current, and to take those who default, and who want to surrender the appliance, into the police court in order to secure the full price. That is competition.
Those are the people who, because they have friends on the opposite side of the Committee, are to be exempted, but these small people with £200 or £20 in the co-operative societies have to contribute to this tax. That is directly opposed to the principle on which the present Prime Minister introduced the first National Defence Contribution. It was said in the country that there would be great profit making out of the rearmament programme by the huge. armament firms, and there was a demand that the industry should be controlled. The present Prime Minister would not agree to that, but said he would tax the profits. The tax was to take back a proportion of the profits made by those who are exploiting the national necessity. Now, contrary to all principles of justice and equity, the Chancellor puts the tax on the people whose maximum income from the co-operative societies is £10 a year. That is unfair. 481 If the Chancellor will read some of the arguments that his friends have used, he will know that the application of this tax to the co-operative societies, and the relief which is given to building societies and not to co-operative societies, is not due to any sense of fairness, of equity or of fair competition, but is a pandering to the petty and vindictive spite of some trading elements against the co-operative movement, because of its success and because it has proved that we can find from the working classes of the country men and women quite as capable and far more trustworthy than any other class to manage great businesses in this country.

§ 10.13 p.m.

§ Mr. Holdsworth
With regard to the concession made to building societies, I will reserve any criticism that I have to make until I have had an opportunity of studying the concession. I do not know exactly how that concession will work out, but my view was that building societies should not have been subjected to this particular tax at all. In one of his speeches on this subject, the Chancellor of the Exchequer referred to borrowed money, and said some very striking things on that matter. I contend that the whole of the business of the building societies is conducted on borrowed money, because the difference between deposit accounts and share accounts is merely a nominal difference. It is borrowing in the strict sense of the word.
Another point I wanted to make is that I cannot understand why there is a distinction between the treatment of friendly societies and building societies. It is true that building societies work under the Building Societies Act, but it is also true that they are registered as friendly societies. I should have thought that if an exemption were being given to friendly societies, exactly the same kind of exemption should be given to building societies. I admired the clear way in which the Chancellor of the Exchequer stated the legal position in regard to the assessment of Income Tax on co-operative societies, and I do not think any Member of the Committee will challenge what was said on that point, either by the right hon. Gentleman or by the hon. and learned Gentleman the Member for Ashford (Mr. Spens). But both, I submit, completely missed the point. It 482 is true that the basis of liability to Income Tax is the same in all cases but it is not true that it works out the same in every case. A special computation is made in the case of the co-operative societies and the building societies. For instance, the building societies pay a special rate which is agreed upon with the Treasury, and my contention is that they should be able to claim in respect of the interest paid on deposits and on share account alike, because of the special rate which they are allowed by the Treasury to pay.
If it was true, in 1933, in the case of the co-operative societies that a special arrangement was made and that their Income Tax would have been at a higher rate but for that arrangement, then I believe there is no reason why some special arrangement should not have been made in the case of the building societies. A gross injustice would have been created if building societies had only been allowed to charge as expenses the amount paid on deposits. From that point of view, I am glad to recognise that the Chancellor has at least given us something, but I still contend that the building societies are nothing more or less than mutual societies, and that they are not concerned with trading or profit in any sense of those terms. I should like to see the whole of this tax taken off their shoulders, but I reserve any further remarks which I have to make on the subject until I see the actual proposals.

§ 10.18 p.m.

§ Mr. Levy
I support the contention put forward by the Chancellor of the Exchequer with regard to the co-operative societies. I have co-operative societies in my constituency as well as private traders, and I have always held that if private traders are called upon to pay a certain tax, there is no logical reason why cooperative societies, who are in competition with them, on exactly the same terms, should not be called upon to pay the same tax. I agree with the hon. and learned Member for Ashford (Mr. Spens) on this matter. It has been contended that the shareholders in these societies would be called upon to pay the tax. Let me give an illustration. Assume that a co-operative society makes £1,000 profit and that the intention of the society is to distribute £800 among its shareholders and put £200 to reserve. Under this tax they would be called upon to pay £50. The £800 would 483 still be distributed among the shareholders but only £150 would be put to reserve. We have been told by members of the co-operative movement that the reserve does not belong to any particular shareholder but to the community as a whole. Thus, I contend that the individual shareholder cannot possibly, by the widest stretch of imagination, be said to be subject to the tax.
I only rise to support the Chancellor of the Exchequer. I did intend to support my hon. Friend the Member for Twickenham (Mr. Keeling) in his Amendment with regard to the building societies, but I am quite prepared to accept the statement that the Chancellor has made with regard to concessions to those societies. I am not suggesting that there is any real analogy between building societies and co-operative societies.

Mr. Alexander
You do not understand.

§ Mr. Levy
It may be. Perhaps I am stupid, but I am not so stupid as not to realise that the shareholders of the cooperative societies will not suffer at all, and I am not so stupid as to think that the people who are called upon to pay this National Defence Contribution will not be very willing to pay it, because it is a British characteristic, in accordance with the British nation, that if they are called upon to make any sacrifice in the interests of the nation as a whole, they have never been found lacking yet. That was demonstrated very clearly in 1931, after the Socialists had made such a mess of their two years of government, when the people were called upon to make a sacrifice and did it without any hesitation at all. I feel quite convinced that the Chancellor of the Exchequer in this matter is quite right, and I am sure that the Opposition will not be able to make any political propaganda out of the point that their shareholders are to be called upon to pay, whereas, as a matter of fact, it will simply mean a small reduction in the amount that would ordinarily be put to reserve.

§ 10.23 p.m.

§ Mr. Lees-Smith
The difference which has arisen in this discussion can be reduced to a fairly simple point, on which I think I can make a good case to show that my hon. Friends here are right and that the co-operative societies, when com- 484 pared with other companies or businesses doing the same kind of work, are being subjected to a genuine injustice. The hon. and learned Member for Ashford (Mr. Spens) made a speech upon this subject, and I will address myself to what he said. Speaking with a good deal of professional knowledge of the subject, he said that the point was simple, that the principles of the Income Tax were being applied in this case, that the cooperative societies were not being taken out, but were being treated on the same principles as anybody else, and that, therefore, no injustice could possibly arise. What the hon. and learned Gentleman did not see was that as a matter of fact, the full principles of the Income Tax are not being applied in this National Defence Contribution.
The fact is that in this National Defence Contribution all those careful provisions for abatements and exemptions which have been built up as a result of a century of experience of the Income Tax have been omitted, and that the building societies and the co-operative societies have always been recognised as having a larger proportion of their members who have small incomes which will come under the exemptions rule than, say, an ordinary company with the same number of members. That has always been recognised. As a consequence the State has not lost anything, but it has created a special machinery for dealing with the Income Tax of building societies and co-operative societies which, taking their special type of membership into account, has enabled the State to collect the tax with greater convenience than if had imposed it on every individual. The result has been that a building society, say, has hitherto paid a certain amount in Income Tax.
At the present moment the general result of the National Defence Contribution is that an ordinary company will pay its Income Tax and not more than 20 per cent. in addition for the National Defence Contribution. That is the general result which has been worked out. The whole root of the difficulty is that in the case of building societies and co-operative societies we get the result that, instead of paying Income Tax plus 20 per cent., the building society that I know best was going to pay Income Tax plus 50 per cent., and the co-operative societies are going to pay Income Tax plus 40 per 485 cent. Therefore, I say it is clear that, whereas hon. Members opposite have said, "Why should you give a privilege to co-operative societies; why should they not be treated in the same way as a private business?" as a matter of tact, building societies and co-operative societies have had a penalty imposed upon them in the National Defence Contribution which no other company or business has had to bear. That is the point which the hon. and learned Member, apparently, did not appreciate.
What is the complaint of my hon. Friends on this side of the Committee? As the result of the National Defence Contribution there are two great organisations which are being badly treated in the sense that they will both pay more than double what any other organisation will pay. One of them has been dealt with. The building societies have been picked out, and by a formula of a most peculiar character which absolutely destroys the basis of the National Defence Contribution, they are to pay just about the same proportion as the ordinary company. They have been put on the same basis as all the other institutions in the country. We are, therefore, left with the fact that the one great institution which is now selected for differential treatment is the co-operative society. For that reason it is perfectly clear to me that if in this House there were the same feelings of impartiality towards co-operative societies as there are towards building societies, they could be dealt with on their merits as industrial organisations. It is perfectly clear that in that case both these two institutions would have been dealt with. But the attitude of the Government towards the co-operative societies is not due to any principle of Income Tax; it is based on a prejudice which has been reflected in the attacks which have been made from the other side of the Committee.

§ 10.30 p.m.

§ The Attorney-General
I will begin by giving the figure which my right hon. Friend promised that I would give, of the estimate of the amount which, under the formula, will be received from the building societies. The figure is in the neighbourhood of £400,000. Having given that I will come to the general point of this Debate, and will endeavour to be as brief as I can in doing what I hope 486 will be justice to the speeches made from the other side of the Committee. I myself have always felt that mutual trading was a good idea, and I think that view is shared by hon. Members opposite. I have always thought it possible, also, that it might extend, as, indeed it has, in the case of the co-operative movement, extended during the last 40 or 50 years over large areas of our industrial and economic life, and that it might even extend very much further than it has done already. If that view is right it is obvious that that is inconsistent with the contention that the surpluses which result from the activity should no be treated as profits.

Mr. Alexander
On a point of Order. I do not want to interrupt the line which the Attorney-General is taking, but if we had understood that we could discuss the whole basis of mutual trading on this Amendment many of us would have addressed ourselves to that point. We thought we had disposed of that in the Amendment dealt with last week.

The Chairman
As far as I understood the hon. and learned Gentleman he was merely leading up to a particular argument which he was putting.

§ The Attorney-General
I quite appreciate that the right hon. Gentleman may have thought that I was raising a bigger issue. The only point I want to make is that if mutual trading is a good idea in industrial and economic life, then the profits which result must be treated as profits in the ordinary sense of the term, and in my submission that is what Parliament intended, as is made clear by the words used in Section 31 of the Act of 1933. It says there clearly that the profits of co-operative societies are, for Income Tax purposes, in exactly the same position as the profits of an ordinary trading company. Then it is sought to differentiate the position of co-operative societies by reason of the Sub-section (4) referred to, but there is no reason in principle or logic why, in the case of an ordinary company, similar machinery might not have been adopted. A company might have been allowed to deduct what it distributed as dividends before paying its quota to the revenue, leaving the dividends to bear tax in the hands of the shareholders.
Therefore, I submit that my right hon. Friend and my hon. and learned Friend 487 the Member for Ashford (Mr. Spens) were quite right in saying that the Act of 1933 applies the same general principle to the profits of a co-operative society as is applied to the profits of companies, and that the differences which are introduced by Sub-section (4) are differences of machinery of collection. I can assure the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) that I am not actuated by the slightest animus against the co-operative movement. All I am seeking to put before the Committee is what is the fair principle to apply to a co-operative or any other organisation based on mutual trading, having regard to the principle on which the National Defence Contribution is based. So far as that is concerned, I have very little to add; only that the principle on which the tax is based is that of a tax on the profits of a concern, whether it is a cooperative society or a company.

488

§ I appreciate the ground put forward in support of the Amendment, that the limit of the National Defence Contribution may affect the amount available for distribution to people of small means, but that applies not only to co-operative societies, but to other companies as well. The principle of the tax is not to have regard to the taxable capacity or the income of those who, whether as members or shareholders, may share in any profits that are distributed, but the principle descends on the profits of the concern. In descending on the profits of the co-operative societies, that logical principle is carried out, and there is no sort of hardship being placed upon co-operative societies as such in their relationships with their members.

