FINANCE BILL.

HC Deb 14 July 1937 vol 326 cc1289-373

As amended, considered.

NEW CLAUSE.—(Amendment as to relief in respect of losses.) For the purposes of section thirty-four of the Income Tax Act, 1918 (which relates to relief in respect of certain losses), the amount of a loss sustained in a trade shall, in all cases, be computed in like manner as the profits or gains arising or accruing from the trade are computed under the rules applicable to Case 1 of Schedule D: Provided that—

1. (a) nothing in this section shall affect the provisions of paragraph 2 of Rule 15 of the Rules applicable to Cases 1 and 11 of Schedule D (which relates to losses of assurance companies carrying on life assurance business); and
2. (b) where relief is claimed by virtue of this section in respect of a loss sustained in a trade which consists wholly or partly in dealing in securities, section twelve of this Act shall apply, for the purpose of computing the amount of the loss, as if subsection (5) thereof were omitted therefrom.—[Sir J. Simon.]

Brought up, and read the First time.

4.7 P.m.

The Chancellor of the Exchequer (Sir John Simon)

I beg to move, "That the Clause be read a Second time."

This is the Clause which was put on the Paper on the Committee stage, but it was, I admit, put down rather late, and as it is a technical and complicated matter it was felt generally desirable that we should withdraw the Clause at that stage so as to give hon. Members full time to consider it. It is not really a controversial matter and I hope I can explain what is involved quite simply. If you take the ordinary case of a trading company which is being assessed on its balance of profits and gains for Income Tax, and if that trading company in a particular year makes a loss of £25,000, it is entitled to make use of that loss for the purpose of reducing any Income Tax which it may otherwise have to bear in respect of its investments. Suppose that the company had investments which would in most cases have been taxed at the source and in any case would have been taxed by one method or another, the position may be that the company will have borne an actual tax on its investment income although its trading account shows a loss. In such circumstances the company has really been overtaxed, and it is in such circumstances entitled by the law to use its losses in this way: It can ask to have returned to it so much of the tax as it has borne on its investment income as corresponds to the figure which will be worked out by applying the rate of tax to its trading losses. That is the ordinary method.

There is, however, the very rare case which sometimes arises, and it is this rare case which we feel that we must correct. It is the case in which a company includes in its trading operations the making of investments—a banking company, for example. If you have a banking company which has got an investment income of £100,000 but on its other business activities has suffered a loss of £25,000, its position is exactly the same as the company I have described, but with this curious difference, that since the making of investments is a part of its business it is not in that event entitled to get back anything although it has really made a trading loss. It is to secure that they shall have a similar right to reduce their liability to what is the real liability that this particular Amendment is moved. If the House will look at the words and will take my description of the Section of the Act for granted, they will see that this is what we say: For the purposes of Section thirty-four of the Income Tax Act, 1918 (which relates to relief in respect of certain losses), the amount of a loss sustained in a trade shall, in all cases, be computed in like manner as the profits or gains arising or accruing from the trade are computed under the rules applicable to Case 1 of Schedule D. That is to say, the very unusual case which sometimes does happen of an enterprise which has got an investment income that enters into its balance of profits and losses, but which, on the other hand, has suffered a loss on the other part of its trading activities. It is now brought into line with the regular law. The number of instances in which this happens is extremely rare, and the amount of revenue involved is quite minute, but there are such cases. I see no possible justification for failing to give those enterprises the same amount of relief as would be given to any other company if the facts were similar. Coming to the provisos of the new Clause, in paragraph (a) there is a reference to the provisions of Rule 15 of the Rules applicable to Cases 1 and 2 of Schedule D. All that is very involved and technical, but mercifully it is described as a rule which relates to losses of assurance companies carrying on life assurance business. The proviso really does nothing more than secure that we do not by accident alter the well understood method by which life assurance companies are assessed. Under the rather recondite conduct of the Income Tax law in the case of a life assurance company a special actuarial calculation is made each year or every three years to see what is the actual burden resting on the shoulders of the company in order that that may be set against its receipts for the purpose of ascertaining what is in fact the figure to be taxed. It is an elaborate calculation which is based on actuarial reckoning. It has been well understood for years.

Proviso (b) in the same way explains itself if the Sub-section referred to is looked at. It is directed to ensure that the losses that arise from that operation called bond-washing carried out before we changed the law shall not rank as losses for the purpose of this Section. No one wishes to reward the bond-washer by giving him a new opportunity for claiming when he has miscalculated and made a loss. There is nothing susceptible of controversy in the proposal; it is merely correcting what I believe to be an injustice.

4.15 p.m.

Mr. Pethick-Lawrence

Having listened to the explanation given by the Chancellor of the Exchequer, I simply rise to say that the matter is one which is highly complicated and technical, but I do not think there is any doubt that the proposals of the Government in regard to it are in the main sound and need not receive any opposition from this side.

Question, "That the Clause be read a Second time," put, and agreed to.

Clause read a Second time, and added to the Bill.

NEW CLAUSE.—(Amendment as to discount on tax paid in advance.) Section one hundred and fifty-nine of the Income Tax Act, 1918 (which provides for an allowance of discount on tax paid in adyance under Schedule D), shall be amended by inserting at the end thereof the following Subsection: (2) The Commissioners of Inland Revenue may, on application made to them in writing within one month from the date of such a payment in advance by any person, repay to him the amount of any allowance which might have been made to him under this Section if he had made a request therefor at the time of the payment. "—[Lieut.-Colonel Colville.] Brought up, and read the First time.

4.16 p.m.

The Financial Secretary to the Treasury (Lieut.-Colonel Colville)

I beg to move, "That the Clause be read a Second time."

The House will recollect that on the Committee stage the hon. Member for Twickenham (Mr. Keeling) moved a new Clause relating to the discount on tax payments made in advance, and my right hon. Friend the Chancellor of the Exchequer, while unable to accept the Clause, promised consideration of the point and indicated that he would favourably consider a provision under which, if the discount was claimed within a period of a month from the payment of tax, it would still be possible for the taxpayer to get the discount. My hon. Friend the Member for Twickenham was rather inclined to look this gift horse in the mouth a little and to suggest that the period might be longer, and also that the word "may" should be changed into the word "must," thus laying a definite duty on the Revenue authorities to pay the discount. First of all, in regard to the question of the period of time, my right hon. Friend feels that the period of a month is reasonable and is is far as he is able to go to meet his hon. Friend. With regard to the other point. the question of "may" or "must," there really seems to be no substance in this objection. I am advised that the word "may" implies, not a discretion, but an authority to make the allowance, and the Revenue Department must carry out any provision in favour of the taxpayer where the law authorises it.

Before leaving the subject, however, I would like to make this point, that I feel that the House should know that this consideration which is being shown for the taxpayer who pays his tax before the due date is not really, from the Exchequer point of view, a very profitable one, because in fact the Exchequer can borrow on Treasury bills at the rate of perhaps ½ to ¾ per cent. per annum and is in effect paying 2½ per cent. or thereabouts for the use of the money which is paid in advance. As against that, there is the convenience of collecting, and we naturally wish to encourage those who wish to pay not merely on the day but before it to do so if they feel able. I may mention that the existing provision has increasingly been taken advantage of, and the figures which I have here show that in the year 1936–37 the amount of discount allowed was no less than £69,000, as against £56,000 the year before and £30,000 the year before that, which shows an increasing use of this provision. Taking all the circumstances into account, my right hon. Friend feels that, if you are going to give this discount, there does seem some substance and justification in the plea that if a taxpayer omits, when sending his cheque, to claim a discount, he should not find himself cut out from receiving that benefit. Therefore, my right hon. Friend thinks it right to insert this Clause, which allows for one month within which application may be made for these discounts to be paid.

4.20 p.m.

Mr. Pethick-Lawrence

Equally as to this Clause, we on this side have no objection to the proposal of the Chancellor of the Exchequer. I should like to add that I think it is quite right that the time should not be indefinite within which a taxpayer should have the right to claim, and the period of one month seems to me to be suitable. I should like to throw out a suggestion which has often struck me, and that is that if this discount is allowed to a taxpayer who pays in advance, I have never been quite clear why complete complacency should be adopted towards the taxpayer who is always in arrears with his payments. It seems to me to be a premium upon dilatory payment by the taxpayer. I know that after a time an additional charge is made, but a good deal of time is allowed to elapse, and if the Government are beginning to lose more and more on this discount, they might consider in some future year making a certain charge if more than a certain amount of time is allowed to elapse, and that that time should not be too long for the taxpayer to delay his payment of the tax. I merely throw out that suggestion to the Government.

4.22 p.m.

Mr. Peat

While I welcome the concession which the Chancellor of the Ex- chequer has made on this question of discount, I feel that it still represents something in the nature of an insult to the taxpayers of this country, who have always prided themselves on the way in which they pay their tax regularly—much more than in any other country, so far as I know—and I feel that the giving of one month for notice to be given is to a certain extent a discrimination in favour of the big taxpayer who puts his tax in the hands of an expert, mho looks after these matters with considerable care and sees to it that he does not miss the opportunity of getting his 2½ per cent. discount. A smaller tradesman, perhaps, who is not in a position to employ an expert to help him, may be entirely ignorant of this discount, or, if he is not ignorant, he may forget it. I will, therefore, press, unless it is too late, that some limit should be fixed, that is to say, that if the tax or discount should come to £5 or £6 or some figure like that, it should either be paid automatically by the Inland Revenue or the taxpayer's attention should be drawn to the fact that this discount is available to him as he has paid his tax in advance.

Generally speaking, if 2½ per cent. is not a business proposition from the point of view of the Exchequer, why not fix a smaller figure which is a businesslike proposition and treat the whole thing on a businesslike basis, so that anybody who pays tax before the due date automatically gets discount, whether he applies for it or not? I do not want to press the Government into making any arrangement against their interests, but I feel that they should make an arrangement which is businesslike both from their point of view and from the point of view of the taxpayer.

4.25 p.m.

Mr. Garro Jones

I have always thought that one of the worst features of Income Tax administration is the advantage which people have who are able to employ great experts for the working out of the amount to which they are liable. The new Clause which is now being proposed perpetuates one feature of that system. Why should it be that a man who does not happen to be aware that he is entitled to 2½ per cent. discount, although he may be just as regular in his payments—in fact, he may have paid his Income Tax a week before the time with extreme and conscientious regularity for 20 years—as the man who is so aware, should not receive the same advantage for his prompt payment? Under this Clause there is no obligation on the collector of Income Tax to inform him of the benefit which is his for the asking. I object to that for a further reason. There is a growing feeling in this country that the Income Tax authorities do not explain to those who pay the tax the abatements and reliefs to which they are entitled, and had I been ready to take the trouble, or had it indeed been necessary—because I am sure the Chancellor of the Exchequer knows it as well as I do—I should have come armed with a long list of people who have been paying amounts for which they are not liable for years past, and which the Income Tax authorities know they are not liable to pay, and yet those authorities have not drawn their attention to these overpayments.

It is because this new Clause is drafted in such a form that it seems almost to wink at the practice of the Income Tax authorities in not drawing the attention of the taxpayers to reliefs to which they are entitled, that I support the remarks of the hon. Member for Darlington (Mr. Peat) and ask whether the Government cannot consider, in another year, the desirability of completing this Clause into such a form that everyone who pays by the due date shall automatically receive his discount. I feel that that would be a more ingenuous and honest administration of the Income Tax, and I trust the right hon. Gentleman will give consideration to it.

4.28 p.m.

Mr. Maitland

I think it is true to say that in former days, when the rate of Income Tax was much lower than it is to-day, those responsible for the collection of the tax acted more as advisers of the taxpayer than they do to-day. I would like to suggest to my right hon. Friend the Chancellor of the Exchequer that he might consider sending out to each taxpayer, with the demand for taxes, the provision which is now being embodied in this Bill, so that the general taxpayer shall have notice that it is the intention of Parliament that those who are in the fortunate position of being able to pay their tax before it is due may have the advantage of some discount. If it is found that the rate of 2½ per cent. makes it, from the Treasury point of view, not an advantageous transaction, I cordially support the observation of the hon. Member for Darlington (Mr. Peal) and suggest that the rate should be put on such a basis as would be fair both to the Treasury and to the taxpayer.

4.29 p.m.