§ Question put, "That those words be there inserted in the proposed Schedule."

§ The Committee divided: Ayes, 137; Noes, 250.

489

Division No. 266.]	AYES.	[10.37 p.m
Acland, Rt. Hon. Sir F. Dyke	Griffiths, G. A. (Hemsworth)	Noel-Baker, P. J.
Adams, D. (Consett)	Griffiths, J. (Llanelly)	Owen, Major G.
Adams, D. M. (Poplar, S.)	Groves, T. E.	Paling, W.
Adamson, W. M.	Hall, G. H. (Aberdare)	Parker, J.
Alexander, Rt. Hon. A. V. (H'Isbr.)	Hall, J. H. (Whitechapel)	Parkinson, J. A.
Ammon, C. G.	Harvey, T. E. (Eng. Univ's.)	Price, M. P.
Aske, Sir R. W.	Hayday, A.	Pritt, D. N.
Attlee, Rt. Hon. C. R.	Henderson, A. (Kingswinford)	Rathbone, Eleanor (English Univ's.)
Banfield, J. W.	Henderson, J. (Ardwick)	Richards, R. (Wrexham)
Barnes, A. J.	Henderson, T. (Tradeston)	Ridley, G.
Barr, J.	Hills, A. (Pontefract)	Riley, B.
Batey, J.	Holdsworth, H.	Ritson, J.
Bellenger, F. J.	Hopkin, D.	Roberts, Rt. Hon. F. O. (W. Brom.)
Benn, Rt. Hon. W. W.	Jagger, J.	Roberts, W. (Cumberland, N.)
Broad, F. A.	Jenkins, A. (Pontypool)	Rothschild, J. A. de
Bromfield, W.	Jenkins, Sir W. (Neath)	Rowson, G.
Brown, C. (Mansfield)	Johnston, Rt. Hon. T.	Salter, Dr. A. (Bermondsey)
Buchanan, G.	Jones, A. C. (Shipley)	Sanders, W. S.
Burke, W. A.	Jones, Morgan (Caerphilly)	Seely, Sir H. M.
Cape, T.	Kelly, W. T.	Sexton, T. M.
Chater, D.	Kennedy, Rt. Hon. T.	Shinwell, E.
Cluse, W. S.	Kirkwood, D.	Silkin, L.
Cocks, F. S.	Lathan, G.	Silverman, S. S.
Cove, W. G.	Lawson, J. J.	Simpson, F. B.
Cripps, Hon. Sir Stafford	Leach, W.	Smith, Ben (Rotherhithe)
Daggar, G.	Lee, F.	Smith, E. (Stoke)
Dalton, H.	Leonard, W.	Smith, Rt. Hon. H. B. Lees- (K'ly)
Davidson, J. J. (Maryhill)	Leslie, J. R.	Smith, T. (Normanton)
Davies, R. J. (Westhoughton)	Logan, D. G.	Sorensen, R. W.
Davies, S. O. (Merthyr)	Lunn, W.	Stephen, C.
Day, H.	Macdonald, G. (Ince)	Stewart, W. J. (H'ght'n-le-Sp'ng)
Dobbie, W.	McEntee, V. La T.	Taylor, R. J. (Morpeth)
Dunn, E. (Rother Valley)	McGhee, H. G.	Thurtle, E.
Ede, J. C.	MacLaren, A.	Tinker, J. J.
Edwards, Sir C. (Bedwellty)	Maclean, N.	Viant, S. P.
Evans, D. O. (Cardigan)	MacMillan, M. (Western Isles)	Walker, J.
Evans, E. (Univ. of Wales)	Mainwaring, W. H.	Watkins, F. C.
Fletcher, Lt.-Comdr. R. T. H.	Mander, G. le M.	Wedgwood, Rt. Hon. J. C.
Frankel, D.	Maxton, J.	Westwood, J.
Gallacher, W.	Messer, F.	Whiteley, W. (Blaydon)
George, Major G. Lloyd (Pembroke)	Milner, Major J.	Williams, T. (Don Valley)
George, Megan Lloyd (Anglesey)	Montague, F.	Windsor, W. (Hull, C.)
Graham, D. M. (Hamilton)	Morrison, Rt. Hon. H. (Hackney, S.)	Woods, G. S. (Finsbury)
Green, W. H. (Deptford)	Morrison, R. C. (Tottenham, N.)
Greenwood, Rt. Hon. A.	Muff, G.	TELLERS FOR THE AYES.—
Grenfell, D. R.	Nathan, Colonel H. L.	Mr. Charleton and Mr. John.
Griffith, F. Kingsley (M'ddl'sbro, W.)	Naylor. T. E.
NOES.
Acland-Troyte, Lt.-Col. G. J.	Emmott, C. E. G. C.	Mitchell, H. (Brentford and Chiswick)
Adams, S. V. T. (Leeds, W.)	Emrys-Evans, P. V.	Morgan, R. H.
Agnew, Lieut.-Comdr. P. G.	Entwistle, Sir C. F.	Morrison, G. A. (Scottish Univ's.)
Albery, Sir Irving	Errington, E.	Morrison, Rt. Hon. W. S. (Cirencester)
Anderson, Sir A. Garrett (C. of Ldn.)	Evans, Capt. A. (Cardiff, S.)	Nall, Sir J.
Anstruther-Gray, W. J.	Everard, W. L.	Neven-Spence, Major B. H. H
Apsley, Lord	Fildes, Sir H.	Nicholson, G. (Farnham)
Assheton, R.	Fleming, E. L.	O'Connor, Sir Terence J.
Astor, Viscountess (Plymouth, Sutter)	Fox, Sir G. W. G.	O'Neill, Rt. Hon. Sir Hugh
Baillie, Sir A. W. M.	Fremantle, Sir F. E.	Orr-Ewing, I. L.
Baldwin-Webb, Col. J.	Furness, S. N.	Patrick, C. M.
Balfour, G. (Hampstead)	Fyfe, D. P. M.	Peake, O.
Balfour, Capt. H. H. (Isle of Thanet)	Ganzoni, Sir J.	Peat, C. U.
Balniel, Lord	Gibson, Sir C. G. (Pudsey and Otley)	Plugge, Capt. L. F.
Beamish, Rear-Admiral T. P. H.	Gledhill, G.	Ponsonby, Col. C. E.
Beauchamp, Sir B. C.	Gluckstein, L. H.	Porritt, R. W.
Beaumont, Hon. R. E. B. (Portsm'h)	Gower, Sir R. V.	Pownall, Lt.-Col. Sir Assheton
Beechman, N. A.	Graham, Captain A. C. (Wirral)	Procter, Major H. A.
Beit, Sir A. L.	Grant-Ferris, R.	Radford, E. A.
Bennett, Sir E. N.	Gretton, Col. Rt. Hon. J.	Rankin, Sir R.
Bernays, R. H.	Gridley, Sir A. B.	Rathbone, J. R. (Bodmin)
Blaker, Sir R.	Grigg, Sir E. W. M.	Reed, A. C. (Exeter)
Boothby, R. J. G.	Grimston, R. V.	Reid, W. Allan (Derby)
Boulton, W. W.	Gritten, W. G. Howard	Rickards, G. W. (Skipton)
Bower, Comdr. R. T.	Guest, Hon. I. (Brecon and Radnor)	Robinson, J. R. (Blackpool)
Boyce, H. Leslie	Guinness, T. L. E. B.	Ropner, Colonel L.
Bracken, B.	Gunston, Capt. D. W.	Ross Taylor, W. (Woodbridge)
Brass, Sir W.	Hannah, I. C.	Royds, Admiral P. M. R.
Briscoe, Capt. R. G.	Hannon, Sir P. J. H;	Russell, Sir Alexander
Brocklebank, Sir Edmund	Harbord, A.	Russell, R. J. (Eddisbury)
Brown, Col. D. C. (Hexham)	Harvey, Sir G.	Russell, S. H. M. (Darwen)
Brown, Brig.-Gen. H. C. (Newbury)	Haslam, Henry (Horncastle)	Salt, E. W.
Bullock, Capt. M.	Haslam, Sir J. (Bolton)	Samuel, M. R. A.
Burghley, Lord	Heilgers, Captain F. F. A.	Savery, Sir Servington
Campbell, Sir E. T.	Heneage, Lieut.-Colones A. P.	Selley, H. R.
Cartland, J. R. H.	Hepworth, J.	Shaw, Major P. S. (Wavertree)
Carver, Major W. H.	Herbert, A. P. (Oxford U.)	Simmonds, O. E.
Cary, R. A.	Higgs, W. F.	Simon, Rt. Hon. Sir J. A.
Castlereagh, Viscount	Hills, Major Rt. Hon. J. W. (Ripon)	Smiles, Lieut.-Colonel Sir W. D.
Cayzer, Sir H. R. (Portsmouth, S.)	Hoare, Rt. Hon. Sir S.	Smith, Bracewell (Dulwich)
Cazalet, Thelma (Islington, E.)	Holmes, J. S.	Smith, L. W. (Hallam)
Cazalet, Capt. V. A. (Chippenham)	Hope, Captain Hon. A. O. J.	Sir D. B. (Crewe)
Channon, H.	Hore-Belisha, Rt. Hon. L.	Southby, Commander Sir A. R. J.
Christie, J. A.	Hudson, R. S. (Southport)	Spens, W. P.
Clarke, F. E. (Dartford)	Hulbert, N. J.	Stanley, Rt. Hon. Oliver (W'm'I'd)
Clarry, Sir Reginald	Hume, Sir G. H.	Storey, S.
Cobb, Captain E. C. (Preston)	Hurd, Sir P. A.	Stourton, Major, Hon. J. J.
Colfox, Major W. P.	Hutchinson, G. C.	Strauss, E. A. (Southwark, N.)
Colman, N. C. D.	Inskip, Rt. Hon. Sir T. W. H.	Strauss, H. G. (Norwich)
Colville, Lt.-Col. Rt. Hon. D. J.	Joel, D. J. B.	Strickland, Captain W. F.
Conant, Captain R. J. E.	Jones, Sir H. Haydn (Merioneth)	Sueter, Rear-Admiral Sir M. F.
Cooke, J. D. (Hammersmith, S.)	Jones, L. (Swansea W.)	Sutcliffe, H
Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs)	Keeling, E. H.	Tasker, Sir R. I.
Courthope, Col. Rt. Hon. Sir G. L.	Keyes, Admiral of the Fleet Sir R.	Tate, Mavis C.
Craven-Ellis, W.	Kimball, L.	Taylor, C. S. (Eastbourne)
Croft, Brig.-Gen. Sir H. Page	Latham, Sir P.	Taylor, Vice-Adm. E. A. (Padd., S.)
Crooke, J. S.	Law, Sir A. J. (High Peak)	Thomas, J. P. L.
Crookshank, Capt. H. F. C.	Leckie, J. A,	Titchfield, Marquess of
Croom-Johnson, R. P.	Lees-Jones, J.	Touche, G. C.
Cross, R. H.	Leighton, Major B. E. P.	Tree, A. R. L. F.
Crossley, A. C.	Lennox-Boyd, A. T. L.	Tryon, Major Rt. Hon. G. C.
Crowder, J. F. E.	Levy, T.	Tufnell, Lieut.-Commander R. L.
Cruddas, Col. B.	Lewis, O.	Turton, R. H.
Culverwell, C. T.	Liddall, W. S.	Wakefield, W. W.
Davison, Sir W. H.	Lipson, D. L.	Walker-Smith, Sir J.
Dawson, Sir P.	Little, Sir E. Graham-	Wallace, Capt. Rt. Hon. Euan
Denman, Hon. R. D.	Lovat-Fraser, J. A.	Ward, Lieut.-Col. Sir A. L. (Hull)
Denville, Alfred	Lyons, A. M.	Ward, Irene M. B. (Wallsend)
Doland, G. F.	Mabane, W. (Huddersfield)	Warrender Sir V.
Donner, P. W.	MacAndrew, Colonel Sir C. G.	Waterhouse, Captain C.
Dower, Major A. V. G.	McCorquodale, M. S.	Watt, G. S. H.
Drewe, C.	MacDonald, Rt. Hon. M. (Ross)	Wells, S. R.
Duckworth, Arthur (Shrewsbury)	Macdonald, Capt. P. (Isle of Wight)	Whiteley, Major J. P. (Buckingham)
Dugdale, Captain T. L.	McKie, J. H.	Williams, H. G. (Croydon, S.)
Duggan, H. J.	Macnamara, Capt. J. R. J	Wilson, Lt.-Col. Sir A. T. (Hitchin)
Duncan, J. A. L.	Magnay, T.	Windsor-Clive, Lieut.-Colonel G.
Dunglass, Lord	Makins, Brig.-Gen. E.	Winterton, Rt. Hon. Earl
Eastwood, J. F.	Margesson, Capt. Rt. Hon. H. D. R.	Womersley, Sir W. J.
Eckersley, P. T.	Marsden, Commander A.	Wood, Hon. C. I. C.
Edmondson, Major Sir J.	Mason, Lt.-Col. Hon. G. K. M.	Wright, Squadron-Leader J. A. C.
Ellis, Sir G.	Maxwell, Hon. S. A.
Elliston, Capt. G. S.	Mayhew, Lt.-Col. J.	TELLERS FOR THE NOES.—
Elmley, Viscount	Mellor, Sir J. S. P. (Tamworth)	Major Sir George Davies and Mr.
Emery, J. F.	Mills, Major J. D. (New Forest)	Munro.

491

§ 10.46 p.m.

Captain Cazalet
I beg to move, as an Amendment to the proposed Schedule, in line 87, at the end, to insert: 5. The provisions of subsection (4) of section twenty-seven of the Finance Act, 1920 (which disallows deductions on account of the payment of dominion Income Tax), shall not apply. This is a very complicated subject and, if my sentences are not as clear as they should be, I trust that the Chancellor of the Exchequer will be sympathetic and will try to understand the point that I am endeavouring to make. The Act of 1920 established the principle of Dominion tax relief, which has been the practice of our Income Tax ever since. The methods that the Dominions apply are different in almost every respect. Canada gives no reciprocal arrangements. Australia gives reciprocal arrangements in regard to Federal but not State taxes. India gives reciprocal treatment, but there again the matter is complicated by the new Surtax introduced a few years ago. The general principle, as I understand it, is that companies registered in this country and trading in the Dominions are allowed relief from taxation in this country up to half the standard rate, in other words relief not exceeding 2s. 6d. The new National Defence Contribution presents certain anomalies and injustices. For instance, companies registered and operating in this country are allowed to deduct National Defence Contribution before paying Income Tax under Schedule D. Companies registered in this country and trading in foreign countries are also allowed to deduct any taxes paid in the foreign country before paying their Income Tax, and National Defence Contribution. Companies registered in this country but trading in the Dominions get no relief in Dominion Income Tax, and a company may be paying full Dominion Income Tax on the amount paid in this country as National Defence Contribution and get no Income Tax relief in respect of it.
The Committee is not fully aware of the extent of the taxation paid by companies trading in the Dominions. May I give one example? A company receiving a certain amount of its profit from Canada may easily pay in Dominion and State tax 4s. in the £ in Canada, and 2S. 6d. in the £ in this country. Now, in addition, there is 1s. in the £ National Defence Contribution. It is nearer 8s. than 7s. 6d., be- 492 cause the assessment on which they pay Income Tax in this country is nearly always higher than the assessment on which they pay in the Dominions. It has been suggested in the Press and elsewhere that the method of dealing with this question should be to treat the National Defence Contribution as an increase in Income Tax and thereby, applying the same principle of Income Tax relief, a 50 per cent. reduction, give a 3s. relief to companies trading in the Dominions. I appreciate that if this were adopted it would offend against certain principles of the National Defence Contribution. The Chancellor himself a few minutes ago described this tax as a special levy, and I appreciate that if you once admitted the National Defence Contribution could be treated as Income Tax, you would have to apply to it all the Income Tax exemptions.
My proposal is to allow companies registered in this country and trading in the Dominions —getting part of their profits from the Dominions—to deduct the whole of the Dominion tax before paying National Defence Contribution. For instance, a company makes £100,000 profit in Canada, where it pays 4s. in the £ tax. It will thus pay £20,000 taxation in Canada. My suggestion is that it should be allowed to deduct the whole of this £20,000 from its assessable profits in this country before paying the National Defence Contribution. It is already able to deduct 1s. 6d. in the £, which is the difference between the Dominion tax and half the standard rate of 2S. 6d. I hope I have put it as clearly as possible. I know that no question of taxation is as simple as it sounds, but I think that the facts as I have put them explain the object I have in view in moving this Amendment. The hon. Member for East Aberdeen (Mr. Boothby) put down a new Clause which would have much the same effect. I think that if he would allow me to show him the result on paper, he would see that my Amendment would never give less relief and might in certain complicated cases give more. I hope that he will take my word for it for the moment and see his way to support my Amendment. It does not interfere with the special operations of the National Defence Contribution, it is simple to calculate and, I hope, simple to understand, and I trust that the Chancellor will see his way to accept it.

493

§ 10.54 p.m.

§ Sir J. Simon
In arriving at the proper figure of profits for purposes of Income Tax it is permissible to make deductions for expenses incurred in earning that income and it is a well established principle of Income Tax law that one of the expenses you may deduct is foreign taxation upon the income. That was the principle both as regards foreign taxes and taxes imposed in other parts of the King's Dominions until the Finance Act of 1920, which in one part of it made some provisions to relieve the taxpayer from double taxation and in another part, as a consequence, rescinded the rule that you might deduct foreign taxes in the case of Dominion taxes.
What is here proposed in the most convenient form is simply that we should permit the deduction of Dominion Income Tax as expenses before arriving at the balance of profit which would be charged to National Defence Contribution. That is rather a more convenient way to deal with what I think must be an admitted grievance than the way suggested by my hon Friend the Member for Eastern Aberdeen, who had on the Paper a new Clause which really had the effect of saying that National Defence Contribution for a particular purposes should be disregarded and that one should treat the Income Tax as being paid on £100 and not on £100 less National Defence Contribution. But the methods are very nearly the same. In fact, the one suggested here is more consistent with the usual Income Tax practice and is a little better for the taxpayer. I am, therefore, very glad to agree that this Amendment should be made, and I think it is quite plain that, now we have a system which avoids as far as possible double taxation, it would be right to make this alteration.

§ 10.57 p.m.

Mr. Alexander
I am very interested to notice as we go along in these discussions on this tax where the concessions are going. The provisions of Section 27 of the Act of 1920 have been carefully explained by the hon. Member who moved the Amendment and are quite clearly recognised by the Chancellor of the Exchequer. I cannot see any special reason at all for the Chancellor of the Exchequer making this particular concession. There is not half a case for it compared with that which was submitted to him just now 494 on behalf of nearly 8,000,000 of the poorer sections of the community. But it is for his friends, his political friends. Before we come to a further consideration of the matter we are entitled to ask the Chancellor of the Exchequer what this is going to cost. What is the difference going to be in the year? You are going to make these special allowances to the companies who have investments or the persons who have investments in the Dominions, and what is to be the cost? [An HON. MEMBER: "He does not know."] If he does not know, the matter ought to be adjourned until he finds out. [An HON. MEMBER: "He is finding out now."] At any rate, I hope that my hon. Friends here—I have not had any chance of consulting them—will see that this concession does not go through any more than the one for which we were pleading on behalf of the poorer sections of the population. I hope that none of my hon. Friends will support the concession now being made, but will go with me into the Lobby against it.

§ 10.59 p.m.

§ Sir J. Simon
I do not, I am afraid, recognise the relevance of the remarks of the right hon. Gentleman. If it is a question of the form of political badinage in proceeding to talk about friends and other people who are not friends, I make no reproach of the right hon. Gentleman because he has been so active on behalf of his friends of the co-operative societies. I do not complain at all, but I presume that even hon. Gentlemen opposite are of this opinion that, if possible, the same thing should not be taxed twice. That is a very simple proposition here. If you do not make this change, which will cost about £25,000, a number of cases will arise in which the same income is taxed twice. Whether the income belongs to the co-operative society or anybody else does not matter; this is nothing more than a single principle that, as far as we can, we should so arrange the tax that we do not tax people twice. As far as I am concerned, I do not make any distinction between one interest and another. If the right hon. Gentleman resists that proposition and wishes to register the opinion that he and his party think that there are people who ought to be taxed twice, let him do so.

§ 11.0 p.m.

§ Mr. Boothby
I want to say only a few words in answer to the right hon. 495 Member for Hillsborough (Mr. Alexander). I have no doubt that he is smarting under a sense of grievance, but he ought not to allow his natural feelings of indignation that his own particular associates have not got the concession that he asked for, to darken counsel generally in regard to this Measure. I am sure that if the right hon. Gentleman gives a moment's thought to this proposition he will see that not only does it avoid double taxation, but that it would be unfair if we did not remedy what would otherwise be a gross injustice as between a company operating wholly in this country and a company which, while having its headquarters in London, operates very largely in the Dominions. I do not think that the right hon. Gentleman or any hon. Member opposite, whatever they may feel about co-operative societies, wants to drive away from this country the head offices of companies operating in the Dominions, or seek to discourage them from having their headquarters here.
It may be interesting to the right hon. Gentleman to know that if you take a company which has £100,000 profit and which operates wholly in this country, and a company which operates to some extent in the Dominions, the difference in taxation—I have had the figures worked out and it is a long, involved calculation —amounts to something like £625 a year, that a company operating in the Dominions would pay in tax more than a company operating only in this country. There can be no practical defence of that. There is no argument in favour of differentiating unfairly between a company operating only in this country and one operating in the Dominions, with its head offices here, and I think the right hon. Gentleman would be well advised to reconsider the somewhat hasty decision he took in opposing this Amendment. I heartily agree with my right hon. Friend the Chancellor of the Exchequer that this Amendment achieves in a simpler and more effective way what I sought to do by an earlier Amendment. I welcome the decision of the Chancellor of the Exchequer to give this concession, and I thank him for it.

§ 11.3 p.m.

§ Mr. Harold Mitchell
I should like to associate myself with what has been said by the hon. Member for East Aberdeen 496 (Mr. Boothby). I think that the criticism of the right hon. Member for Hillsborough is a little short-sighted. It is to the advantage of this country that we should encourage companies to establish their headquarters here. I have no hesitation in saying that there are thousands of people who are employed in this country because foreign and Dominion companies have their head offices here. There are many services, including insurance, banking, etc., which benefit and many orders are placed in Great Britain as a direct result of a Dominion company being domiciled here. The Committee would be acting most unwisely if it passed any legislation to make the registration of such companies in this country less attractive. I am not suggesting that these companies would necessarily remove their head offices abroad because of the taxation to which they might be subjected but it is very desirable that no encouragement should be given in that direction, and that particularly in regard to new companies being formed in the Dominions, they should, as far as possible, be encouraged to establish their head offices in this country. Where you have shareholders in a company some who reside in this country and some who reside overseas, the Dominions shareholders always want to have their head office in the particular Dominion. From the point of view of this country it is most desirable that the head offices should be here. I have a case in mind of a large company producing wool in Australia. All that wool is sold in London, and as a result considerable benefits result to Great Britain. In almost every case, Australian-domiciled companies sell their wool in Sydney. This is only one case of many, and it is obvious that where companies have their head office in London considerable advantages accrue to this country. It is a fair proposal and one to which the Committee should agree. Taking a long view it will not cost the Treasury much, and over a period of years may result in more money coming in.