Sir John Withers

I cannot let the observations of the hon. Member for North Aberdeen (Mr. Garro Jones) pass without comment. I have had a great deal of experience in connection with the payment of Income Tax, an experience extending over 50 years, and I am bound to say that I have always found the Inland Revenue authorities extremely honest and careful in their methods. Except perhaps in cases of very small amounts, my attention has always been drawn, in the case of anything important at all, to what has been due, and I have always found the authorities very ready to adjust matters in any way possible.

Mr. Garro Jones

I wonder whether the hon. Member has not missed my point. My only suggestion against the Income Tax authorities was that they did not regard as resting upon them the onus of drawing the attention of the taxpayer to reliefs to which he was entitled.

Sir J. Withers

With great deference, that is exactly what the Inland Revenue authorities have done for me. They have drawn my attention to the fact that I have not deducted so and so and that I ought to have so much deduction, and I think they have always acted extremely fairly.

4.30 p.m.

Sir John Mellor

I cannot see any more than other hon. Members can why the Treasury should pay an uneconomic rate. It would be far better if an economic rate were fixed from time to time according to the market rates and if that amount were allowed by way of discount as a right to the taxpayer. It is most desirable that the relations between the Income Tax authorities and the taxpayers should be on a really businesslike footing. By that I mean the same sort of relationship as exists between business men in the ordinary course of business. Under Section 159 three conditions are necessary. The first is that a request has to be made by the taxpayer in order to get the payment. It has to be made at the time of payment and the Income Tax authorities have to approve it. I cannot think that the Amendment really improves it very much. It first says that the request must be in writing, which was not required under the Act of 1918. Then it extends the time of application to one month, and I cannot see why it should be limited to that period. Surely two or three months would be perfectly reasonable. I am rather perplexed because we have been told by the Financial Secretary that in Income Tax matters "may" implies "must." I am rather astonished at that proposition. If "may" does imply "must," why not say so in the Statute? It would be far more satisfactory because we cannot expect the taxpayer, who looks up the law, to know that in Income Tax matters "may" means "must." I hope that in another year the Chancellor will review this matter and put it on a businesslike footing.

Question, "That the Clause be read a Second time," put, and agreed to.

Clause read a Second time, and added to the Bill.

NEW CLAUSE.—(Special provision as to building societies.)

1. (1) The amount of the national defence contribution chargeable on the profits arising in any chargeable accounting period from the business of a building society shall not exceed one and one-half per cent. of the amount of those profits computed in accordance with the provisions of Part III of this Act, but without allowing any deduction for interest paid on money borrowed by the society from members or depositors.
2. (2) For the purpose of this section the expression "building society" means a society regulated by any of the Acts regulating building societies, or a society registered under the Industrial and Provident Societies Acts, 1893 to 1928, which carries on a business of such a nature that it could have been established under any of the Acts regulating building societies, and no other business.—[Sir J. Simon.]

Brought up, and read the First time.

4.33 p.m.

Sir J. Simon

I beg to move, "That the Clause be read a Second time."

The House will recall that on the Committee stage I described the proposal which I was to make, and the House will see that the Clause which I am now moving makes the provision which I then sketched out. The income of a building society consists of the interest which is received on advances made to borrowers, and also of any interest it may receive on investments otherwise than by way of mortgages, such as investments in Government securities, and so on. How is that income disposed of? It is disposed of in three different ways, which I will call A, B and C. The first, which is A, is in payment of interest on loans and deposits. The second, which is B, is payment of interest on share capital. The third, which is C, is allocated to reserve and becomes undistributed income. If the National Defence Contribution were applied to building societies without any variation, it would be applied to the sum of B and C. A would be subtracted.

This new Clause proposes to modify the charge, which will be at the rate of 1½ per cent., not on the total merely of B plus C, but on the total of A, B and C. It is estimated that the duty so payable will be about £400,000. The difference between that and the ordinary application of the tax will be about £500,000. The grounds on which we think this proposal will be justified are these. Building societies stand in a class by themselves. They are not in competition with retail traders. They are not engaged in ordinary trade activities. They play an important part in the solution and treatment of the housing problem. They have constantly been regarded by Parliament as entitled to consideration on those grounds. They were, indeed, from the beginning exempted from the Corporation Profits Tax, and from the first edition of the National Defence Contribution. The reserves which they have are not calculated to carry any additional heavy demand. I think there will be a general feeling that it will be undesirable for the rate of interest of building societies to be put up against those engaged in building their houses. While I cannot see my way to exempt the building societies altogether, this being a contribution which we have to ask from all and sundry, I think the reasons I have given justify this modified treatment.

4.38 p.m.

Mr. Lees-Smith

We shall accept the new Clause. Indeed, we welcome the actual result of the proposal in the diminution of the amount of charge which building societies will pay. I am not, however, in the least impressed by the actual formula which the Government have concocted, or with the arguments which the Chancellor of the Exchequer has just used, which appear to me to be highly sophistical. The fact is that the Chancellor is not offering this concession to building societies, as he suggests, because they help in the solution of the housing problem. All he is doing is to ensure, as far as possible, that they shall pay the same proportion of extra tax as an ordinary business or company of comparable size. All he is doing is to save them from a grave injustice which is inherent in the nature of the tax when it is applied to certain institutions, and to concoct a formula which saves them, but which does not save other institutions which we shall discuss on a later Amendment.

This situation has arisen out of one of the inherent defects of this new tax. If the Chancellor had decided to obtain this money by imposing an extra 3d. or 4d. on the Income Tax, no problem like this would have arisen. What he has done is to impose a special species of Income Tax, but an Income Tax which contains none of those careful provisions for abatement and exemption which over a century of experience has shown are necessary to fit that tax to the need of the different kinds of institutions on which it is imposed. I agree that with an ordinary company it can be said that there is rough justice because they all may have the same proportion of persons who come within the smaller ranges of income. As soon, however, as we get to institutions which are specially designed to attract persons in the smaller ranges of income, such as building societies and others which we shall mention later, the proportion of persons in the smaller ranges of income who will be omitted from the exemptions and alleviations of Income Tax is so large that the result of the tax is not a difference in degree but a difference in kind as applied to institutions. That is the case of building societies.

It has been shown by the Chancellor that an ordinary company will pay in tax about 20 per cent. in addition to its present Income Tax by this new National Defence Contribution. The building society whose figures I have examined, and which the Government have examined, comes out at 50 per cent. simply owing to the difference I have described. The difference between 20 per cent. and 50 per cent. is not a difference in degree, but a difference in kind between the two types of organisation. The result would have been that if the right hon. Gentleman had adhered to the original tax, building societies would have paid £1,000,000 out of the total of £25,000,000, which represents a far larger proportion than the proportion of their profits to the total profits of the country. As the right hon. Gentleman has suggested, they would have had to increase the rate of interest for borrowers, which I gather would have come to about one-half per cent.

Sir J. Simon

I did not say they would have had to do so. I said that it would be unfortunate if that were the result.

Mr. Lees-Smith

As a matter of fact, the figures which I have collected, and which have been seen by officials of the Government, show that in the case of certain societies one-half per cent. is a moderate figure. Other societies say that it would have had to be greatly exceeded. I mentioned the minimum figure which one society calculated from its own position. The Chancellor has not from the figures he has given us this afternoon given the building societies any favour as against other companies of comparable capital and size. They are to pay £400,000 and the extra over the Income Tax that they are paying is certainly not less than that extra 20 per cent. which ordinary companies are paying. The Chancellor has devised a formula, and he shows himself an old and experienced Parliamentary hand in the brevity of the explanation which he has given. His explanation was so brief that obviously nobody knows what is behind it all. If he had fully explained the formula it would have been seen that it contradicts the whole basis of the National Defence Contribution, and that it is a tax by itself. It is perfectly obvious that he decided in advance what the building societies should pay and then concocted a formula to reach that result—a formula which would include building societies but not other societies. That is obvious to anybody who has looked into the matter. Therefore, while we accept the final result we are under no illusions as to the purely political nature of the formula which he has devised.

4.45 P.m.

Mr. Holdsworth

I agree pretty well with almost every word which the right hon. Gentleman has said about this particular concession. I do not want to seem churlish, and I am very grateful to the Chancellor for having amended what was, in its first form, really a terrible charge on building societies. We were told at the outset that the National Defence Contribution was a tax upon industry as a contribution towards the armaments which most of us believe to be necessary, but building societies are not industrial companies. A building society is a mutual help society. I wish to make an observation on a point mentioned by the Chancellor when speaking of the interest on share capital. In a building society there is no such thing as share capital in the ordinary sense of the word. Shares can be withdrawn practically at any moment, the longest notice required being about one month. Its structure is entirely different from that of an ordinary company. I was very much surprised to find that in the second edition of National Defence Contribution building societies should have been included. I think it is correct, as the Chancellor said, that they were not included in the first edition.

Sir J. Simon

It is true that I said so, but I only said it because I thought it to be so. I have been informed that, in point of fact, they were included, but the first edition of the tax was a tax upon increased profits, and therefore the practical result would have been nil in the case of building societies. I apologise for interrupting the hon. Member, but I did make the statement which he attributed to me, and it was not quite correct.

Mr. Holdsworth

Apparently the tax would have had the effect I desired, because if building societies made no increased profits they would not have had to pay the tax. What I am concerned about, being interested in a building society, is whether such societies should have to pay anything or not. If the tax had been left as it was it would have had a very serious effect on building operations in the country. I do not think it is correct to say that mortgage rates would necessarily have risen, because the position would have been tackled in other ways. For instance, the depositor would have been allowed a smaller interest, and those holding shares might have had to take a smaller interest, but the most serious effect would have been that the reserves of building societies would have been depleted. I read an interesting speech made by the Prime Minister about a month ago at the annual meeting of the Building Societies' Association in which he pressed upon building societies the necessity of creating adequate reserves to meet, what I think is generally expected, a sort of tapering off in the building programme.

I do not want to keep the House a long time, but I cannot accept the principle which seems to be laid down here that building societies are industrial institutions. I believe they are non-profit making institutions. I know that in the society with which I am connected we have never thought of its operations in terms of profit. We think of it as a society in which one class of member lends to the society in order that another class of member may borrow. It is a mutual trading society, and I am very sorry indeed that building societies should have been brought within the scope of such a tax as this, although at the same time I feel rather grateful that they are not going to be punished—the first proposal was almost a criminal punishment—and I think I must say "Thank you" for the lessened amount which building societies are called upon to pay.

4.50 p.m.

Major Milner

During the Committee proceedings, until the later stages were reached, the position which the Chancellor of the Exchequer was taking up regarding building societies was not quite clear, but after what we have heard this afternoon, and with the new Clause on the Paper, the position is now clear, and I think it is a very serious one from the point of view of building societies. The new Clause provides specifically that no deduction shall be made for interest paid on money borrowed by a building society from members or depositors. As I understand it that insists upon a principle which hitherto the building societies have declined to admit, and in my view rightly so. The Chancellor told us how the income of a building society, derived from interest from mortgagors and investments, was disposed of, but he omitted to mention the first way in which building societies dispose of their income, and that is in paying their working expenses, their office expenses, their staffs, and the conduct of their affairs generally. The Chancellor gave three other methods of diposing of the income: (a) Interest on loans and deposits, (b) payments on share capital, (c) moneys put to reserve, known as undistributed profits. In my submission the interest on loans and deposits and the payments on share capital are just as much working expenses of a building society as are the working expenses which they obviously have incurred, but which the Chancellor omitted to mention in connection with the upkeep of their offices, the payment of their staffs and the general conduct of their business.

This new principle, which is apparently to be insisted upon, in my view inserts the thin end of the wedge, and may create a very serious position for building societies in the future. It may well be that the actual imposition upon building societies is on this occasion 1½ per cent., but it may become 3 or 5 per cent., or may extend to the whole range of Income Tax in the future. Personally, I do not think building societies need feel under any great obligation to the Chancellor in this matter. In point of fact the Chancellor is in process of establishing here a principle which hitherto, I think I am right in saying, has not been established. My hon. Friend the Member for South Bradford (Mr. Holdsworth) pointed out that share capital, so-called, in building societies is an entirely different thing from the share capital in an ordinary trading concern. It has no relation to profits. A share certificate is a mere acknowledgment of a loan, for the most part only a temporary loan made to a building society. The loan can be withdrawn at any moment. Really it is a mere contractual obligation. The society requires money on the one hand, and has to get it by borrowing, with a view to lending it out on the other hand. It has, of course, to pay interest on the money which it obtains for that purpose, and what the Chancellor is doing is to charge Income Tax on the moneys which the society has to pay as working expenses, in my submission, in order to enable it to carry out the primary and indeed the only purpose for which it exists. That raises a very serious question of principle, and I cannot admit for a moment that it is a proper principle. As my hon. Friend has said, building societies, like other societies which we shall consider later, are mutual bodies formed by lenders on the one hand and borrowers on the other.

There is another factor which seems to be a most serious one. I have no precise figures, but I cannot conceive that building societies should be called upon to provide, roughly, one-fiftieth of the whole of the proceeds which it is anticipated will come from National Defence Contribution. I understand that the maximum yield is estimated at £25,000,000—probably it will be a good deal less than that, but let us take that figure. The building societies have been asked to provide £400,000, and in my submission that is a wholly disproportionate amount, and cannot be justified in relation to the total expected from industrial and other sources. We ask the Chancellor to look into the matter and to see whether, even with the concession which he professes to have made to building societies—a wholly illogical one, resting on no certain basis, solely dependent on the whim of the Chancellor from time to time—that figure of £400,000 is not a disproportionate sum to take from them having regard to the amount of income which will be obtained from other sources.

It is obvious that the Government and the Chancellor have landed themselves into all sorts of difficulties, because they have departed from the intention of the first form of National Defence Contribution. That was understood by all of us, and by the majority of people in the country, to be intended to relate only to armament makers and others who, it was anticipated, would make profits in excess of what they had made in the last few years. A complete change has taken place in the situation, and now the Chancellor invites the House to tax associations or societies which, he admits, have a very definite social value. We have gone from one extreme to the other. Originally we were going to tax armament firms, or at any rate industry generally, on excessive profits alone. We have now come to the other end of the scale, and are taxing building societies and apparently co-operative and other societies, which the Chancellor admits have a definite social value. That is a serious matter, and I hope that in the case of building societies and other societies having a similar social value the Chancellor may even at this late hour reconsider the position, and consider in particular whether the amount demanded from building societies is not disproportionate to what will be contributed from other sources and whether he is doing the right thing in taxing the interest on loans and deposits which, in my submission, are the working expenses of a building society and have no relation to profits, being in that respect distinct from the ordinary shares of a limited company.

4.58 p.m.

Mr. Mabane

I agree with other hon. Members that this new Clause represents a very considerable concession to building societies, but I want to ask the Financial Secretary a particular question which, I think, is not unimportant. As is well known, building societies pay a compounded rate of Income Tax on their distributed income. I want to ask whether, under this Clause, a building society will be entitled to regard the amount they pay as compounded Income Tax on distributed income as an expense, or whether they will be compelled to pay National Defence Contribution on the amount they have already paid as compounded Income Tax? I think that is a matter of some importance.

5.0 p.m.

Lieut.-Colonel Colville

I am ready to answer that specific point. The answer is "No; they will not be able to regard it as an expense."

Mr. Pethick-Lawrence

Am I right in thinking that National Defence Contribution is reckoned as an expense for Income Tax purposes?

Lieut.-Colonel Colville

Yes, the right hon. Gentleman is perfectly right, but it is not so the other way round, which was how it was put to me by the hon. Member for Huddersfield (Mr. Mabane). As regards the other point—

Mr. Holdsworth

I suggest that the right hon. and gallant Gentleman should make the first point perfectly clear.

Lieut.-Colonel Colville

You take off National Defence Contribution for the purposes of Income Tax, and not the other way round. That is clear, and I thought my answer had conveyed that point.

Mr. Mabane

I do not think that is quite the point. The way in which building societies pay Income Tax on the distributed interest is something quite different. They pay a compounded rate on the distributed income as the result of a bargain with the Treasury, to avoid repayment. What I asked was whether they are entitled to regard the amount they had paid as Income Tax on their distributed income as an expense, or whether they would have to regard it as part of their profits and to pay National Defence Contribution upon it? Suppose a building society were paying £10,000 as compounded Income Tax, would they have to pay National Defence Contribution at the rate of 1½ per cent. on the £10,000 that they had already paid as Income Tax on the distributed income?

5.2 p.m.

Mr. Pethick-Lawrence

A building society makes a certain profit, and according to the rule which the Chancellor of the Exchequer is introducing, they will pay National Defence Contribution on that profit. Having paid that amount as National Defence Contribution, that will be deducted. The hon. Member shakes his head, but I would remind him that you must take things in a certain order. The answer given by the right hon. and gallant Gentleman surely is this: The building society, having paid the National Defence Contribution, is entitled to deduct that before it pays its Income Tax. You must take one thing first, and the National Defence Contribution is taken first. Having paid it, it deducts it from its profits.

Lieut.-Colonel Colville

The right hon. Gentleman is quite correct in stating the position under this Clause. I will answer the hon. and gallant Member for South-East Leeds (Major Milner) who agreed in general with the steps that had been taken with regard to the building societies I think it is the general sense of the House that we should accept them.

5.3 p.m.

Mr. A. V. Alexander

I cannot allow the Clause to pass without saying a word. or two upon it. The general principle of concession to building societies is one which we certainly shall not challenge. We think a case is made out for such a concession, but before this Clause passes into the Bill it is necessary to stress one or two of the factors which have apparently been at work in the Chancellor's mind in making the concession. We were told at the beginning of the imposition of the new form of National Defence Contribution that it was to be a straight and simple tax. None of the complications which aroused so much controversy, especially from the pundits of the City of London, were to be allowed to enter into this second edition of the National Defence Contribution. It was mentioned that there might at times be an element of rough justice, but so straight and simple was to be the form of this second edition that even that would not deter the Chancellor from his course. There was to be no question of abatements, of graduation, or anything of the kind.

When we examine the facts in detail, we find that, whenever it suits the Chancellor, for the purpose of avoiding special points of pressure or matters of difficulty with those who most support him, he goes exactly into the direction in which he said he would not go. For example, special concessions are made to public utility funds. No one can argue upon the fact that these societies in general are in such a financial position that they ought to be excused. In regard to the building societies, no one can deny that the main reason for the concession is a social one. It was because pressure would undoubtedly arise afterwards, if there was to be an increase, because of the taxation, in the charge made to borrowers from the society, which pushed the Chancellor of the Exchequer into making this concession. When one examines the form of concession, one is more and more amazed at the departure which has taken place from the straight and simple form of taxation which the Chancellor said would be the basic principle of the second edition.

The fact is that, for the first time that I have been able to discover in Income Tax practice—the whole of the tax is to be levied under the case rules of Income Tax—loan interest is to be brought into the charge in the case of the building societies. On what ground is that being done and upon what principle? Why is loan interest brought into the charge? It is an entirely new principle in Income Tax law. If the Chancellor brings into the charge loan interest in the case of building societies, what is to be done with the debenture interest? What is the difference? I could understand certain arrangements being made on special grounds within Income Tax law, but I cannot for the life of me understand what basic principle has actuated the Chancellor of the Exchequer, himself a high expert legal authority on Income Tax law. It is no use the right hon. Gentleman shaking his head and being modest about it. He has received too many large fees for his advocacy in Income Tax cases not to be an expert upon Income Tax law.

Sir J. Simon

I have paid Income Tax on the lot.

Mr. Alexander

A good many other hon. Members of this House would have been glad to pay the right hon. Gentleman's Income Tax—[HON. MEMBERS: "No"]—I mean with his income. We ought to have a clear explanation from him as to what principle moved him in this concession to include loan interest in the charge. In legislating in years to come, different Governments may find very interesting the precedent which he is creating to-day in bringing loan interest into the charge. We ought to know the principle that moved him in doing so.

While we welcome the concession to building societies, made to them because of the hardships that would arise in the case of large numbers of their members who are below the usual level of taxable income, I cannot understand the Chancellor's treatment of other organisations, which are of equal social service to the nation with the building societies. There is a great body which, looked at from the point of view which the Chancellor has taken in the case of other bodies, allows deposits from shareholders up to a limit of as much as £5,000. A depositor may, therefore, at about the average rate of 3½ per cent., be receiving on his deposits over £160 a year, free of tax. I am not opposing the concession made to the building societies, in view of the large number of people within their ambit who are below the taxable limits, but if the Chancellor adopts a social ground for his concession in the case of the building societies, why should he resist the much more legitimate demands made on behalf of other mutual service organisations?

When he says that one of the justifications for the concession is that building societies are not in competition with anybody, it is to suggest that the finance of house building or of house transfer by purchase in this country is dependent, upon a non-competitive basis, upon the operations of building societies, but there are numerous organisations to-day who compete with the building societies. The official representatives of the building societies would say, in regard to the National Defence Contribution: "Unless you give us more justice than you have given us in regard to the National Defence Contribution, we shall be put in an unfair position in competition with many of those with whom we compete to-day in lending money for house building." There is a wide area of competition in the business of lending money and of borrowing it for the purposes of re-lending. Solicitors' offices and friendly societies are connected with this. For reasons best known to himself, the Chancellor of the Exchequer is giving special consideration to two bodies affected by the tax, and is closing his eyes to legitimate reasons which have been given to him for the same kind of treatment being accorded to other working-class institutions. Before we allow the Clause to go without a vote into the Bill, it is necessary that our real view of the situation should be made known.

5.14 p.m.

Sir Irving Albery

Very interesting and important points have been raised during the discussion of this Clause. I sympathise with the object of the right hon. Gentleman, for the reasons which he himself has stated, in not wishing this tax to fall too heavily on building societies, but I cannot help feeling some anxiety at the method which he has adopted in making his concession. In the first place, he is varying the rate of tax, and that seems to be a bad principle. If it were necessary to make the concession, it would surely have been better for the rate of taxation to have remained stationary, varying the basis on which the tax is leviable. Two hon. Gentlemen opposite said that a lot of this capital is loan capital and that shareholders' capital is also loan capital in this respect. I could not help feeling that there should have been a different way of making the concession. Some of this income might have been exempted from the tax without infringement of the main principle on which the tax is levied. I think that, before the Clause is passed, we are entitled to hear, not merely why it was desirable to make concessions to building societies, but also on what grounds such an out-of-the-ordinary method of making them was chosen. I hope that either the Financial Secretary or the Chancellor of the Exchequer will give us some information on this matter before we come to a decision on the Clause.

Mr. Deputy-Speaker (Captain Bourne)

rose to put the Question.

Mr. Alexander

I think we are entitled to an answer with regard to the basis of computation. We have never had that explained.

5.16 p.m.

Sir J. Simon

I wish to do everything that is courteous to the House, but at the same time I do not think there is any reason to prolong this discussion very much. I will certainly say what is in my mind. The income of any company for the purposes of Income Tax is assessed as a whole, without any deduction of that portion of the income which would be needed to serve a loan. There is nothing novel in that principle. If a company or any other enterprise is engaged in making a profit, say of £100,000, the circumstance that it has to use a portion, or, if you like, the whole, of that profit in paying interest on loans or deposits, is no reason why it should not be regarded as having made a profit of the gross amount. There is nothing novel or mysterious or contrary to principle, when one is seeking, as frankly I am, to give some relief to building societies, in adopting this principle. It seems to me that if we are right—and I understand that hon. and right hon. Gentlemen opposite do not dispute the worthiness of our object—in desiring to reduce the full stress of the burden of this tax upon a particular class of companies, it might be possible to do it by merely reducing the percentage without altering the total sum on which the percentage is charged, or, on the other hand, it might be done by increasing or "weighting," so to speak, some other element, which is income, of the sum upon which the percentage is charged.

I came to the conclusion, after looking at the matter as well as I could with the help of my advisers, that we should get what I thought would be a fair arrangement if, on the one hand, we decreased for this purpose the total upon which the percentage is charged, not by some novel method, but by a method which exists in every Income Tax calculation that I have seen; or if, on the other hand, we reduced the percentage charged to 1½ per cent. I submit to the House that that, in the special circumstances, is a fair thing to do. I quite understand that my hon. Friend the Member for Gravesend (Sir I. Albery) wishes for more science in these matters, but it is a very difficult thing to work out, and I am not quite certain that you can always arrive at a strictly scientific solution; but if the House is of opinion, as I hope it is, and as the Opposition are unanimously, that there ought to be a substantial measure of relief for building societies, this proposal affords them a substantial relief.