§ Question put, "That those words be there inserted in the proposed Schedule."

§ The Committee divided: Ayes, 236; Noes, 92.

499

Division No. 267.]	AYES.	[11.6 p.m.
Acland-Troyte, Lt.-Col. G. J.	Evans, Capt. A. (Cardiff, S.)	Muirhead, Lt.-Col. A. J.
Adams, S. V. T. (Leeds, W.)	Evans, D. O. (Cardigan)	Munro, P.
Agnew, Lieut.-Comdr. P. G.	Evans, E. (Univ. of Wales)	Nall, Sir J.
Albery, Sir Irving	Fleming, E. L.	Neven-Spence, Major B. H. H.
Anderson, Sir A. Garrett (C. of Ldn.)	Fox, Sir G. W. G.	Nicholson, G. (Farnham)
Anstruther-Gray, W. J.	Fremantle, Sir F. E.	O'Connor, Sir Terence J.
Apsley, Lord	Furness, S. N.	O'Neill, Rt. Hon. Sir Hugh
Aske, Sir R. W.	Fyfe, D. P. M.	Orr-Ewing, I. L.
Assheton, R.	George, Major G. Lloyd (Pembroke)	Owen, Major G.
Astor, Viscountess (Plymouth, Sutton)	George, Megan Lloyd (Anglesey)	Patrick, C. M.
Baillie, Sir A. W. M.	Gibson, Sir C. G. (Pudsey and Otley)	Peaks, O.
Baldwin-Webb, Col. J.	Gledhill, G.	Plugge, Capt. L. F.
Balfour, G. (Hampstead)	Gluckstein, L. H.	Ponsonby, Col. C. E.
Balfour, Capt. H. H. (Isle of Thanet)	Gower, Sir R. V	Porritt, R. W.
Balniel, Lard	Graham, Captain A. C. (Wirral)	Pownall, Lt,-Col. Sir Assheton
Beamish, Rear-Admiral T. P. H.	Grant-Ferris, R.	Procter, Major H. A.
Beauchamp, Sir B. C.	Gretton, Col. Rt. Hon. J.	Radford, E. A.
Beaumont, Hon. R. E. B. (Portsm'h)	Gridley, Sir A. B.	Rankin, Sir R.
Beit, Sir A. L.	Griffith, F. Kingsley (M'ddl'sbro, W.)	Reed, A. C. (Exeter)
Bennett, Sir E. N.	Grigg, Sir E. W. M.	Reid, W. Allan (Derby)
Bernays, R. H.	Grimston, R. V.	Rickards, G. W. (Skipton)
Blaker, Sir R.	Gritten, W. G. Howard	Roberts, W. (Cumberland, N.)
Boothby, R. J. C.	Guest, Lieut.-Colonel H. (Drake)	Robinson, J. R. (Blackpool)
Boulton, W. W.	Guest, Hon. I. (Brecon and Radnor)	Ropner, Colonel L.
Bower, Comdr. R. T.	Guinness, T. L. E. B.	Ross Taylor, W. (Woodbridge)
Boyce, H. Leslie	Gunston, Capt. D. W.	Rothschild, J. A. de
Bracken, B.	Hannah, I. C.	Royds, Admiral P. M. R.
Brass, Sir W.	Hannon, Sir P. J. H.	Russell, Sir Alexander
Briscoe, Capt. R. G.	Harbord, A.	Russell, R. J. (Eddisbury)
Brown, Col. D. C. (Hexham)	Harris, Sir P. A.	Russell, S. H. M. (Darwen)
Burghley, Lord	Harvey, T. E. (Eng. Univ's.)	Salmon, Sir I.
Campbell, Sir E. T.	Haslam, Sir (Horncastle)	Salt, E. W.
Cartland, J. R. H.	Haslam, Sir J. (Bolton)	Samuel, M. R. A.
Carver, Major W. H.	Hellgers, Captain F. F. A.	Savery, Sir Servington
Castlereagh, Viscount	Heneage, Lieut.-Colonel A. P.	Seely, Sir H. M.
Cayzer, Sir H. R. (Portsmouth, S.)	Hepburn, P. G. T. Buchan-	Salley, H. R.
Cazalet, Thelma (Islington, E.)	Herbert, Capt. Sir S. (Abbey)	Shaw, Major P. S. (Wavertree)
Cazalet, Capt. V. A. (Chippenham)	Higgs, W. F.	Simmonds, O. E.
Channon, H.	Hills, Major Rt. Hon. J. W. (Ripon)	Simon, Rt. Hon. Sir J. A.
Christie, J. A.	Holdsworth, H.	Smiles, Lieut.-Colonel Sir W. D.
Clarke, F. E. (Dartford)	Holmes, J. S.	Smith, Bracewell (Dulwich)
Clarry, Sir Reginald	Hope, Captain Hon. A. O. J.	Smith, L. W. (Hallam)
Cobb, Captain E. C. (Preston)	Hopkinson, A.	Somervell. Sir D. B. (Crewe)
Colfox, Major W. P.	Hore-Belisha, Rt. Hon. L.	Southby, Commander Sir A. R. J.
Colman, N. C. D.	Hudson, R. S. (Southport)	Spens, W. P.
Colville, Lt.-Col. Rt. Hon. D. J.	Hulbert, N. J.	Stanley, Rt. Hon. Oliver (W'm'I'd)
Conant, Captain R. J. E.	Hutchinson, G. C.	Storey, S.
Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs)	Inskip, Rt. Hon. Sir T. W. H.	Stourton, Major Hon. J. J.
Courthope, Col. Rt. Hon. Sir G. L.	Joel, D. J. B.	Strauss, H. G. (Norwich)
Cranborne, Viscount	Jones, Sir H. Haydn (Merioneth)	Strickland, Captain W. F.
Craven-Ellis, W.	Jones, L. (Swansea W.)	Sueter, Rear-Admiral Sir M. F.
Croft, Brig.-Gen. Sir H. Page	Keeling, E. H.	Sutcliffe, H.
Crooke, J. S.	Keyes, Admiral of the Fleet Sir R.	Tasker, Sir R. I.
Crookshank, Capt. H. F. C.	Law, Sir A. J. (High Peak)	Tate, Mavis C.
Croom-Johnson, R. P.	Leckie, J. A.	Taylor, Vice-Adm. E. A. (Padd., S.)
Crossley, A. C.	Lennox-Boyd, A. T. L.	Titchfield, Marquess of
Crowder, J. F. E.	Levy, T.	Touche, G. C.
Cruddas, Col. B.	Liddall, W. S.	Tree, A. R. L. F.
Culverwell, C. T.	Lipson, D. L.	Tryon, Major Rt. Hon. G. C.
Davison, Sir W. H.	Llewellin, Lieut.-Col. J. J.	Tufnell, Lieut.-Commander R. L.
Dawson, Sir P.	Lovat-Fraser, J. A.	Turton, R. H.
Denman, Hon. R. D.	Lyons, A. M.	Wakefield, W. W.
Denville, Alfred	Mabane, W. (Huddersfield)	Walker-Smith, Sir J.
Doland, G. F.	MacAndrew, Colonel Sir C. G.	Wallace, Capt. Rt. Hon. Euan
Danner, P. W.	McCorquodale, M. S.	Ward, Irene M. B. (Wallsend)
Duckworth, Arthur (Shrewsbury)	Macdonald, Capt. P. (Isle of Wight)	Warrender, Sir V.
Dugdale, Captain T. L.	McKie, J. H.	Waterhouse, Captain C.
Duggan, H. J.	Macnamara, Capt. J. R. J.	Watt, G. S. H.
Duncan, J. A. L.	Magnay, T.	Wells, S. R.
Dunglass, Lord	Makins, Brig.-Gen. E.	Whiteley, Major J. P. (Buckingham)
Eastwood, J. F.	Mander, G. le M.	Williams, H. G. (Croydon, S.)
Eckersley, P. T.	Margesson, Capt. Rt. Hon. H. D. R.	Winterton, Rt. Hon. Earl
Ellis, Sir G.	Marsden, Commander A.	Womersley, Sir W. J.
Elliston, Capt. G. S.	Mason, Lt.-Col. Hon. H. D. R.	Wood, Hon. C. I. C.
Elmley, Viscount	Maxwell, Hon. S. A.	Wright, Squadron-Leader J. A. C.
Emery, J. F.	Mayhew, Lt.-Col. J.
Emmott, C. E. G. C.	Mellor, Sir J. S. P. (Tamworth)
Emrys-Evans, P. V.	Mills, Major J. D. (New Forest)	TELLERS FOR THE AYES.—
Entwistle, Sir C. F.	Mitchell, H. (Brentford and Chiswick)	Lieut -Colonel Sir A. Lambert Ward
Errington, E.	Morgan, R. H.	and Major Sir George Davies.
	Morrison, G. A. (Scottish Univ's.)

498 499

NOES.
Adams, D. (Consett)	Grenfell, D. R.	Richards, R. (Wrexham)
Adamson, W. M.	Griffiths, J. (Llanelly)	Ridley, G.
Alexander, Rt. Hon. A. V. (H'Isbr.)	Hall, G. H. (Aberdare)	Riley, B.
Ammon, C. G.	Henderson, T. (Tradeston)	Ritson, J.
Attlee, Rt. Hon. C. R.	Hopkin, D.	Rawson, G.
Banfield, J. W.	Jagger, J.	Salter, Dr. A. (Bermondsey)
Barnes, A. J.	Jenkins, A. (Pontypool)	Sexton, T. M.
Barr, J.	Jenkins, Sir W. (Neath)	Silkin, L.
Ballenger, F. J.	Jones, A. C. (Shipley)	Silverman. S. S.
Benn, Rt. Hon. W. W.	Kelly, W. T.	Simpson, F. B.
Bromfield, W.	Kennedy, Rt. Hon. T.	Smith, Ben (Rotherhithe)
Brown, C. (Mansfield)	Lathan, G.	Smith, E. (Stoke)
Buchanan, G.	Lawson, J. J.	Smith, Rt. Hon. H. B. Lees- (K'ly)
Burke, W. A.	Leach, W.	Smith, T. (Normanton)
Cape, T.	Lee, F.	Sorensen, R. W.
Cluse, W. S.	Leonard, W.	Stephen, C.
Cocks, F. S.	Leslie, J. R.	Stewart, W. J. (H'ght'n-le-Sp'ng)
Cove, W. G.	Logan, D. G.	Strauss, G. R. (Lambeth, N.)
Cripps, Hon. Sir Stafford	McGhee, H. G.	Taylor, R. J. (Morpeth)
Daggar, G.	Maclean, N.	Thurtle, E.
Dalton, H.	MacMillan, M. (Western Isles)	Tinker, J. J.
Davidson, J. J. (Maryhill)	Maxton, J.	Walker, J.
Davies, R. J. (Westhoughton)	Messer, F.	Watkins, F. C.
Davies, S. 0. (Merthyr)	Milner, Major J.	Westwood, J.
Day, H.	Morrison, Rt. Hon. H. (Hackney, S.)	Whiteley, W. (Blaydon)
Dunn, E. (Rother Valley)	Morrison, R. C. (Tottenham, N.)	Williams, T. (Don Valley)
Ede, J. C.	Noel-Baker, P. J.	Windsor, W. (Hull, C.)
Edwards, Sir C. (Bedwellty)	Paling, W.	Woods, G. S. (Finsbury)
Fletcher, Lt.-Comdr. R. T. H.	Parker, J.
Gallacher, W.	Parkinson, J. A.	TELLERS FOR THE NOES.—
Graham, D. M. (Hamilton)	Price, M. P.	Mr. John and Mr. Charleton.
Greenwood, Rt. Hon. A.	Pritt, D. N.