Sir I. Albery

I rather understood the Chancellor to say that there is no reason why the revenue devoted to paying interest on loans should not still be regarded as profit, but I thought that the whole basis of the tax was the calculation of profits for Income Tax purposes, and surely that is not the case here.

Sir J. Simon

I think my hon. Friend has forgotten for the moment that, if he had to advise a company how much it had to pay in Income Tax if it had made £100,000, of which £50,000 was needed for interest on loans, he would give the company very bad advice if he said that it had only to pay Income Tax on £50,000. Naturally, it pays on £100,000. The whole of our Income Tax law is based on the principle that you have to pay Income Tax on your income, whatever you do with it.

Mr. Alexander

rose—

Mr. Deputy-Speaker

I must remind hon. Members that we are not in Committee.

Major Milner

Surely, the right hon. Gentleman does not say that the total income—not the total profits less the ordinary running expenses—is the gross amount on which tax should be paid? Surely he does not say that, if a company has to pay so much for borrowed money or any other purpose, the gross income is still the basis of Income Tax?

Mr. Alexander

There is one point which, with the leave of the House, I should like to put to the Chancellor of the Exchequer. Does he say that, if a company which finances its business by borrowing money on which it has to pay, say, £75,000 out of a profit of £100,000, it is not allowed to deduct this payment of interest on its loan?

5.24 p.m.

The Attorney-General (Sir Donald Somervell)

The House will remember that my right hon. Friend, in introducing this tax, explained that there was in it a principle unknown to ordinary Income Tax assessment, namely, that loan interest would be deducted. In the ordinary case it does not matter, for the purpose of the assessment of the profits of a company, whether it has debentures, or whether it has to pay mortgage interest, or whether it has to pay no interest. The main question in regard to Income Tax is what are the profits. If they have been disposed of by paying interest on borrowed money, that is no concern of the Income Tax assessor. It has been emphasised over and over again in these Debates that this deduction of loan interest is a special feature, which has nothing to do with assessment to Income Tax.

Major Milner

If the deduction of loan interest is a special feature of this tax, why is it not allowed on the loans made by building societies?

The Attorney-General

That point has already been discussed.

Question, "That the Clause be read a Second time," put, and agreed to.

Clause read a Second time, and added to the Bill.

NEW CLAUSE.—(Provisions as to subsidiary companies.) (1) Where a body corporate resident in the United Kingdom is a subsidiary of another body corporate so resident (hereafter in this section referred to as "the principal company") the principal company may, by notice in writing given to the Commissioners of Inland Revenue before the expiration of any chargeable accounting period of the subsidiary or within two months thereafter, require that the provisions of Sub-section (2) of this Section shall apply to the subsidiary as respects that period and all subsequent chargeable accounting periods throughout which it continues to be a subsidiary of the principal company: Provided that, if the first chargeable accounting period of they subsidiary ended before the passing of this Act, a notice given as respects that period within two months from the passing of this Act shall have effect for the purposes of this Section as if it had been given within two months from the end of that period. (2) Where such a notice is given, the profits or losses arising in any chargeable accounting period to which the notice relates from the trade or business carried on by the subsidiary shall be treated, for the purpose of the provisions of this Act relating to the national defence contribution other than the provisions of paragraph 2 and sub-paragraph (2) of paragraph 3 of the Fourth Schedule to this Act, as if they were profits or lesses arising in the corresponding chargeable accounting period from the trade or business carried on by the principal company. (3) For the purpose of this section—

1. (a) a body corporate shall be deemed to be a subsidiary of another body corporate if and so long as not less than nine-tenths of its ordinary share capital is beneficially owned by that other body corporate;
2. (b) the expression "ordinary share capital" has the same meaning as in the Fourth Schedule to this Act;
3. (c) a chargeable accounting period of a subsidiary shall be deemed to correspond to such chargeable accounting period of the principal company as the Commissioners of Inland Revenue may determine.—[Lieut.-Colonel Colville.]

Brought up, and read the First time.

5.26 p.m.

Lieut.-Colonel Colville

I beg to move, "That the Clause be read a Second time."

This Clause provides for the amalgamation, at the option of the company, of the profits or losses of a parent company and its subsidiary companies in a single taxable unit, and permits the losses of one of the companies concerned to be set off against the profits of the parent company or of another subsidiary company. A subsidiary company is defined in Sub-section (3, a) of the Clause as a company in which the principal company owns not less than nine-tenths of the ordinary share capital. The object is to meet the case of the business which is essentially one business in a single ownership, although in form it is carried on through the medium of one or more companies, namely, a parent company, which is generally responsible for the finance and management of the whole concern, and one or more subsidiary companies which carry on the actual trade. My hon. and learned Friend the Member for Ashford (Mr. Spens) had on the Paper an Amendment rather on these lines, which was not called, but we have been giving very careful consideration to the point. A provision of a similar character was included in the Corporation Profits Tax, in the Excess Profits Duty, and in the original proposal for a National Defence Contribution.

The profits of each company are, of course, separately assessable to Income Tax as an independent trade or business, and, if there were no provision of this kind, those profits would be separately assessable to the National Defence Contribution, and each company would separately benefit by the exemption in cases in which the profits fall below £2,000 and by the scale of abatements up to £12,000. In the case, however, of the type of companies to which this Clause will mainly apply, where there is a holding company which carries on what is really one trade or business through the medium of one or more subsidiary companies, it seems reasonable that the business should be looked at as a whole, and its liability computed as if it were in fact a single business. This will enable losses in one branch of the business to be deducted from the profits made in other branches. On the other hand, there is an option, because, if the profits of a company are merged in the profits of its parent company, it will of course lose the benefit with regard to exemptions or abatement to which it would be entitled if it were separately assessed.

Let me give an example of the type of case which seems to us to make some provision of this kind necessary. A parent company may hold all the ordinary shares in a subsidiary company, which is the concern that actually does the trading and makes the profits. The subsidiary company is assessable to National Defence Contribution on its total profits, and those profits, on reaching the parent company in the form of dividends, are, of course, exempt from further taxation. If the parent company uses part of those dividends in paying interest on its debentures—a charge which it must meet—and if it has no other profits assessable to National Defence Contribution from which it could deduct the amount of the debenture interest and the option conferred by the Clause is exercised, it will be able to deduct from the profits of its subsidiary company the interest paid on the debentures. Sub-section (1) of the Clause provides that: Where a body corporate resident in the United Kingdom is a subsidiary of another body corporate so resident (hereafter in this section referred to as 'the principal company') the principal company may, by notice in writing given to the Commissioners of Inland Revenue before the expiration of any chargeable accounting period of the subsidiary or within two months thereafter, require that the provisions of subsection (2) of this section shall apply to the subsidiary as respects that period and all subsequent chargeable accounting periods throughout which it continues to be a subsidiary of the principal company. This is restricted to cases where both bodies are resident in the United Kingdom. The House will know, of course, that a company is resident in this country for purposes of Income Tax and of National Defence Contribution if it is controlled in the United Kingdom. The Clause is not intended to apply to a foreign company which is assessed to National Defence Contribution only for business carried on in this country.

Another point is this: If the option is exercised, the provisions for the amalgamation of profits are to apply throughout the duration of the Act as from the first chargeable accounting period in respect of which the notice is given. It is considered that the principal company, having made up its mind to take advantage of this provision to secure a set-off, should not thenceforward be allowed to chop and change about so as to obtain, during periods when profits are being made, the advantage of separate assessment coupled with the benefit of the exemption or abatement provisions. The notice, of course, ceases to have effect if the subsidiary ceases to be a subsidiary. Sub-section (2) contains the effective words for granting the relief. It provides that the profits and losses of the subsidiary shall be so treated for the purpose of the provisions of the Act other than the provisions of paragraph 2 and sub-paragraph (2) of paragraph 3 of the Fourth Schedule. These paragraphs of the Schedule adapt to National Defence Contribution certain Income Tax principles which provide for the carrying forward of past losses and accumulated wear and tear. On Income Tax principles those losses would be deductible only from the profits of the company that suffered the losses and it would be inappropriate if, as the result of the amalgamation of profits which we are proposing to grant between parent and subsidiary, such losses for wear and tear should be deducted from the profits of another company. Deductions will continue to be granted so far as possible against the profits of the company which is entitled to deduction but a deduction against the profits of another company is precluded by the words: other than the provisions of paragraph 2 and sub-paragraph (2) of paragraph 3 of the Fourth Schedule. If any other course were taken, there would be serious danger of evasion. A principal company, making large profits, could buy up the shares of another company which has made heavy losses in the past and so secure a set-off of those losses. That is a danger that we must guard against. The third Sub-section contains certain definitions which are clear in themselves. I believe this is a wise provision to make. If companies have the option either to take advantage of the provisions of the Clause or to remain on separate assessment and get the advantage of the abatements that are available in that case, we believe that there can be no real hardship to those companies which, as holding concerns, control and have nine-tenths of the shares of the subsidiary companies which make the profits.

5.34 p.m.

Mr. Alexander

This is another concession which seems to be of considerable importance, but one which I do not welcome with anything like the enthusiasm with which I welcomed the concession to building societies. When one thinks of the vast realm that is occupied by holding companies, and the extent to which financial arrangements are made for buying up subsidiary companies which have been doing well, and then you have the financial manipulation which will require perhaps a heavy service of debenture interest in the holding company, and then you find that by this arrangement you are going to give them an option—

Lieut.-Colonel Colville

It must remain throughout the five-year period.

Mr. Alexander

I know, but you give them the option, instead of having the profits of their best subsidiaries charged at the source upon the subsidiaries, to have it charged instead on the holding company. Last night I was looking through some of the results of the operations of holding companies and I took some note of the kind of position occupied by subsidiaries which were originally independent and very successful operating companies, and I can quite see, even from the very hasty glance that I had at the Stock Exchange Year Book, that this concession will be of vast importance, not to the people in the main who are really concerned with promoting productive industry, but to those who are mainly concerned in promoting financial holding companies. From that point of view it is very likely to lead to a serious depletion in the yield of the National Defence Contribution. I should not be prepared to advise my hon. Friends to accept it unless they get further arguments which will prove that my first reactions to the right hon. Gentleman's explanation are wrong. At any rate, this is certainly likely to lead to a serious depletion in the revenue that the Chancellor hopes to get and, if he wants depletion in that revenue, he would be much more socially advised to give it in other quarters, where it would be asked for than in the relief of the pockets of those who are mainly engaged in organising the finance of holding companies.

5.36 p.m.

Mr. Spens

I do not think there is much concession to anyone involved in the Clause. Its only object is to apply what is the fundamental basis of all taxation that, when you are taxed, you do not suffer from the form in which you hold your property or become subject to the tax. You are taxed on the real substance of the transaction. You could have one company which carried on the business of all its branches in its own hands. It would come in for the general reliefs under the different sections of the Schedule. You have another company which carries on each branch as a separate company, of which it owns 90 or 100 per cent. of the share capital. That company would suffer greater taxation. If the additional taxation was heavy, within three weeks of the coming into force of this Bill it would put whichever of those subsidiary companies it wanted into voluntary liquidation and transfer its assets back to itself and bring about exactly the same result as is provided for in the Clause. Where a parent company thinks it could gain an advantage by asking for all or some of its subsidiaries, which it would otherwise wind up, to be taxed as a whole, the Clause enables it to do it without the subject being put to the inconvenience and additional expense of winding-up the subsidiary companies and transferring back to itself the assets which the subsidiaries own. There is very little substance in it. It is only machinery to put on the same basis businesses carried on in one hand and businesses carried on in a series of 90 or 100 per cent. subsidiary companies, but it will save the winding-up of a number of these small companies and save the taxpayer considerable inconvenience. The right hon. Gentleman's fears are grossly exaggerated and no serious concession is being made to anyone.

5.39 P.m.

Mr. Mabane

I well understood, from what the Financial Secretary said, that, if two companies, one a parent and the other a subsidiary, aggregated their results for the purpose of N.D.C., then the tax free limit of £2,000 could not apply to both of them, but there is a further, and perhaps cognate point, on which I desire to put a question. My question relates particularly to director controlled companies. In the case of such companies would the provisions of what is now Section 10 of the Fourth Schedule apply to both companies, that is to say, if there are two companies, one a subsidiary of the other, and both being director-controlled companies, would the directors be entitled to make deductions from the profits in respect of salaries of directors in respect of both companies in the manner provided in Section 10 of the Fourth Schedule?

Mr. Boothby

I had an Amendment on very much the same lines as that of the hon. and learned Member for Ashford (Mr. Spens) in order to achieve this object, and I should like to thank my right hon. Friend for making the concession in a so much clearer form than I was able to do. I would say to the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) that, whether you approve in principle of holding companies or not, the companies as defined in this new Clause are in fact one concern so far as conduct of financial transactions and business generally is concerned. The simple answer is that put up by the hon. and learned Member for Ashford. You would involve a great deal of reconstruction, liquidation and reorganisation of companies and a great deal of expense to no purpose whatever, and I do not believe that you are going to lose any revenue from National Defence Contribution at all. It is much better, whether you approve in principle of holding companies or not, to accept the realities of the situation, which are that in fact companies, as defined in the Clause, are for all business and practical purposes one concern.

5.42 p.m.

Mr. Pethick-Lawrence

I am not impressed either by the speech of the hon. and learned Member for Ashford (Mr. Spens) or that of the hon. Member for East Aberdeen (Mr. Boothby). I have no objection to the Chancellor of the Exchequer deciding on one of two methods. He can either decide that all subsidiary companies are to be taken as being really part of the parent company and treated

as such, or he can take it the other way, and we shall be satisfied. But we cannot agree without protest to their having the option to do it either way. The hon. Member for Ashford thinks that, if you do not agree, it will come to the same thing, because they will wangle it and will go first one way and then the other just as it suits them at the moment, but in making those changes they will pay considerable sums to the Exchequer, and by giving them this option you are enabling them to escape that. I shall advise my hon. Friends to vote against this concession.

Mr. Mabane

Can I have an answer to my question?

The Attorney-General

The answer is Yes.

Question put, "That the Clause be read a Second time."

The House divided: Ayes, 217; Noes, 107.

Division No. 286.]	AYES.	[5.44 p.m.
Acland, Rt. Hon. Sir F. Dyke	Cooke, J. D. (Hammersmith, S.)	Haslam, Sir J. (Bolton)
Acland, R. T. D. (Barnstaple)	Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs)	Hepburn, P. G. T. Buchan-
Acland-Troyte, Lt.-Col. G. J.	Cooper, Rt. Hn. T. M. (E'nburgh, W.)	Hepworth, J.
Agnew, Lieut.-Comdr. P. G.	Cox, H. B. T.	Herbert, A. P. (Oxford U.)
Albery, Sir Irving	Crookshank, Capt. H. F. C.	Herbert, Capt. Sir S. (Abbey)
Anstruther-Gray, W. J.	Croom-Johnson, R. P.	Higgs, W. F.
Assheton, R.	Crowder, J. F. E.	Hills, Major Rt. Hon. J. W. (Ripon)
Astor, Hon. W. W. (Fulham, E.)	Cruddas, Col. B.	Holdsworth, H.
Atholl, Duchess of	Davies, Major Sir G. F. (Yeovil)	Holmes, J. S.
Baillie, Sir A. W. M.	Davison, Sir W. H.	Hope, Captain Hon. A. O. J.
Balniel, Lord	Dawson, Sir P.	Hore-Belisha, Rt. Hon. L.
Barclay-Harvey, Sir C. M.	De Chair, S. S.	Horsbrugh, Florence
Barrie, Sir C. C.	De la Bère, R.	Hudson, Capt. A. U. M. (Hack., N.)
Baxter, A. Beverley	Denman, Hon. R. D.	Hunter, T.
Beechman, N. A.	Dodd, J. S.	James, Wing-Commander A. W. H.
Beit, Sir A. L.	Dower, Major A. V. G.	Keeling, E. H.
Bernays, R. H.	Duggan, H. J.	Kerr, Colonel C. I. (Montrose)
Birchall, Sir J. D.	Duncan, J. A. L.	Kerr, H. W. (Oldham)
Bird, Sir R. B.	Eastwood, J. F.	Kerr, J. Graham (Scottish Univs.)
Blair, Sir R.	Ellis, Sir G.	Kimball, L.
Boothby, R. J. G.	Elmley, Viscount	Lamb, Sir J. Q.
Bossom, A. C.	Emery, J. F.	Lambert, Rt. Hon. G.
Boulton, W. W.	Emrys-Evans, P. V.	Latham, Sir P.
Bracken, B.	Fildes, Sir H.	Law, Sir A. J. (High Peak)
Braithwaite, Major A. N.	Findlay, Sir E.	Law, R. K. (Hull, S.W.)
Brass, Sir W.	Foot, D. M.	Lees-Jones, J.
Briscoe, Capt. R. G.	Fox, Sir G. W. G.	Leighton, Major B. E. P.
Brocklebank, Sir Edmund	Fromantle, Sir F. E.	Lennox-Boyd, A. T. L.
Brown, Rt. Hon. E. (Leith)	Furness, S. N.	Levy, T.
Bull, B. B.	Fyfe, D. P. M.	Liddall, W. S.
Butcher, H. W.	Ganzoni, Sir J.	Lindsay. K. M.
Cartland, J. R. H.	Gilmour, Lt.-Col. Rt. Hon. Sir J.	Locker-Lampson, Comdr. O. S.
Carver, Major W. H.	Gledhill, G.	Loftus, P. C.
Cary, R. A.	Goldie, N. B.	Mabane, W. (Huddersfield)
Castlereagh, Viscount	Goodman, Col. A. W.	MacAndrew, Colonel Sir C. G.
Cayzer, Sir C. W. (City of Chester)	Gower, Sir R. V.	MacDonald, Rt. Hon. M. (Ross)
Cazalet, Thelma (Islington, E.)	Grattan-Doyle, Sir N.	McEwen, Capt. J. H. F.
Chamberlain, Rt. Hn. N. (Edgb't'n)	Gretton, Col. Rt. Hon. J.	McKie, J. H.
Channon, H.	Griffith, F. Kingsley (M'ddl'sbro, W.)	Maclay, Hon. J. P.
Chapman, Sir S. (Edinburgh, S.)	Grigg, Sir E. W. M.	Macnamara, Capt. J. R. J.
Chorlton, A. E. L.	Guest, Hon. I. (Brecon and Radnor)	Magnay, T.
Cobb, Captain E. C. (Preston)	Guy, J. C. M.	Maitland, A.
Colville, Lt.-Col. Rt. Hon. D. J.	Hannah, I. C.	Makins, Brig.-Gen. E.
Conant, Captain R. J. E	Harris, Sir P. A.	Mander, G. le M.
Cook, Sir T. R. A. M. (Norfolk, N.)	Haslam, H. C. (Horncastle)	Manningham-Buller, Sir M.
Margesson, Capt. Rt. Hon. H. D. R.	Ramsden, Sir E.	Storey, S.
Markham, S. F.	Rankin, Sir R.	Strauss, E. A. (Southwark, N.)
Marsden, Commander A.	Rathbone, J. R. (Bodmin)	Strickland, Captain W. F.
Mason, Lt.-Col. Hon. G. K. M.	Rawson, Sir Cooper	Stuart, Lord C. Crichton- (N'thw'h)
Maxwell, Hon. S. A.	Reid, J. S. C. (Hillhead)	Stuart, Hon. J. (Moray and Nairn)
Mayhew, Lt.-Col. J.	Rickards, G. W. (Skipton)	Sueter, Rear-Admiral Sir M. F.
Mellor, Sir J. S. P. (Tamworth)	Robinson, J. R. (Blackpool)	Tasker, Sir R. I.
Mills, Major J. D. (New Forest)	Rosbotham, Sir T.	Tate, Mavis C.
Moore, Lieut.-Col. Sir T. C. R.	Ross, Major Sir R. D. (Londonderry)	Taylor, Vice-Adm. E. A. (Padd., S.)
Morrison, G. A. (Scottish Univ's.)	Ross Taylor, W. (Woodbridge)	Titchfield, Marquess of
Morrison, Rt. Hon. W. S. (Cirencester)	Rowlands, G.	Wallace, Capt. Rt. Hon. Euan
Neven-Spence, Major B. H. H.	Royds, Admiral P. M. R.	Ward, Lieut.-Col. Sir A. L. (Hull)
Nicolson, Hon. H. G.	Russell, Sir Alexander	Ward, Irene M. B. (Wallsend)
O'Connor, Sir Terence J.	Russell, S. H. M. (Darwen)	Warrender, Sir V.
O'Neill, Rt. Hon. Sir Hugh	Sandeman, Sir N. S.	Waterhouse, Captain C.
Ormsby-Gore, Rt. Hon. W. G. A.	Sanderson, Sir F. B.	Watt, G. S. H.
Orr-Ewing, I. L.	Savery, Sir Servington	Wedderburn, H. J. S.
Palmer, G. E. H.	Shaw, Major P. S. (Wavertree)	Wells, S. R.
Patrick, C. M.	Shaw, Captain W. T. (Forfar)	Whiteley, Major J. P. (Buckingham)
Peaks, O.	Simmonds, O. E.	Williams, C. (Torquay)
Peat, C. U.	Simon, Rt. Hon. Sir J. A.	Williams, H. G. (Croydon, S.)
Petherick, M.	Sinclair, Rt. Hon. Sir A. (C'thn's)	Windsor-Clive, Lieut.-Colonel G.
Pickthorn, K. W. M.	Smith, L. W. (Hallam)	Winterton, Rt. Hon. Earl
Plugge, Capt. L. F.	Somervell. Sir D. B. (Crewe)	Withers, Sir J. J.
Porritt, R. W.	Southby, Commander Sir A. R. J.	Womersley, Sir W. J.
Procter, Major H. A.	Spears, Brigadier-General E L.	Young, A. S. L. (Partick)
Ramsay, Captain A. H. M.	Spans. W. P.
Ramsbotham, H.	Stanley, Rt. Hon. Oliver (W'm'I'd)	TELLERS FOR THE AYES.—
		Mr. Cross and Mr. Grimston.
NOES.
Adams, D. (Consett)	Griffiths, J. (Llanelly)	Pritt, D. N.
Adamson, W. M.	Hall, J. H. (Whitechapel)	Riley, B.
Alexander, Rt. Hon. A. V. (H'Isbr.)	Harvey, T. E. (Eng. Univ's.)	Ritson, J.
Ammon, C. G.	Hayday, A.	Roberts, Rt. Hon. F. O. (W. Brom.)
Attlee, Rt. Hon. C. R.	Henderson, A. (Kingswinford)	Robinson, W. A. (St. Helens)
Bonfield, J. W.	Henderson, J. (Ardwick)	Rowson, G.
Barnes, A. J.	Henderson, T. (Tradeston)	Salter, Dr. A. (Bermondsey)
Barr, J.	Hills, A. (Pontefract)	Sanders, W. S.
Batey, J.	Jones, A. C. (Shipley)	Sexton, T. M.
Benn, Rt. Hon. W. W.	Jones, Morgan (Caerphilly)	Shinwell, E.
Broad, F. A.	Kelly, W. T.	Short, A.
Bromfield, W.	Kennedy, Rt. Hon. T.	Silkin, L.
Brown, C. (Mansfield)	Kirby, B. V.	Silverman, S. S.
Brown, Rt. Hon. J. (S. Ayrshire)	Kirkwood, D.	Smith, E. (Stoke)
Buchanan, G.	Lathan, G.	Smith, Rt. Hon. H. B. Lees- (K'ly)
Burke, W. A.	Lawson, J. J.	Smith, T. (Normanton)
Cape, T.	Leach, W.	Stewart, W. J. (H'ght'n-le-Sp'ng)
Charleton, H. C.	Lee, F.	Taylor, R. J. (Morpeth)
Cluse, W. S.	Leonard, W.	Thorne, W.
Clynes, Rt. Hon. J. R.	Leslie, J. R.	Thurtle, E.
Cocks, F. S.	Logan, D. G.	Tinker, J. J.
Cove, W. G.	Lunn, W.	Viant, S. P.
Cripps, Hon. Sir Stafford	Macdonald, G. (Ince)	Walker, J.
Dalton, H.	McEntee, V. La T.	Watkins, F. C.
Davies, R. J. (Westhoughton)	McGhee, H. G.	Watson, W. McL.
Davies, S. O. (Merthyr)	MacLaren, A.	Wedgwood, Rt. Hon. J. C.
Day, H.	Maclean, N.	Welsh, J. C.
Debbie, W.	Marshall, F.	Westwood, J.
Ede, J. C.	Mathers, G.	White, H. Graham
Fletcher, Lt.-Comdr. R. T. H.	Milner, Major J.	Williams, T. (Don Valley)
Gardner, B. W.	Morrison, R. C. (Tottenham, N.)	Windsor, W. (Hull, C.)
Garro Jones, G. M.	Muff, G.	Woods, G. S. (Finsbury)
Gibson, R. (Greenock)	Oliver, G. H.	Young, Sir R. (Newton)
Graham, D. M. (Hamilton)	Paling, W.
Green, W. H. (Deptford)	Parker, J.	TELLERS FOR THE NOES.—
Grenfell, D. R.	Parkinson, J. A.	Mr. Whiteley and Mr. Groves.
Griffiths, G. A. (Hemsworth)	Pethick-Lawrence, Rt. Hon. F. W.