§ 11.15 p.m.

Major Hills
I beg to move, as an Amendment to the proposed Schedule, in line 91, after the second "business," to insert "life."
The effect of my Amendment would be to exempt from the tax the income on investments held by fire, accident and marine companies. The principle in regard to investments subject to the tax was defined by the Chancellor of the Exchequer on 21st June when he said: Generally speaking, income from investments will not be included for the purpose of this tax. Then the right hon. Gentleman went on to say: If a trader holds some investment and draws his dividends from it, the proceeds of that investment will not be included in the profits gained by his trade or business. The right hon. Gentleman then stated the cases in which that income would be included. He said: In the case of a company whose functions consist either wholly or mainly in the holding of investments or other properties, so that that really becomes its business, then, of course, those holdings must be treated as the business carried on by the company, and the profits made from them will become taxable."—[OFFICIAL REPORT, 21st June, 1937; col. 865, Vol. 325.] It is on that that I base my case. I shall endeavour to show that income from the investments of fire, accident and 500 marine companies should be free from the tax on the ground that those companies are not such as "wholly or mainly" hold investments for profit. When the original National Defence Contribution was introduced, the investments of these companies were not included, and if hon. Members turn to Part III of the original Fifth Schedule to the Bill they will find in paragraph 10, the following: Account shall be taken of income received from investments in the case of banking businesses, businesses of building societies, life assurance businesses, and businesses consisting wholly or mainly in the making or holding of investments, but not in other cases. Therefore, as the Bill was then framed the only insurance investments included were those of life assurance companies. I take it that this tax remains a tax on the profits of business. That has been said over and over again, and I venture, with some confidence, to urge on the right hon. Gentleman that the business of those companies to which I have referred cannot be held to consist wholly or mainly of dealing in investments or the holding of investments. Their business is something quite different, underwriting. There are certain insurance companies which I shall call miscellaneous companies. They insure the public against fire or accident, and they insure the shipowner against loss. They hold investments of very large 501 values, but so do many commercial companies, and if the income from the investments held by these commercial companies is exempt, I cannot see why the income of this special class of insurance companies is taxed. For instance, to give some examples of large investments of commercial companies, Shell Transport hold £11,000,000 in Stock Exchange securities, Courtaulds hold £15,200,000 in British Government securities, Burmah Oil Company hold in British and Indian Government securities over £3,000,000 and miscellaneous investments of £11,500,000, Imperial Tobacco hold British Government securities of nearly £10,000,000, and the Distillers Company hold British Government and other securities of £5,500,000. These are immense figures, and the dividends on all these large investments will escape taxation, and I submit that the companies for whom I plead should stand in the same position as these trading companies. The reserves of these insurance companies are not made with the object of making profits. The Bill taxes the profits of commercial companies, and I quite agree that the profits of insurance companies ought to be included, but I see no reason for taxing the income from investments of these companies when the large commercial companies whose names I have read out are exempt. If you tax both the profits and the investment income of a company, surely you transform the National Defence Contribution into a tax on income and not a tax on profits. Insurance companies do not dispute their liability to National Defence Contribution, on their underwriting profits their profits are substantial and will yield a substantial amount to the Chancellor of the Exchequer.
So far I have dealt with these miscellaneous insurance companies in comparison with commercial companies, and I have given to the Committee good reasons why they should not be placed in a different category from commercial companies as far as the taxation of income from investments is concerned, but I know that I have to go rather farther than that. I have to show the distinction between these companies and the life companies, if it is admitted that the investments of life companies are subject to this tax. I have to show some special character in the investments of these companies which places them in a different category from 502 the investments of the companies that insure your life. A contract of life insurance is different from a contract of insurance against fire. Under a life policy a certain sum is payable either at death or at a fixed date. If I insure my life for £1,000 payable after a term of years I pay a certain premium to the insurance company. Out of that premium the company have to pay commission to the insurance broker and the expenses of their office. Of the rest a small amount will go to the shareholders and the larger part—in the case of a mutual office, the whole—will go to the policy-holder either in bonus or in the payment of the £1,000 when it falls due.
This sort of insurance is real investment business. It has the same effect as if a man paid a certain sum into his bank every year and let the amount grow up until the desired capital amount was reached. Or he might pay a certain sum to the Bank of England and let the dividends on it be invested every quarter. He goes to the insurance office for investment purposes for two reasons. The insurance office can earn more interest on his money, and in the case of an endowment policy it is paid if he dies before the policy matures. The whole transaction is investment either for himself or for those whom he wants to benefit after his death. A further use of a life policy is to enable a man to provide for Death Duties. Or he may use it as a sinking fund. He buys a leasehold house and pays a premium on the lease. At the end of the 30 or 40 years of the lease he wants to get his premium back, so he takes out a policy that will repay him at the termination of the lease. The business of a life insurance office is an investment business. Therefore it is rightly taxed. The point is that it knows its liability, and against that liability it has premiums which come in every year, and it piles up a fund which is always there to meet that liability. That fund must bear interest, because the person who has insured his life always gets more than the amount of the premiums he has paid. So much for life insurance.
Take the case of fire insurance. There is here no certain date when the insured person gets his money back. He cannot burn down his house and claim the insurance, or he will get seven years. The contingency of fire may never occur. Many people have insured their houses 503 for 30, 40 or 50 years and no fire has occurred. On the other hand, when the claim does fall on the insurance company it is sudden and uncertain. Thirty-one years ago there was an earthquake in San Francisco which cost British insurance offices over £14,000,000. Fire insurance offices do not have regular payments out, as life insurance offices do, but are met with sudden and immense claims. Very heavy claims will have to be paid by British insurance offices in respect of Spain. What I want to impress on the Chancellor is that these fire companies must, for the purposes of their business, hold the very large funds which they do hold, and that it would not be either right or politic to subject those funds to the National Defence Contribution. Fire, accident and marine insurance companies do not look for a very big interest return. Interest does not concern them very much. What they have to do is to keep the capital value of their funds as stable as they can, to invest in securities which do not fluctuate very much in value, and also to keep funds liquid so that they can realise them. In order to pay the £14,000,000 after the San Francisco earthquake they had to realise their funds, and I am glad to say that that immense payment did not shake the solvency of our insurance offices.
I may be told that it is not necessary to hold these great funds, and that the companies do it for the purpose of attracting business, that they are a sort of shop window to induce insurers to do business with them; but I assure the Committee that that is not so. They are necessary funds in this section of insurance business, where the liabilities are incalculable. In the last 30 years the liabilities of British insurance companies have greatly increased. They are now very large and very heavy. These funds are necessary for the purpose of meeting those liabilities, and there have to be such investments as will not fall in value. I assure hon. Members that large numbers of companies must have at their disposal very big investments. Besides the insurance companies, Lloyd's are also concerned, because they incur very heavy insurance liability. [Laughter.] I wish hon. Members would let me into the joke. I know it is late, but I cannot be short over a matter like this. Unless my 504 Amendment is carried, an injustice will be created, and great injury inflicted upon the insurance interests. I will give just one set of figures of one company which, under the old National Defence Contribution would have paid £10,000, a reasonable sum; under the new National Defence Contribution, if my Amendment is carried, it will pay £75,000 on its underwriting profits. That is all right; that is its contribution under the National Defence Contribution, but if the Amendment is not carried it will pay £100,000 a year extra or, in all, £175,000 a year more than it would pay under the original scheme. You can reckon that the total paid by the insurance, companies would be over £1,000,000 per year. The payment that would fall on the life insurance companies is a comparatively small sum; the whole put together would be one-twentieth part of the new National Defence Contribution. That is a very heavy charge to place upon one industry. It is specially heavy, and might have a serious effect on the work of the insurance companies, whose present efficiency and the speed with which they settle claims is well known.
Here is a great national business which has been built up by the efforts of centuries. These companies are not absurdly extravagant in what they have to hold in order to cover their liabilities, and, from their past experience, they never know when a liability is to fall upon them or how heavy it will be. Events in connection with the Spanish problem, or something of that sort, may throw on them a loss far greater than any that falls on a life office. A life office may have to meet heavy claims owing to an influenza epidemic or something of that kind, but far bigger losses may fall on these offices. I would plead with the Chancellor to make some concession at any rate to the fire, accident and marine insurance companies.

§ 11.41 p.m.

§ Sir J. Simon
My right hon. and gallant Friend has stated the case with his usual care, and it is very difficult for me to resist his appeal, but I feel that some of the things that he has said really provide the justification for keeping the provisions of the Bill in this respect as they are. The question is whether we should, in including income received from investments, limit the definition of assurance 505 business to life assurance business, or whether we should include other forms of assurance business. I agree with my right hon. and gallant Friend that I did not refer to this precise case when I introduced the Resolution, but I did refer to businesses consisting wholly or mainly in dealing in or holding investments. I did not refer to the business of banking, but it was always the intention to include as part of the scheme a business which earned an essential part of its income by dealing in or holding investments, whether it was a banking business or an assurance business or a business consisting wholly or mainly in dealing in or holding investments. The issue to be decided by the Committee is whether the holding of these investments is an essential part of the business of an insurance company if it is not a life insurance company but an insurance company of another kind. My right hon. and gallant Friend agrees that a life insurance company has to receive premiums from the people whom it insures, and that it invests those premiums in order that, when one of those people dies or reaches a certain age, it may pay the amount contracted for; but is it really the case that nothing corresponding to that happens in fire insurance business?
I heard my right hon. and gallant Friend describe very eloquently how a fire insurance company may be faced with some overwhelming claim. He said that they never could tell when these claims were coming upon them, or how heavy they would be, and he explained what happened in the San Francisco disaster. But in that case it was only the fact that they held investments that enabled them to meet the claims. My right hon. and gallant Friend told us, indeed, that the solvency of these companies depends on their investments. I should think that that is all quite true, but it seems to me to prove that the holding of these investments is essentially the business of such an insurance company, and, after all, that is the test which has to be applied. If it is not merely a convenient process of putting aside money which they do not want, but is really essential to their business, I should have thought it would be very difficult to make a distinction between the fire insurance company and the life insurance company. I do not know whether it has ever happened to anyone in this Committee to be visited by an ingenious and persuasive gentle- 506 man who wants you to insure with his particular company, whether against fire, burglary, or whatever it is. The first thing that he does is to spread out a paper before you and point out what considerable investments his company has.
While I agree as to the importance of the point, I am afraid I cannot see my way to make a distinction between these different kinds of insurance. I will give the Committee one instance which I am sure is quite conclusive. There may be a very important class of business carried on by insurance companies, the business of a capital redemption company. You have a wasting asset, and you arrange with an insurance company to pay so much a year and, when your lease is finished, or a ship worn out, you will get back sufficient money to build a new one. Surely no one will deny that an insurance company which carries on that business must make investments. Though I quite agree with the right hon. Gentleman that all cases are not as simple as this one, I am afraid I am not persuaded that it would be right to alter the Schedule and limit it to insurance companies. There are some very big commercial companies, not insurance companies at all, which, in fact, have very large investments, but you could not say that the holding of such investments is essential to the business. My own view is that insurance companies are, after all, enterprises which depend as much as any others on our country being safe and our defences being sure, and I do not think it is unreasonable to ask that insurance companies of every sort should make a contribution.