Clause added to the Bill.

Mr. Deputy-Speaker

The next new Clause selected is that in the names of the hon. Member for Gower (Mr. Grenfell) and other hon. Members.

NEW CLAUSE.—(Personal allowance of married persons.) Sub-section (1) of section eighteen of the Finance Act, 1920 (which, as amended by section forty of the Finance Act, 1927, section eight of the Finance (No. 2) Act, 1931, section twenty of the Finance Act, 1935, and section sixteen of the Finance Act, 1936, provides for a deduction of tax on one hundred and eighty pounds in the case of married persons), shall have effect as if the words "two hundred and twenty-five pounds" were substituted for the words "one hundred and eighty pounds."—[Mr. Muff.]

Brought up, and read the First time.

5.53 p.m.

Mr. Muff

I beg to move, "That the Clause be read a Second tme."

The broad effect of the Clause is to restore the Income Tax limit to what it was pre-1931. I do not represent big business, and I cannot say that I speak with the voice of the City, but I want to put before this honourable House the case and the plaint of the inarticulate masses of the country who feel the Income Tax limit of £180 to be onerous and something which is becoming increasingly so as the years go by. I put the case of the man upon a weekly wage who sometimes is in receipt of a wage which brings him within the Income Tax limit, but who the following year is out of work and is dependent upon unemployment benefit. Because he has not paid his Income Tax based upon his earnings of the preceding year, he receives a summons to appear before the local police court to show cause why he has not paid. In my vacation I spend one week in three at a local police court in a city of some 300,000 inhabitants. Every week there are 60 to 100 cases of men summoned because they have not paid their Income Tax. My experience will be the same as that of other hon. Members who perform similar duties. I suggest to the Chancellor of the Exchequer that if he could obtain the number of summonses issued in a year against these decent working-class folk who, sometimes for the first time in their lives, are compelled to come before a bench of magistrates in fear and trembling because of the association of the police court—if a question could be put down in this House to the proper Government Department asking for the number of summonses issued in a year, the right hon. Gentleman and this House would be startled at the number of people who have to go to the police courts. The local police funds benefit from the numberless two shillings and other costs which are added, and ultimately these poor persons have to pay. I am putting the case of hundreds of thousands of folk who have had perhaps a year of comparative prosperity followed by a year when they are out of work and their incomes are reduced to unemployment levels but who still have to pay their Income Tax.

I also ask the House to consider the position of another section of the com- munity, the large percentage of the population of this country—I suggest almost the backbone of the country—the men whom we call the cuff and the collar brigade. Nowadays, fortunately, the cuff has been abolished. I agree that some of these men have regular, though small incomes, but they all have to keep up appearances. The word "appearances" involves almost a tragedy in some households where you find these men with a brave wife and family trying to keep up appearances and all that that entails. This afternoon a Scottish Member introduced a Bill under the Ten Minute Rule in a semi-humourous fashion, but he put his case in a very real way—the case for having a nutritious fish called the kipper. In this middle-class household of which I am speaking, what is known as a two-eyed steak—a bloater or a kipper—is a regular article of food. To the outside world these people have to keep up appearances, and once their appearances go down these men lose their job. I put it to the Financial Secretary to the Treasury and to his Government, who have boasted that they have restored many of the cuts of 1931, that the time has arrived when we should have the 1931 level of Income Tax assessment also restored. It would be a concession which would cost money—I do not pretend to know how much it would cost—but whatever the cost it would mean a great deal to these people with small incomes. The country can well afford to make the concession.

These working-class and middle-class folk with small incomes have borne the heat and burden of the day under the indirect taxation which this House has imposed upon them since 1931. That indirect taxation bears more hardly upon the small income man than it does upon the rich taxpayer. They pay in many cases the same amount of indirect taxation whether their income is £250 a year or £12,500 a year. The policy of the Government is to tax these people from the day they are born until they are put in their coffins and the shroud is placed upon them. [Interruption.] Even the shroud of the hon. Member for Mid Bedfordshire (Mr. Lennox-Boyd), as he will learn when he dies—[Laughter]—well, at any rate his executors will learn when they are placing a beautiful shroud on the hon. Member—and he certainly merits one of the best of shrouds—that part of it will be taxed. The policy of the Government has been to place increasing burdens upon the backbone of this country, and I put in a plea for the inarticulate masses who are unduly and excessively taxed, and ask for the good will of the House in the acceptance of the Clause.

6.2 p.m.

Mr. Tinker

I beg to second the Motion and also the appeal of my hon. Friend, who has made a human speech. The proposal is that the present Income Tax level of £180 should be restored to £225 for married couples, which would mean for a married couple a relief from taxation of about £4 per year. I can well understand the argument that in relieving the poorer class we shall be also relieving the richer class to the same extent. Against that the argument of the Socialist party is that we ought to fix for all families what is termed a living basis. The human needs should be met first before any taxation is applied. We are asking for £225 as the figure, which is certainly moderate, but in this as in other things we have to move gradually. If I had my way it would not be less than £300 for a married couple. That would be the basis on which I should start before any taxation was applied. I may be asked where I should get the taxation and I shall be told that the Budget has been fixed on a certain basis, that it has been examined and prepared by experts and that if this Clause were agreed to the whole Budget would be dislocated. I agree with that statement, but I should have no hesitation in setting about to find the money in a much better way than by taxing people of low incomes.

I would have a steep graduated tax from the basis of £300. When people get to certain high incomes their concern is how they can spend the money. It is very bad for the human race that men should be too rich. Certain concessions have been granted. There was one concession, the man-servant tax. That may be only a small amount, but the person who employs a man-servant can very well pay a little for that privilege. However, the Chancellor of the Exchequer agreed that the time had come when he could make that concession. If there is any question of concessions being given why can we not give some little encouragement to the married couple? We are always hearing it said that the numbers of the human race are declining, and that we want more children. Here is an incentive. We could say to the married couple: "The State has something in mind by relieving you of a certain amount of taxation," and it would have its effect. If the Chancellor of the Exchequer cannot give way this time I hope that he will give us some prospect that on the next occasion this proposal will receive due consideration. Let us have some hopefulness that the married couple will receive encouragement from the State.

6.6 p.m.

Mr. H. G. Williams

I suppose there is no Amendment that on personal grounds one would be more ready to support than this one. There is no constituency the inhabitants of which would gain more than mine would gain from the acceptance of the Clause. In South Croydon there is a very large proportion of Income Tax payers who are in receipt of such incomes that this concession would be of great advantage to them. I say that before I begin to oppose the Clause. If the hon. Members opposite would do a little arithmetic first and make their speeches afterwards, not only on this subject but on a great many subjects, a very large number of the proposals they make would not be made. I have not attempted to work out the actual cost of the Clause, because it is difficult for a private individual to do so, but there are between 3,000,000 and 4,000,000 persons who pay Income Tax. Of about 7,000,000 people who are assessed, one-half escape liability because of the very generous system of allowances—;personal allowance, earned income allowance, insurance allowance, children's allowance and so on. As a result of these allowances the man whose income is in the neighbourhood of £500 a year pays less tax than in pre-War days, a very amazing situation, which is not generally realised.

I do not think it is right that the Treasury alone should be called upon to resist these Amendments, and be called hard-hearted. Those of us who have constituents who would benefit from these concessions ought to take our part in resisting proposals which are impracticable. Between 3,000,000 and 4,000,000 people pay Income Tax and probably 2,000,000 at least would benefit from this concession. Calculated at £45 each that would mean that £90,000,000 of income would be excused, if my rough calculation is right. On that basis, which is not an unreasonable one, it would cost the Treasury £22,500,000 a year. The hon. Member for Leigh (Mr. Tinker) says that he would have a steep, graduated system of taxation from £300 upwards. We have it already. We have a graduated system of taxation—it does not affect me very much because I am not in the higher range of incomes—which is so oppressive as to be the cause of a good deal of the unemployment that prevails. [Laughter.] Hon. Members opposite may jeer, but the fact remains that at this moment of good trade we still have 1,400,000 people without jobs. [HON. MEMBERS: "Is that due to Income Tax?"] I am not saying that it is all due to Income Tax, but it is a curious fact that there has persisted since the War a level of unemployment that never existed in pre-War days, and the one outstanding difference in our situation is the oppressive burden of taxation.

Hon. Members propose to make that burden still more oppressive to those with incomes of more than £300 a year. I would ask hon. Members to go to the Vote Office and get the last Report of the Commissioners of Inland Revenue and examine the position in respect of the precise class of people whom it is proposed to tax further. Let them examine their total income. Let them see what they pay in Surtax, what they pay in Income Tax, and the amount they have to provide in order to make arrangements to leave something to their successors. Let them examine the insurance premiums they have to pay, and they will find that that class is now in the position that one cannot tax them any more.

Mr. Ellis Smith

What about Sir John Ellerman?

Mr. Williams

It is no use hon. Members opposite becoming excited. I suggest that neither their five-year programme nor any other programme that they are going to place before the electors in regard to social reform can be financed. That is true not only of the proposals of hon. Members opposite, but it is equally true of proposals that may come from this side. You have pushed your taxation to a limit which is above the economic limit. Why I am objecting to this particular Amendment, which would give considerable satisfaction to a substantial number of my constituents, is that we can only pay for it either by drastic cuts in expenditure, of which I do not see much willingness on the benches opposite, or by imposing penal taxation on a class who are already economically overtaxed, or by new penal taxes on clothing, food and other commodities of that kind, which hon. Members opposite are not prepared to do. They are putting forward a proposal which cannot be carried out, and I want them to realise that that is what they are going to vote for. They will be voting for something which they would not propose if they were in office. I want hon. Members on this side to vote against this proposal, which is superficially popular, in order that we may emphasise the fact that Members of Parliament have no right to obtain cheap popularity by putting forward attractive but foolish proposals.

6.13 p.m.

Lieut.-Colonel Colville

The hon. Member for Leigh (Mr. Tinker) was frank, as usual. He said that he realised that this is a proposal which if it were accepted might dislocate the finances of the year. That is the case. If the proposal were accepted it would cost about £9,000,000 in a full year and about half that sum in the first year.

Mr. Muff

The hon. Member for South Croydon (Mr. H. G. Williams) said it would cost £22,500,000.

Lieut.-Colonel Colville

I am very grateful for the assistance of the hon. Member for South Croydon.

Mr. Holdsworth

He only multiplied it 2½ times.

Lieut.-Colonel Colville

It frequently happens that when proposals are made they have to be resisted by the Chancellor of the Exchequer and myself in the interests of the taxpayers. Therefore, I am very glad that my hon. Friend was able to lend his support in that way.

Mr. Muff

Do you agree with his figures?

Lieut.-Colonel Colville

The hon. Member who moved the Clause went into wider fields than I propose to follow him. He suggested that the policy of the National Government was to place heavy burdens on the backbone of the country. I would remind him that this Finance Bill imposes no new indirect taxation, which is a remarkable thing in present circumstances. I will not follow the hon. Member into the question of what the policy of the National Government has achieved. I will concentrate on the merits of the proposal now before us. I think it is necessary to say a word on the history of what has happened in regard to these allowances since 1931. In 1931 the married person's allowance was reduced from £225 to £150, and a single person's allowance from £135 to £100. By the Finance Act, 1935, the married allowance was increased to £170, a figure which more than restored in favour of the married taxpayer the old proportion as between the single and the married allowance. The Finance Act, 1936, further increased the allowance to £180, and that increase, coupled with the increase in the allowance from £50 to £60 for each child, also granted in the 1936 Finance Act, afforded a general additional relief to the taxpayer with family responsibilities.

Apart from the question of cost, the graduation of the tax now in force is so different from what it was before 1931 that it really would be unreasonable to look for a restoration of the pre-1931 allowance for married persons regardless of the effect of other relief. Earned income relief is now higher than it was before the 1931 alteration, and the child allowance is now at a higher point than ever before, while the reduction in the charge on the first slice of taxable income from one-half to one-third of the standard rate, effected in the 1935 Finance Act, provided a new and substantial relief for the smaller taxpayer. When that history is kept in mind it will be seen that the National Government and its predecessor have done a great deal to provide allowances for the people for whom the hon. Member has made so sincere and eloquent a plea. There is the further point. The hon. Member for Leigh said that the State wanted more children. An allowance for married persons up to £225 would seem to be out of proportion with the single person's allowance of £100. Whatever view we may have on the social value of married persons, that seems to be a wide divergence in the allowances. In addition to these facts, there is the powerful and compelling fact of the cost which this will involve, and for these reasons we cannot accept the Clause.

6.19 p.m.

Mr. Leonard

I was rather surprised at the contribution to the Debate made by the hon. Member for South Croydon (Mr. H. G. Williams). It is not always we hear him asking hon. Members to support the Treasury, but on this occasion he has taken upon himself to do so. He entered into some arithmetic, which he said was rather rough. We can now agree with him that it was rather rough, for his £22,000,000 has now been reduced by the Financial Secretary to £9,000,000. He also asked us to consider the returns of the Inland Revenue Commissioners. I have not had time to do so, hut, having paid some little attention to their report, I recollect that in 1936 as against 1935 there was an increase of millionaires in this country of about 89; that is 89 persons more in 1936 were receiving £30,000 per annum income. I suggest that that is a very suitable field for the Chancellor of the Exchequer to explore. In addition, the people who earn £2,000 a year also increased by more than 2,000 in 1936 as against 1935 and, therefore, I do really think that we should adopt the hon. Member's advice and pay some attention to the returns of the Inland Revenue Commissioners. The figures I have given are from memory, but I think they are fairly correct, and they show that the incidence of taxation has not frightened them. They are making more money, and apparently are enjoying it.

The proposal contained in the new Clause is, in my opinion, in complete accord with the guidance which has been given to the Government by all economists. They are being constantly warned by experts on social problems that they must look to the end of the boom period created by armament production, and one of the things which these economists are insisting upon is that the Government must pay some attention to ways and means which will guarantee the continuance, indeed guarantee an increase of the consuming power of the people. Therefore, while there is a sum of £9,000,000 involved we must not forget the kind of homes to which this £9,000,000 goes. It is going into the homes of those with £30,000 a year, homes which do not need to spend it. The advantages which they will get do not show themselves in any advantage to the nation by the money being spent. On the other hand, if the proposal were accepted, this £9,000,000 would go into those homes which must spend everything they receive, and to that extent it would be a definite advantage to the nation, and be also in line with the expert advice which the Government are receiving from all economists in this matter.

6.24 p.m.

Sir Stafford Cripps

One phrase was used by the Financial Secretary, which is often used on the Treasury Bench, and it is worth while trying to analyse it for a moment. He said that he was glad someone had come forward to help the Government to resist in the interests of the taxpayer this new demand. Who is the taxpayer? So far as the taxpayer in bulk is concerned, obviously this would be in the interests of the taxpayer, but so far as concerns the small number of people who may have to pay more out of large incomes obviously if the same amount of money had to be raised it would be against the interests of that small class of wealthy people. The attitude of the Treasury always seems to be that it is their function to protect the small class of the very wealthy against the very much larger class of taxpayers, who either by direct or indirect taxation are at the present time being overcharged so far as their capacity to pay is concerned.

Lieut.-Colonel Colville

The hon. and learned Member will bear in mind that the class of people to whom he refers are better off than they were in 1931.

Sir S. Cripps

Does the Financial Secretary suggest that it is not in their interests that they should be still better off? I should have thought that even hon. Members opposite might have realised the simple fact that if they are relieved of some of their taxation, it is in their interests.

Lieut.-Colonel Colville

The same would hold good in 1931.

Sir S. Cripps

Certainly. If they are relieved of taxation they are better off, and it is therefore in their interests as a class of taxpayer that they should be relieved. The question here is: Is it better for the community that this £9,000,000 should be collected substantially from the incomes and homes of those who have no surplus and, indeed, often hardly sufficient to supply the ordinary needs of civilisation, or should it be collected from those who have already a large excess in the way of income which enables them not only to supply those needs but to supply fresh capital or luxuries? I can understand the argument being put forward that in the circumstances of to-day it is proper that the very rich should pay less taxes in order that more capital might be provided for the expansion of munitions manufacture, but regarded from the point of view of the standards of the community as a whole the Financial Secretary cannot say that it is more desirable to take this £9,000,000 out of the homes of the poorer section of the community than out of the homes of the wealthier section of the community. That is the whole problem raised by the new Clause.

In the collection of the necessary amount of money are you going to look to those who have large surpluses already or to those who have no surpluses at all? This request that a further concession should be made to those who are in the lowest grade of Income Tax payers is merely a request that for the good of the community this £9,000,000 should be made available for expenditure upon ordinary commodities which they are bound to buy rather than upon luxuries or new capital improvements. I should have thought it was perfectly clear from the point of view of the economist, and especially with rising prices which we have to-day, that it is eminently desirable to put as large a consuming power for ordinary commodities into the hands of people who are bound to spend their money on ordinary commodities rather than to do what the Government are doing, that is, to relieve the wealthy and to place the burden on the shoulders of those who, on the admission of the Government, are much less able to bear it. That is the whole problem, and I should have thought from the point of view of the common interests of the community, and from the point of view of the economist, indeed from any sensible point of view, that there could be no answer to this demand. The only answer comes from the Financial Secretary in what he calls the interests of the tax-payer, by which he means the wealthy people who support the National Government and the Conservative party.

Question put, "That the Clause be read a Second time."

The House divided: Ayes, 123; Noes, 211.

Division No. 287.]	AYES.	[6.30 p.m.
Acland, Rt. Hon. Sir F. Dyke	Griffiths, J. (Llanelly)	Parkinson, J. A.
Acland, R. T. D. (Barnstaple)	Groves, T. E.	Pethick-Lawrence, Rt. Hon. F. W.
Adams, D. (Consett)	Hall, J. H. (Whitechapel)	Pritt, D. N.
Adamson, W. M.	Harris, Sir P. A.	Rathbone, Eleanor (English Univ's.)
Alexander, Rt. Hon. A. V. (H'Isbr.)	Harvey, T. E. (Eng. Univ's.)	Riley, B.
Ammon, C. G	Hayday, A.	Ritson, J.
Attlee, Rt. Hon. C. R.	Henderson, A. (Kingswinford)	Roberts, Rt. Hon. F. O. (W. Brom.)
Banfield, J. W.	Henderson, J. (Ardwick)	Robinson, W. A. (St. Helens)
Barnes, A. J.	Henderson, T. (Tradeston)	Rowson, G.
Barr, J.	Hills, A. (Pontefract)	Salter, Dr. A. (Bermondsey)
Batey, J.	Johnston, Rt. Hon. T.	Sanders, W. S.
Benn, Rt. Hon. W. W.	Jones, A. C. (Shipley)	Seely, Sir H. M.
Broad, F. A.	Jones, Morgan (Caerphilly)	Sexton. T. M.
Bromfield, W.	Kelly, W. T.	Shinwell, E.
Brown, C. (Mansfield)	Kennedy, Rt. Hon. T.	Short, A.
Brown, Rt. Hon. J. (S. Ayrshire)	Kirby, B. V.	Silverman, S. S.
Buchanan, G.	Kirkwood, D.	Sinclair, Rt. Hon. Sir A. (C'thn's)
Burke, W. A.	Lathan, G.	Smith, E. (Stoke)
Cape, T.	Lawson, J. J.	Smith, Rt. Hon. H. B. Lees- (K'ly)
Cluse, W. S.	Leach, W.	Smith, T. (Normanton)
Clynes, Rt. Hon. J. R.	Lee, F.	Sorensen, R. W.
Cocks, F. S.	Leonard, W.	Stewart, W. J. (H'ght'n-le-Sp'ng)
Cove, W. G.	Leslie, J. R.	Taylor, R. J. (Morpeth)
Cripps, Hon. Sir Stafford	Logan, D. G.	Thorne, W.
Dalton, H.	Lunn, W.	Thurtle, E.
Davidson, J. J. (Maryhill)	Macdonald, G. (Ince)	Tinker, J. J.
Davies, R. J. (Westhoughton)	McEntee, V. La T.	Viant, S. P.
Davies, S. O. (Merthyr)	McGhee, H. G.	Walker, J.
Day, H.	MacLaren, A.	Watkins, F. C.
Dobbie, W.	Maclean, N.	Watson, W. McL.
Ede, J. C.	MacMillan, M. (Western Isles)	Wedgwood, Rt. Hon. J. C.
Evans, D. O. (Cardigan)	Mainwaring, W. H.	Welsh, J. C.
Fletcher, Lt.-Comdr. R. T. H.	Mander, G. le M.	Westwood, J.
Foot, D. M.	Marshall, F.	White, H. Graham
Gardner, B. W.	Milner, Major J.	Whiteley, W. (Blaydon)
Garro Jones, G. M.	Montague, F.	Williams, T. (Don Valley)
Gibson, R. (Greenock)	Morrison, Rt. Hon. H. (Hackney, S.)	Windsor, W. (Hull, C.)
Graham, D. M. (Hamilton)	Morrison, R. C. (Tottenham, N.)	Woods, G. S. (Finsbury)
Green, W. H. (Deptford)	Muff, G.	Young, Sir R. (Newton)
Grenfell, D, R.	Oliver, G. H.
Griffith, F. Kingsley (M'ddl'sbro, W.)	Paling, W.	TELLERS FOR THE AYES.—
Griffiths, G. A. (Hemsworth)	Parker, J.	Mr. Charleton and Mr. Mathers.
NOES.
Acland-Troyte, Lt.-Col. G. J.	Castlereagh, Viscount	Emrys-Evans, P. V.
Agnew, Lieut.-Comdr. P. G.	Cayzer, Sir C. W. (City of Chester)	Fildes, Sir H.
Albery, Sir Irving	Chamberlain, Rt. Hn. N. (Edgb't'n)	Findlay, Sir E.
Anstruther-Gray, W. J.	Channon, H.	Fox, Sir G. W. G.
Assheton, R.	Chorlton, A. E. L.	Furness, S. N.
Astor, Hon. W. W. (Fulham, E.)	Colville, Lt.-Col. Rt. Hon. D. J.	Fyfe, D. P. M.
Atholl, Duchess of	Conant, Captain R. J. E.	Ganzoni, Sir J.
Baillie, Sir A. W. M.	Cook, Sir T. R. A. M. (Norfolk, N.)	Gilmour, Lt.-Col. Rt. Hon. Sir J.
Balfour, G. (Hampstead)	Cooke, J. D. (Hammersmith, S.)	Gledhill, G.
Balniel, Lord	Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs)	Goldie, N. B.
Barclay-Harvey, Sir C. M.	Cooper, Rt. Hn. T. M. (E'nburgh, W.)	Goodman, Col. A. W.
Baxter, A. Beverley	Cox, H. B. T.	Gower, Sir R. V.
Beit, Sir A. L.	Cranborne, Viscount	Grattan-Doyle, Sir N.
Bernays, R. H.	Crooke, J. S.	Gretton, Col. Rt. Hon. J.
Birchall, Sir J. D.	Crookshank, Capt. H. F. C.	Gridley, Sir A. B.
Blair, Sir R.	Croom-Johnson, R. P.	Grigg, Sir E. W. M.
Blaker, Sir R.	Crossley, A. C.	Grimston, R. V.
Boothby, R. J. G.	Crowder, J. F. E.	Gritten, W. G. Howard
Bossom, A. C.	Cruddas, Col. B.	Guest, Hon. I. (Brecon and Radnor)
Boulton, W. W.	Davies, Major Sir G. F. (Yeovil)	Guinness, T. L. E. B.
Bracken, B.	Dawson, Sir P.	Gunston, Capt. D. W.
Brass, Sir W.	De Chair, S. S.	Guy, J. C. M.
Briscoe, Capt. R. G.	De la Bère, R.	Hacking, Rt. Hon. D. H.
Brown, Rt. Hon. E. (Leith)	Denman, Hon. R. D.	Hannah, I. C.
Bull, B. B.	Dodd, J. S.	Harbord, A.
Butcher, H. W.	Dower, Major A. V. G.	Haslam, H. C. (Horncastle)
Butler, R. A.	Elliot, Rt. Hon. W. E.	Haslam, Sir J. (Bolton)
Gartland, J. R. H.	Ellis, Sir G.	Heneage, Lieut.-Colonel A. P.
Carver, Major W. H.	Elmley, Viscount	Hepburn, P. G. T. Buchan-
Cary, R. A.	Emery, J. F.	Hepworth, J.
Higgs, W. F.	Manningham-Buller, Sir M.	Salmon, Sir I.
Hills, Major Rt. Hon. J. W. (Ripon)	Margesson, Capt. Rt. Hon H. D. R.	Sandeman, Sir N. S.
Hoare, Rt. Hon. Sir S.	Markham, S. F.	Sanderson, Sir F. B.
Holdsworth, H.	Mason, Lt.-Col. Hon. G. K. M.	Savery, Sir Servington
Holmes, J. S.	Maxwell, Hon. S. A.	Shaw, Major P. S. (Wavertree)
Hope, Captain Hon. A. O. J.	Mayhew, Lt.-Col. J.	Shaw, Captain W. T. (Forfar)
Hore-Belisha, Rt. Hon. L.	Mellor, Sir J. S. P. (Tamworth)	Simon, Rt. Hon. Sir J. A.
Horsbrugh, Florence	Mills, Major J. D. (New Forest)	Smith, L. W. (Hallam)
Hudson, Capt. A. U. M. (Hack., N.)	Moore, Lieut.-Col. Sir T. C. R.	Somervell. Sir D. B. (Crewe)
Hudson, R. S. (Southport)	Morrison, G. A. (Scottish Univ's.)	Southby, Commander Sir A. R. J.
Hume, Sir G. H.	Morrison, Rt. Hon. W. S. (Cirencester)	Spears, Brigadier-General E. L.
Hunter, T.	Nall, Sir J.	Spens. W. P.
Jones, Sir G. W. H. (S'k N'w'gt'n)	Neven-Spence, Major B. H. H.	Storey, S.
Keeling, E. H.	Nicolson, Hon. H. G.	Strauss, E. A. (Southwark, N.)
Kerr, H. W. (Oldham)	O'Neill, Rt. Hon. Sir Hugh	Strauss, H. G. (Norwich)
Kerr, J. Graham (Scottish Univs.)	Ormsby-Gore, Rt. Hon. W. G. A.	Stuart, Lord C. Crichton- (N'thw'h)
Keyes, Admiral of the Fleet Sir R.	Orr-Ewing, I. L.	Sueter, Rear-Admiral Sir M. F.
Lamb, Sir J. Q.	Palmer, G. E. H.	Tasker, Sir R. I.
Lambert, Rt. Hon. G.	Patrick, C. M.	Tate, Mavis C.
Latham, Sir P.	Peake, O.	Titchfield, Marquess of
Law, Sir A. J. (High Peak)	Peat, C. U.	Tryon, Major Rt. Hon. G. C.
Law, R. K. (Hull, S.W.)	Petherick, M.	Wallace, Capt. Rt. Hon. Euan
Lees-Jones, J.	Pickthorn, K. W. M.	Ward, Lieut.-Col. Sir A. L. (Hull)
Leighton, Major B. E. P.	Plugge, Capt. L. F.	Ward, Irene M. B. (Wallsend)
Lennox-Boyd, A. T. L.	Porritt, R. W.	Warrender, Sir V.
Levy, T.	Procter, Major H. A.	Waterhouse, Captain C.
Liddall, W. S.	Ramsay, Captain A. H. M.	Watt, G. S. H.
Llewellin, Lieut.-Col. J. J.	Ramsbotham, H.	Wedderburn, H. J. S.
Lloyd, G. W.	Ramsden, Sir E.	Wells, S. R.
Locker-Lampson, Comdr. O. S.	Rathbone, J. R. (Bodmin)	Whiteley, Major J. P. (Buckingham)
Loftus, P. C.	Rawson, Sir Cooper	Williams, C. (Torquay)
Mabane, W. (Huddersfield)	Reid, J. S. C. (Hillhead)	Williams, H. G. (Croydon, S.)
MacAndrew, Colonel Sir C. G.	Rickards, G. W. (Skipton)	Windsor-Clive, Lieut.-Colonel G.
MacDonald, Rt. Hon. M. (Ross)	Robinson, J. R, (Blackpool)	Winterton, Rt. Hon. Earl
McEwen, Capt. J. H. F.	Ropner, Colonel L.	Withers, Sir J. J.
McKie, J. H.	Rosbotham, Sir T.	Womersley, Sir W. J.
Macmillan, H. (Stockton-on-Tees)	Ross Taylor, W. (Woodbridge)	Wood, Hon. C. I. C.
Macnamara, Capt. J. R. J.	Rowlands, G.	Wood, Rt. Hon. Sir Kingsley
Magnay, T.	Royds, Admiral P. M. R.	Young, A. S. L. (Partick)
Maitland, A.	Russell, Sir Alexander
Makins, Brig.-Gen. E.	Russell, S. H. M. (Darwen)	TELLERS FOR THE NOES.—
		Lieut.-Colonel Kerr and Mr. Cross.