§ 11.47 p.m.

§ Lord Burghley
It is only fair to say that I am interested in an insurance company. Insurance companies do not deny the importance of making their fair contribution as far as Defence is concerned. The point at issue is whether they are doing more than their fair share as compared with other companies. The right hon. Gentleman has drawn a difference between insurance companies and ordinary businesses, and says that ordinary businesses which make no contribution on their investments are not in the same position as insurance companies as far as investments are concerned. What about a company which puts plant into a factory 507 and guarantees to keep it up for 10 years? Surely if a company has not a strong financial position you will not trust it with that job. They are just as much dependent on their reserve investments as insurance companies. The right hon. Gentleman says that an insurance company's reserves are, as it were, stock in trade. When you start an insurance company, you must raise a certain amount of money, which becomes your stock in trade, but when you have once produced that nest-egg your ins and outs are being paid for by your premium income every year. Provided you have that nest egg, your policy holders are quite satisfied that they will be paid in an emergency. When the reserves of insurance companies are far bigger than their nest-egg need be to satisfy policy holders, they have very large sums which are in the same position as the reserves of ordinary companies.
The principle appears to be that whereas an ordinary company puts money by for prudence, an insurance company is allowed to put no money by for prudence but simply to improve their stock in trade. That is a position which will not hold water. They could halve their investments to-day without their policy holders having any fear, and therefore a large percentage of that money must be considered to be reserves as in an ordinary company, and if it is to be considered as reserves it must be treated as such. Therefore, I urge the right hon. Gentleman to consider all these points before the Report stage to see if some modification cannot be made.

§ 11.51 p.m.

§ Mr. Denman
I find with some surprise that there is considerable misunderstanding of paragraph 5. I would like to ask what is meant by income derived from investments? Is that the net income received after deduction of tax, or is the trust company or the insurance company to gross that net income—to use the language of Income Tax inspectors—and to add the Income Tax that has been deducted in order to find the amount to be charged for National Defence Contribution? My second question is as to the effect of this paragraph on mutual life offices. It was stated in an earlier stage of this Debate that they would not have to pay in respect of their investments, and I believe that that is taken to be erroneous. It 508 is believed outside by certain important offices, and it is desirable that the Chancellor of the Exchequer should make a clear declaration on the point. It seems to me that for the language of this paragraph it is quite clear that all the income they receive from investments, other than income which has already been charged to National Defence Contribution, will have to pay its due quota of this new tax.

§ 11.53 p.m.

§ Mr. Crowder
The Chancellor of the Exchequer has not said a word about Lloyd's underwriters, who do a large business in insurance. He said that insurance companies tried to attract business by telling the public what large investments they hold. The public cannot find out what Lloyd's investments are, and it is not essential for Lloyd's underwriters to have investments at all. Therefore, I do not see that the argument which the Chancellor has used with regard to companies applies to Lloyd's underwriters, and it seems to me that if the Chancellor does not make some concession to Lloyd's underwriters, it will only encourage underwriters to pay out to the individual name of Lloyd's more than the balance sheet warrants, so that there will be no money left in the till for investments. The whole of the profit in one year is paid out to the individual name. We hold premiums in trust for a time for the insurers, and during the time we have that money before the account is closed, which is three years, this money is invested. I do not feel that it is right that these investments should be taxed.
As the Chancellor knows, it has been rather difficult to do insurance abroad, and foreign countries have insisted that large sums of money should be deposited abroad to enable us to do business there, and up to a short time ago underwriters, to enable them to do this business, borrowed money—anal paid 2½ per cent. for it—from foreign banks. During the last few weeks arrangements have been made whereby a large sum of money has been raised by underwriters and invested abroad to enable them to do business there. Naturally the money will be invested in securities abroad. It is only there for the purpose of enabling us to do business. It is rather unfair that underwriters, who have unlimited liability, should be treated in the same way as the shareholders of a company. 509 I ask the Chancellor of the Exchequer whether he will not favourably consider doing something on the Report stage to make the position a little clearer and easier as regards Lloyd's underwriters?

§ 11.56 p.m.

§ Sir J. Simon
I will reply first as to the question asked by my hon. Friend below the Gangway. I have looked at the words, and I think that the answer to his question is that the income to be charged is the gross income. Where investment income that is liable to National Defence Contribution first pays Income Tax by deduction it is the gross amount before deduction of Income Tax that will bear National Defence Contribution. However, I will look at it and if necessary give a more accurate answer perhaps on the Report stage. My hon. Friend the Member for Finchley (Mr. Crowder) has called attention to the position of Lloyd's underwriters, and I agree that there may be some respects in which their position may need to be specially considered. One reason is that, generally speaking, Lloyd's underwriters are not in quite the same position as companies, but I would want to go into the matter a little closer before I could give any assurance on it.

§ Mr. Ellis Smith
Especially remembering that the municipalities would be interested?

§ Sir J. Simon
The real problem is that the treatment of investment income is one of the most difficult things to decide in the whole scheme. It would be possible to devise a tax which either took in interest on investments or excluded it altogether. If it could be done all round, the insurance companies could be included as part of the whole. We have drawn a distinction—I think rightly —and said that where an individual company has got an investment which is not really an essential element in its business, that it shall not be taxed. That, I think, is right. The outside investments of manufacturing industry, for example, would not be taxed. But when you come to the case in which it is essential to the company's business that it should make investments and draw interest from them, you plainly have a case where you must regard it as carrying on trade, in part at least, by drawing interest from its investments, and it is a question on which side of the line insurance companies should 510 come. I appreciate very fully what was said by my hon. Friend opposite in a very persuasive speech, but, as I have said, I am not at present able to make a decision, and I will gladly consider the point.

§ 11.58 p.m.

Mr. J. J. Davidson
I can see that the Chancellor of the Exchequer is rapidly becoming the favourite of one particular side of the Committee. His concessions to certain interests, on the one hand, and his definite stand against the interests represented on this side of the Committee have created some consternation among my colleagues. I say quite frankly to the hon. Members who have been pleading with such eloquence for the poor company which has only a nest egg, that it was admitted by the hon. Member below the Gangway to be a growing nest egg upon which to fall back, and that it is an assurance to those within such a company. Their pleading has been almost as eloquent as the pleading of Members on this side of the Committee when we were stating the case for a nest egg on behalf of the working class with regard to the means test administration, but I did not on that occasion see the Front Bench of the Government receiving our eloquent pleas with the same spirit in which they have received this plea to-night.
This is a business proposition. We are told on good authority that there is money in it. The right hon. and gallant Member who moved the Amendment said that these companies would be liable under the Bill for an extra £100,000 in taxation. I take the view that the more the Chancellor of the Exchequer can get from companies who can afford to pay an extra £100,000 and the less he takes in taxes from small business men and co-operative societies the more fair and equitable the taxation will be. I trust that before the Report stage the Chancellor of the Exchequer will realise the grave danger there is of the people of the country recognising him and hon. Members behind him as trying to pass this National Defence Contribution on to the poorest sections of the business life of the country, and allowing the big industrialists and employers of labour to escape. The big industrialists have threatened the Government and now they are running 511 away from their proposals to tax the big men. I am glad to have this opportunity of showing the Chancellor of the Exchequer the grave danger which exists of the people realising that he is acting as a class Chancellor of the Exchequer and against the interests of the majority of the people.

§ 12.3 a.m.

§ Sir W. Davison
I do not propose to follow the hon. Member in his observations except to say that when he refers to the ample resources of insurance companies, a business which commends itself to Members in all parts of the Committee, he must remember that they are provided in order to pay their liabilities to those whom they insure. I should like to comment on one point in the Chancellor's speech. He compared this kind of insurance company with a banking company. There could not be a greater difference. A banking company makes its profits by buying and selling investments, and, further, it is allowed a reduction in Income Tax when it makes a loss on the sale of investments. In the case of an insurance company this is simply a reserve fund, and is no part of the business. These investments are no part of the business. Their reserves are to give the country confidence that they are in a position to meet any demands which come upon them. They do not look for highly remunerative investments but for something liquid, which can be realised in a short time in order to pay claims which may be made upon them. They are in a different position from the investments of a bank, which are part of a bank's business. I hope that the Chancellor will bear this point in mind.

§ 12.5 a.m.

§ Captain Sir William Brass
I want to appeal to the Chancellor of the Exchequer on the same grounds as my right hon. and gallant Friend. He pointed out that the investments of certain insurance companies—not life assurance companies—were their reserves. The Chancellor of the Exchequer just now said that investment was an essential part of an insurance company; I agree, and I want to ask him one question. Is not investment as essential to the Prudential Assurance Company, which has £11,000,000 as reserve, as it is to the Imperial Tobacco Company, or any other 512 company? These companies are to be exempt, but the insurance companies are not. Would the right hon. Gentleman answer that question in a single sentence now?

§ 12.6 a.m.

§ Sir J. Simon
I will answer my hon. and gallant Friend with pleasure, although it is a question that does not need an answer. Perhaps he was not here at the beginning of the Debate, or he would know that those very examples were cited by the right hon. and gallant Member for Ripon (Major Hills) for the purpose of the argument which he addressed to the Committee, about half or three-quarters of an hour ago.

§ Amendment negatived.

§ 12.7 a.m.

§ Mr. Spens
I beg to move, as an Amendment to the proposed Schedule, in line 95, to leave out "by way of dividend or distribution of profits."
The object of this Amendment is to avoid double taxation in the case of companies which have already borne taxation. Any income from industrial companies which has already borne taxation by investment in debentures or loans is to be brought into the charge of tax. One appreciates that there will be loss to the Treasury if the Amendment is accepted, owing to the fact that the industrial company itself will have been allowed a deduction for its debenture interest or loan interest, and so forth, and that that particular sum will not have brought tax into the hands of anybody. The anomaly that arises from that system is that hitherto there has been no reason why an investment company, an insurance company or a bank could have any preference as to whether it makes its investment in debentures, preference shares or ordinary shares, because it has not been liable to lose. Now, every time it selects debentures for investment, the company or bank will increase the amount it will pay under this National Defence Contribution.
It seems undesirable that this factor should be introduced into the finance of industry, if it can be avoided. I cannot believe that so much is to be gained by including the income that comes from debentures in industrial companies, and if the position can be avoided without loss, to do so would be to the general advantage. A very great number of 513 questions are raised by it, to my own personal knowledge, and I hope it will not be necessary for me to persist in this matter. These industrial companies have paid the taxation according to the method of assessment in the Schedule, and, whatever the result of that method, if the taxation is paid once and for all, I suggest that it is undesirable to have the wording of the Clause as it stands, which incidentally is not where the exception has been made for avoiding double taxation. While I do not want to press the Amendment now, I hope that before the Report stage my right hon. Friend will be able to consider the matter with a view to seeing whether he cannot leave out the words that I suggest should be left out.

§ 12.11 a.m.

§ The Attorney-General
In reply to my hon. and learned Friend, I think the real point is that the scheme which this Amendment would alter follows logically and inevitably on the principle that, in fixing the amount on which the National Defence Contribution is to be levied, loan interest and debenture interest is to be deducted, and no doubt that does throw the incidence of the National Defence Contribution levy on the ordinary shareholder. To that extent, the result inevitably follows that the balance is weighted against the ordinary shares in favour of debenture interest. While appreciating what my hon. and learned Friend says, if his Amendment were accepted it would load that balance still further in favour of debentures and against the ordinary shares, and by adopting, as we have, this scheme, which is based on a logical principle, and seeing that the loan interest if paid to an investment company shall in its hands bear the National Defence Contribution, we are to some extent. though not completely, of course, redressing the balance and seeing that, as far as may be, from the investment company's point of view, the disadvantage which might attach to ordinary shares as an investment as compared with debentures is counterbalanced by the fact that debenture interest in their hands will suffer the National Defence Contribution. For those reasons, we cannot accept the Amendment.

§ Amendment negatived.

§ 12.13 a.m.

Mr. Alexander
I beg to move, "That the Chairman do report Progress, and ask leave to sit again."
514 I move this Motion in order that we may get a statement from the Government as to how far they propose to go tonight.

§ Sir J. Simon
I have been looking through the Amendments, and I think the Committee will be satisfied that there remains no matter which is likely to cause acute controversy or prolonged discussion. There are at most only three or four very minor points, and I am hopeful that if we go on we shall finish in quite a short time.

Mr. Alexander
My hon. Friends have great difficulty in staying late because of having to catch trains. We do not mind continuing the business of the House if there is really something to debate, but it is very annoying to stay here and find that there is nothing but a sham fight.

§ 12.14 a.m.

§ Mr. Tinker
I have listened to all the arguments on the Amendments from the other side, but when the Amendments have been discussed, they have been withdrawn and not pressed to a Division. Surely if hon. Members opposite do not intend to press their Amendments to a Division, they will curtail their remarks. The right hon. and gallant Gentleman the Member for Ripon (Major Hills) spoke for half an hour and did not receive satisfaction from the Government, but he did not press his Amendment to a Division. I hope the Government will realise that we want to get the business through.

§ 12.15 a.m.

Mr. Davidson
May I ask the Chancellor of the Exchequer whether he cannot make a statement now to his followers behind him, with regard to their Amendments, that they should consult him about them and get him to take them into account and give them some assurance of that kind? That is all that is taking place on every Amendment that we have had from them for a considerable time. On every Amendment he has said that he cannot give them any definite assurance, but that he has noted what they have said. I ask him to take them all at once and to say, "Let us get through them." It is nonsensical keeping hon. Members here when hon. Members opposite have not the guts to carry their Amendments into the Lobby, 515 if they really believe in what they are moving.
Motion, by leave, withdrawn.

§ 12.16 a.m.

§ Colonel Ponsonby
I beg to move, as an Amendment to the proposed Schedule, in line 107, to leave out: and directs or is entitled to direct the management of. It is a very short Amendment and almost a drafting Amendment. The proviso in which the words occur exempts from National Defence Contribution incomes from subsidiary statutory undertakings by a controlling or holding company, but in order to obtain that exemption the controlling company has to prove two things—first, that it has a controlling interest and, second, that it directs or is entitled to direct the management of the undertaking. The first point is quite easily ascertained. The shares are held either en bloc or partly en bloc and partly in the names of nominees. As regards the second matter, "directs or entitled to direct," I would point out that it is very difficult for a company to direct another company. In the eyes of the law the only parties who can direct a company are the directors, and possibly the Chancellor of the Exchequer may be aware that these words are taken from the Finance Act, 1921, Section 58, which deals with the Corporation Profits Tax. I do not know whether the fact that they have been removed en bloc from that Act makes them sacrosanct, but I ask whether he can see his way to agree to my Amendment and omit these words.

§ Lieut.-Colonel Colville
This is really a drafting Amendment, and we agree to the deletion of these words.

§ Amendment agreed to.

§ 12.19 a.m.

§ Mr. H. G. Williams
I beg to move, as an Amendment to the proposed Schedule, in line 108, to leave out: by way of dividend or distribution of profits. Public utilities whose profits are controlled are exempted from the tax, whether municipal or company owned, and it is clearly the intention that exemption of holding companies shall be carried through in the same way as is the case under Section 58 of the Finance 516 Act, 1921, which imposed the old Corporation Profits Tax. This is really not very much more than a drafting Amendment, but merely gives effect now to what was done in 1921, and in the same way.

§ 12.20 a.m.

§ Lieut.-Colonel Colville
The hon. Member has, in a very few words, correctly covered the ground. We agree with this Amendment and accept it.

Mr. Alexander
I think it wants a little more explanation than that, all the same. I do not want to spend time over a sham fight, but we must know what we are doing.

§ Lieut.-Colonel Colville
I will give the right hon. Gentleman an explanation with pleasure. The omission which my hon. Friend proposes would have the effect that a body corporate which has a controlling interest in another body corporate which is a statutory undertaking, and therefore not chargeable to the tax, would not be required to pay National Defence Contribution on any income received from that statutory undertaking, whether in the form of dividend, distribution of profits, or management fees.

§ 12.21 a.m.

Mr. Davidson
I trust that Members of the Committee will not accept this Amendment in the way that the Government have accepted it. It seems to me and to many of my colleagues that the Chancellor is now being faced by very many tricky experts who are showing him certain methods and avenues whereby certain interests can evade this tax. I and many of my colleagues are disgusted at the attitude of the Government towards those experts, and accordingly we shall divide against this Amendment.

§ 12.22 a.m.

Mr. Alexander
I too am exceedingly doubtful about this Amendment. It seems to me to be just a way of getting out of what ought to be a legitimate charge upon holding companies, and having regard to the kind of criticisms that we have made from time to time from these benches in regard to the manipulation of these companies and its effect very often upon employment in the industries concerned, I do not feel that, because you have exempted under the Act the original statutory undertakings 517 whose profits are paid afterwards to the holding companies, you should thereby exempt the holding companies themselves.

§ 12.23 a.m.

§ Mr. H. G. Williams
There is no point, I would point out to the right hon. Gentleman opposite, in exempting the statutory company if you do not also effectively exempt the company to which the profits go. It is purely a matter of administrative convenience in certain cases where a holding company controls and manages a group of public utilities. If you destroyed the holding company and distributed the shares which it held in these public utilities to the persons who were shareholders in the holding company, none of those persons would in any way be affected by this tax. Why, because for administrative convenience you interpose something which on administrative grounds is a sensible thing to do in many cases, you should say the tax should then be payable, I really do not know. Having exempted the public utilities themselves, I can see no reason why you should not also exempt the holding companies which receive the profits from those public utilities; and remember this, that this concession is given solely to people or public utilities which are controlled in respect of their rates of charge or rates of profit. They are people who are debarred by legislative and other regulations from exploiting any situation. To say that a controlled body should be taxed, though the body which controls it is not, seems to reduce the whole argument to complete absurdity.

§ 12.25 a.m.

§ Mr. Bellenger
Before the Committee proceeds to a Division, it is only right that we should hear from the Financial Secretary what the cost of this would be. After all, in the case of all the other concessions he has given to his hon. Friends he has told the Committee what the cost will be. We have been told that this National Defence Contribution is to raise a certain amount of money. We have a great deal of consideration for the Chancellor of the Exchequer. We do not want his Budget to be unbalanced and we should like to know whether this would result in any substantial sum of money being lost to the revenue.

§ 12.26 a.m.

§ Sir J. Simon
If there were any question of a loss of revenue, the Committee 518 ought certainly to know, but for the moment the hon. Gentleman who has just spoken has not quite got the point of this Amendment. The point is really an extremely limited one. What we have to consider is this. Suppose you have statutory undertakings; you are not going to get any National Defence Contribution tax out of them; that has already been decided. But it may be that the shares of these particular undertakings are owned by a company which manages them. Can it be contended that when the statutory undertaking pays these profits to the company which owns it, the company is to be taxed? That would be absurd, because you have started off on the proposition that it is a statutory undertaking. As we have drawn it up in the Schedule, we have not said that the owning company shall not be taxed, but only that the company shall not pay tax if it receives the amount from a statutory undertaking by way of dividend or by way of distribution of profits. But there is the possibility that you might have it paid by way of interest on debentures. It is solely for the purpose of covering an omitted case which is obviously exactly the same in principle as every other case that it is proposed to leave out the words by way of dividend or distribution of profits. There is the more reason for leaving them out because in the case of the Corporations Profits Tax, which was exactly the same type of scheme, those words did not occur, with the result that whatever the method by which the statutory undertaking hands over its remitted profit to the owner, in the hands of the owner it does not hear tax. There is really, therefore, no question of losing money, but merely that we had omitted a particular case and so we are simply cutting out these words.

§ 12.30 a.m.

§ Mr. Silverman
It is quite easy to see that the Chancellor of the Exchequer has given a good deal of attention to these matters. I do not know whether my own intelligence is more limited than that of other hon. Members, but it is not clear to me. I understand from his last few sentences that the intention is that where the tax is not leviable at the source, as it were, it shall not be leviable when the profits are distributed into the hands of those who ultimately receive those profits. 519 May I remind the right hon. Gentleman that earlier this evening we were discussing a case which is not without its analogies with this one? We discussed the case of the small investor whose total income was below the level at which Income Tax is assessed at all, and we suggested to him that as the whole purpose of this new tax was only to place a tax on large incomes and if you were not going to tax at all until the profits reached the sum of £2,000, it was anomalous, inequitable and wrong, where the profits were distributed into the hands of persons who were not assessable to Income Tax on the general principle, that you should then tax, in the hands of the ultimate receiver of the property, amounts which it was not intended should ever be taxed

520

§ at all. I know there are differences and that the two cases are by no means the same, but as far as the principle on which the Chancellor of the Exchequer has sought to defend this proposal, it is precisely analogous with the case that we put to him earlier in the evening, and which he and the Committee rejected. It is only another example of concessions being made to large people which are refused to small ones, arid for my part I hope the Committee will divide against this proposal, and defeat it.

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

§ The Committee divided: Ayes, 27; Noes 153.

521

Division No. 268.]	AYES.	[12.31 a.m.
Alexander, Rt. Hon. A. V. (H'lsbr.)	Fletcher, Lt.-Comdr. R. T. H.	Pritt, D. N.
Barr, J.	Grenfell, D. R.	Silverman, S. S.
Bellenger, F. J.	Hall, G. H. (Aberdare)	Smith, Ben (Rotherhithe)
Benn, Rt. Hon. W. W.	Kelly, W. T.	Smith, E. (Stoke)
Burke, W. A.	Lawson, J. J.	Stewart, W. J. (H'ght'n-le-Sp'ng)
Cape, T.	MacMillan, M. (Western Isles)	Windsor, W. (Hull, C.)
Cocks, F. S.	Milner, Major J.	Woods, G. S. (Finsbury)
Dalton, H.	Nathan, Colonel H. L.
Davidson, J. J. (Maryhill)	Noel-Baker, P. J.	TELLERS FOR THE AYES.
Edwards, Sir C. (Bedwellty)	Price, M. P.	Mr. Paling and Mr. Tinker.
NOES.
Acland-Troyte, Lt.-Col. G. J.	Cruddas, Col. B.	Inskip, Rt. Hon. Sir T. W. H.
Agnew, Lieut.-Comdr. P. G.	Culverwell, C. T.	Joel, D. J. B.
Albery, Sir Irving	Dawson, Sir P.	Jones, Sir H. Haydn (Merioneth)
Anderson, Sir A. Garrett (C. of Ldn.)	Duckworth, Arthur (Shrewsbury)	Jones, L. (Swansea W.)
Anstruther-Cray, W. J.	Duggan, H. J.	Keeling, E. H.
Apsley, Lord	Duncan, J. A. L.	Kerr, H. W. (Oldham)
Aske, Sir R. W.	Eastwood, J. F.	Keyes, Admiral of the Fleet Sir R.
Assheton, R.	Eckersley, P. T.	Leckie, J. A.
Astor, Hon. W. W. (Fulham, E.)	Elmley, Viscount	Levy, T.
Baldwin-Webb, Col. J.	Emrys-Evans, P. V.	Liddell, W. S.
Balfour, Capt. H. H. (Isle of Thanet)	Errington, E.	Llewellin, Lieut.-Col. J. J.
Beamish, Rear-Admiral T. P. H.	Evans, D. O. (Cardigan)	Lloyd, G. W.
Beauchamp, Sir B. C.	Fleming, E. L.	Mebane, W. (Huddersfield)
Beaumont, Hon. R. E. B. (Portsm'h)	Fox, Sir G. W. G.	McCorquodale, M. S.
Beit, Sir A. L.	Fremantle, Sir F. E.	Macdonald, Capt. P. (Isle of Wight)
Bernays, R. H.	Furness, S. N.	McKie, J. H.
Boulton, W. W.	Fyfe, D. P. M.	Margesson, Capt. Rt. Hon. H. D. R.
Bower, Comdr. R. T.	Gibson, Sir C. G. (Pudsey and Otley)	Marsden, Commander A.
Boyce, H. Leslie	Gluckstein, L. H.	Maxwell, Hon. S. A.
Brass, Sir W.	Graham, Captain A. C. (Wirral)	Mayhew, Lt.-Col. J.
Briscoe, Capt. R. G.	Grant-Ferris, R.	Mellor, Sir J. S. P. (Tamworth)
Brown, Col. D. C. (Hexham)	Gridley, Sir A. B.	Mitchell, H. (Brentford and Chiswick)
Burghley, Lord	Grimston, R. V.	Morgan, R. H.
Cartland, J. R. H.	Guinness, T. L. E. B.	Muirhead, Lt.-Col. A. J.
Cazalet, Thelma (Islington, E.)	Gunston, Capt. D. W.	Munro, P.
Cazalet, Capt. V. A. (Chippenham)	Hannah, I. C.	Neven-Spence, Major B. H. H.
Channon, H.	Hannon, Sir P. J. H.	Nicholson, G. (Farnham)
Christie, J. A.	Harbord, A.	Ormsby-Gore, Rt. Hon. W. G. A.
Clarry, Sir Reginald	Harvey, T. E. (Eng. Univ's.)	Orr-Ewing, I. L.
Cobb, Captain E. C. (Preston)	Heilgers, Captain F. F. A.	Palmer, G. E. H.
Colfox, Major W. P.	Hepburn, P. G. T. Buchan-	Perkins, W. R. D.
Colman, N. C. D.	Herbert, A. P. (Oxford U.)	Plugge, Capt. L. F.
Colville, Lt.-Col. Rt. Hon. D. J.	Herbert, Capt. Sir S. (Abbey)	Ponsonby, Col. C. E.
Conant, Captain R. J. E.	Higgs, W. F.	Porritt, R. W.
Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs)	Hills, Major Rt. Hon. J. W. (Ripon)	Procter, Major H. A.
Courthope, Col. Rt. Hon. Sir G. L.	Holdsworth, H.	Radford, E. A.
Craven-Ellis, W.	Holmes, J. S.	Rankin, Sir R.
Crookshank, Capt. H. F. C.	Hope, Captain Hon. A. 0. J.	Rathbone, Eleanor (English Univ's.)
Crossley, A. C.	Hudson, R. S. (Southport)	Reed, A. C. (Exeter)
Crowder, J. F. E.	Hutchinson, G. C.	Reid, W. Allan (Derby)
Roberts, W. (Cumberland, N.)	Spens, W. P.	Wakefield, W. W.
Ropner, Colonel L.	Storey, S.	Ward, Lieut.-Col. Sir A. L. (Hull)
Ross Taylor, W. (Woodbridge)	Stourton, Major Hon. J. J.	Ward, Irene M. B. (Wallsend)
Royds, Admiral P. M. R.	Strauss, H. G. (Norwich)	Wells, S. R.
Russell, S. H. M. (Darwen)	Strickland, Captain W. F.	Whiteley, Major J. P. (Buckingham)
Salt, E. W.	Sutcliffe, H.	Williams, H. G. (Croydon, S.)
Seely, Sir H. M.	Taylor, Vice-Adm. E. A. (Padd., S.)	Winterton, Rt. Hon. Earl
Shaw, Major P. S. (Wavertree)	Thomas, J. P. L.	Wright, Squadron-Leader J. A. C.
Simon, Rt. Hon. Sir J. A.	Titchfield, Marquess of
Smiles, Lieut.-Colonel Sir W. D.	Tryon, Major Rt. Hon. G. C.	TELLERS FOR THE NOES.—
Somervell. Sir D. B. (Crewe)	Tufnell, Lieut.-Commander R. L.	Captain Dugdale and Captain
Southby, Commander A. R. J.	Turton, R. H.	Waterhouse.

§ 12.39 a.m.

§ Mr. H. G. Williams
I beg to move, in Line 127, after the word "pounds" to insert: or the average remuneration of such directors for the three years ended on the thirty-first day of March, nineteen hundred and thirty-seven. The point is quite a simple one. There are provisions inserted in this Schedule for making sure that the tax is not evaded by people absorbing an undue proportion by way of salaries. The point at issue was raised with me by one of my constituents and concerned a case of one or two of his relatives. A person had made, for reasons which are good and proper, his departmental managers into directors. As a result their salaries are aggregated with his for the purpose of this limitation. Actually the company is not a large one, and as far as I can make out only half their salaries would be treated as a trading expense. If to-morrow he dismissed them as directors and reappointed them as managers then, under the definition of managers we have in this Schedule, what they received would be a trading expense and no difficulty would arise. It seems to me very undesirable when people have, as these people have, risen from the ranks and got to the status of directors, and merely because they are called directors, that any part of their salaries in excess of the aggregate of their salary and that of the chairman who is the controller of the company that goes beyond the £11,500 or the 15 per cent., whichever is the greater you have the perfectly absurd position that this company will be taxed on what is, in effect, a substantial part of its working expenses.
The position is manifestly absurd. I gather that, so far as the Government have considered it, they are not too much impressed by this argument, but I wonder whether they have studied it in the light of the facts I have given, It is a lates 522 hour to argue the question now, but surely if we accept the position that existed a few weeks before anybody dreamed of this tax, and assume that at that date people were arranging their things in such a way as to avoid a tax they never dreamed of, we are not taking up a fair position. If, on the other hand, there may be cases where, for reasons quite honest and proper, a very large proportion of the profits of a company have in fact been distributed by way of salaries in an undue proportion, my Amendment would have the effect of releasing a certain number of people who ought to pay, and I see the difficulty of that. If that be a difficulty I would ask the Chancellor of the Exchequer whether he could not insert some of those words of the kind we have inserted previously to say that the Commissioners of Income Tax or the Special Commissioners, or whatever is the right body of Commissioners, shall have a certain measure of discretion in this case. I am not now suggesting a proper form of words, but I do think a number of substantial cases of hardship will arise. I hope the Chancellor will give them most careful consideration, and I hope the Committee will sympathise with me.

§ 12.44 a.m.

§ The Attorney-General
Nobody knows better than the hon. Member for South Croydon (Mr. H. G. Williams) that it is impossible to devise any general principle to fit a particular tax which does not, in certain exceptional circumstances, perhaps produce a result which is less equitable than in the general application of the principle on which it is based. But he admitted that if his Amendment were accepted there might well be cases where there was not any motive of dodging this tax. I am not suggesting there is any improper motive at all, but where in cases of this kind a very large proportion of the profits have been distributed as directors' salaries they are an amount in excess of what they would have received if they had 523 been getting salaries as managers. That is the object in certain cases. My hon. Friend suggested that there must be, at any rate, methods by which this situation, so far as it exists, could be met by amending the point of managers instead of directors. That is a possible way out. My right hon. Friend's view is that he cannot accept this Amendment, but we must stick to the principle in the Bill.
With regard to the last point, namely, that there might be something in connection with the Special Commissioners, that is not a suggestion raised by this Amendment. We will, of course, consider it, but at the moment I very much doubt whether the point raised by this Amendment would justify the procedure. We do not believe—there may be no doubt exceptional cases—that any substantial hardship will be affected by the principles laid down.

§ 12.47 a.m.

§ Mr. Bellenger
I was not quite clear from the last words of the hon. and learned Gentleman whether he was going to consider the suggestion made by the hon. Member for South Croydon (Mr. H. G. Williams) as to leaving some discretion in this matter to some body of commissioners. I hope he will not consider that, because it seems to me that judges make many complaints about the intentions of Parliament, and I think our intentions, when we are legislating, should be as clear as is possible and not left for some interpretation by a body of commissioners or other gentlemen, whatever their qualifications may be. Therefore, if the hon. and learned Gentleman in his concluding remarks meant to say that he will consider the suggestion made by the hon. Member for South Croydon, I hope he will not consider it at all.

§ 12.48 a.m.

§ Mr. H. G. Williams
I am going to withdraw the Amendment, but before I do so I wish to point out that the learned Attorney-General is saying to me that I have got to tell six of my constituents that any salary they receive in excess of £5 a week is to be charged with the National Defence Contribution. I am going to tell them that it is the solemn and serious consideration of the Government and the House of Commons that any person in receipt of a salary in excess of £250 a year is liable to the National 524 Defence Contribution. Do not let us argue about it. That is the proposal. Do not let us talk about trifling cases of hardship, because alternatively five of my constituents have to be sacked from the Board on which they are sitting. That is the proposition. The plain truth of the matter is that neither the Chancellor nor the learned Attorney-General has thought the matter out. We all know about these things and how they are done. Amendments are tabled, and Civil servants get busy and do their best. Their best as a rule is very good, but very often they do not visualise all the possibilities. They have not visualised the possibilities in this case, and I cannot rest satisfied to tell my constituents, who are sufficiently competent to hold offices of some importance, that Parliament does not think they are entitled to more than £5 a week by way of salary. The only way they can dodge that is for one of them to sack the other five. That is the proposition which I will convey to my constituents by sending them a copy of the OFFICIAL REPORT containing my speech. But I hope the Chancellor will really consider this, because the matter has not had adequate consideration. I beg to ask leave to withdraw the Amendment.

§ 12.50 a.m.

§ Mr. W. Benn
I do not want to intervene in this domestic debating society, but all this talk about something being done on the Report stage is sheer nonsense, because we cannot do anything which increases the charge. So far as withdrawing the Amendment is concerned, I would remind the hon. Member for South Croydon (Mr. H. G. Williams) that that is a matter for the Committee to decide.

§ Mr. Williams
My Amendment does not increase the charge, it reduces it.

§ 12.51 a.m.

§ Mr. Higgs
This is no matter of small importance. I know of a considerable number of people in my division who will be affected in a similar manner. It is a general procedure for people to become directors in order to conduct their business in the manner described. I am surprised to hear that the matter is being treated in this manner. It will be a difficult matter for people to run their businesses if they have to discharge people in order not to have to pay the tax.

525

§ 12.52 a.m.

Mr. Davidson
I want to say how amazed Members on this side of the Committee are at the indignation of the hon. Member for South Croydon (Mr. H. G. Williams). He is so indignant on behalf of his constituents that he asks leave to withdraw his Amendment. I am very glad of the lead given by our front bench on this matter. If the hon. Member for South Croydon desires to convey to those poor constituents of his who are suffering from the burdens placed on them by the Chancellor of the Exchequer and the Attorney-General, the real way the Government have acted to-day as far as the small business men are concerned, I would ask him to send on one or two OFFICIAL REPORTS containing the speeches of some hon. Members on this side of the Committee. He should give them a personal explanation because none of his constituents reading the speech of the Attorney-General would understand what he was talking about. I think that this could have been one of the opportunities on which the Attorney-General could have extended some clemency to his hon. Friends. It is a plea for the small man, and as such we will support it.

§ Amendment negatived.

§ Schedule, as amended, added to the Bill.