NEW CLAUSE.—(Entertainments Duty to terminate at end of the financial year.) Section one of the Finance (New Duties) Act, 1916, and section one of the Finance Act, 1935 (which relate to entertainments duty) shall cease to have effect on the thirty-first day of March, nineteen hundred and thirty-eight—[Mr. A. Herbert.]

Brought up, and read the First time.

6.37 p.m.

Mr. Alan Herbert

I beg to move, "That the Clause be read a Second time."

The hon. Member for East Hull (Mr. Muff) has just taken us from the stately avenues of big business to the quiet corners of South Croydon, and I hope hon. Members will permit me to take them on to the wilds of Bohemia and the groves of Art. May I at once assure the House and the right hon. Gentleman the Chancellor of the Exchequer that this proposed new Clause is not nearly as formidable as it may at first appear? It would indeed be audacious for a shy new Member to propose the total abolition of an entire tax. The effect of this new Clause, if it is correctly drafted, would not be to embarrass His Majesty's Government in any way, or indeed to reduce the revenue either this year, or possibly in any other year. The effect would be that the Entertainments Duty, as at present charged, would cease to be charged at the end of the current financial year. The idea is that the Chancellor of the Exchequer, when preparing his new Budget, would be forced to say to himself, "At last, 21 years after this temporary tax was first imposed, it has, by the will of Parliament, been permitted to lapse, and now what am I to do—am I to impose it again in its present form or in some better form, or am I to impose half of it, or to impose it on some entertainments and not on others; or is there some new and delightful alternative source of revenue?" I am fortified in making this suggestion by a remark made by the last Chancellor of the Exchequer, now the Prime Minister, in his Budget speech two or three years ago, when he said: For my part, I shall be glad, if my resources enable me to do so, to remodel the whole tax, because I think in its present form it is unsatisfactory in many ways, both theoretically and practically. That was a very important and sound observation, and the suggestion I make, humbly and timidly, is that we should now give to the new Chancellor of the Exchequer an opportunity to carry that out when he formulates his first Budget. After those words of the Prime Minister, who stated categorically that this tax is bad, both in theory and in practice, it might seem superfluous for me to say more, but the memories of all of us are so so short in these matters that I hope the House will forgive me if I say a few more words in support of the proposition that this tax is a bad tax in its essence, its principle, its incidence, its rate, and indeed in almost every other particular.

First of all, it is a bad tax in principle and in essence. It is not a tax which protects home industries; it is not a tax which keeps out the foreigner; it is not even a tax which, like the whisky tax or the tobacco tax, discourages certain indulgences which certain people regard as vicious and harmful. Whatever we may say about this entertainment or that, this tax is a tax upon things of the mind. It is a tax upon the free communication of thought, ideas and knowledge, and to a very large extent and in a very true sense, it is a tax upon education. It is very difficult indeed to distinguish this tax from the old taxes on knowledge, as they were called, which were abolished, after a protracted and bitter struggle, only as long ago as the 1850's and the 1860's. It was in about 1850 that there ceased to be a tax upon every newspaper and every pamphlet that published news, and a tax upon advertisements, the chief source of revenue of newspapers, and upon paper, their raw material. Those taxes were rightly called taxes upon knowledge.

It is safe to say that if anybody proposed to reimpose a tax of that sort at this stage, for instance, a tax upon books, say, 20 per cent. on the price of a 7s. 6d, novel, making a total price of 9s.—unless it was a novel by my humble self, about which nobody would bother—I think that tax would be regarded as monstrous and barbarous. Yet it is difficult to find any argument for placing taxes upon concerts, music, drama and art and not placing them on books and newspapers, for, much as I admire newspapers, to which I contribute from time to time a diffident word or two, it is very difficult to say that all of them are solely educational. The great "Times" itself becomes more and more an entertainment, but it would be resented very bitterly if one had to pay a halfpenny tax on a twopenny "Times."

This is a bad tax because in selecting entertainments it makes no allowance whatever for the element of mind or, culture, or whatever one may like to call it. If a man presents "Hamlet" or "A Midsummer Night's Dream" by the poet Shakespeare—an extremely risky thing to do—it is entertainment. If a man catches a couple of live monkeys and exhibits them to the public in a cage, that is entertainment. If a man organises a great orchestra which plays the music of Bach, Beethoven and Mozart, that again is entertainment. If his flat windows command a view of the boat race or a State funeral or procession, that is, or at least used to be, entertainment. I well remember one occasion when, at a State funeral, entertainments tax was charged on those who let out rooms from which people could behold that spectacle. If a man gives the first performance of a new British symphony or opera that, again, is entertainment. If he races dogs, or keeps live lions, that is entertainment. I am not saying that some of these exhibitions are not properly taxed. What I am saying is that in a country which was really civilised it would be impossible to justify that kind of classification, which ignores any kind of element of mind or instructive quality.

I ask hon. Members to consider how illogical is the tax. Consider the very terms of the Statute which originally imposed it. I cannot too often repeat that this tax was originally imposed under the special stress of the Great War. It was hastily devised, and it has been suffered patiently by those concerned because of the circumstances of its introduction during the Great War. But in that Statute it was recognised that a great part of entertainment might be educational, because it was laid down that where an entertainment is wholly educational in character or is not conducted for profit, no tax is chargeable. No tax is charged on a production of a play by the poet Shakespeare at the "Old Vic." That goes free, and I am delighted that it should be so, but if the same play were produced in the West End then, suddenly, for some obscure reason, in the eyes of the authorities it ceases to be educational, because an attempt is being made to secure a profit on the performance. But the illogicality of the whole thing proceeds to extremes when you find that even if a wretched man makes a loss on presenting a play of Shakespeare's, he still has to pay the tax. I use the term "educational" seriously, because education is not merely a matter of going to school and studying school books. It embraces the whole wide field of mental enrichment. It is impossible to ignore that consideration.

I could give many illustrations of the various illogical results of this piece of legislation. I mention only one which is not very important, but which is good as an illustration. The House may know that all over the country there are social or literary societies which engage odd persons like myself to deliver instructive lectures. As long as the society is not conducted for the purposes of profit and the lecture is considered to be generally educational, no tax is charged. In my younger days I used to deliver a lecture which was entitled, unfortunately, "On Being Funny." There was nothing very funny about it. I have never pretended to be a funny man. I am just like the rest of us—an ordinary nice chap who seeks to do good—and this lecture was of a rather high-brow character. It set out to explain the Bergsonian theory of laughter and the essence of humour and all that kind of thing, and I can say that the laughs which that lecture excited, even on the North-East Coast, were very rare indeed. But the vigilant officer of Customs and Excise, part of whose duties it is to look after these matters on the North-East Coast, pricked up his ears when he heard of this lecture entitled "On Being Funny." He said to himself: "There is something extremely deleterious and dangerous here." So he sent a report of this event to the Customs House in Billingsgate where, I understand, there is a special department which inspects, and, if necessary, disinfects the lectures to be delivered by literary men on the North-East Coast and other places. According to common form I was requested to supply a precis of my lecture in order to assure the Customs House, first, that it was educational and, secondly, that it was not at all amusing. To my astonishment, knowing how little entertainment that lecture appeared to afford to the public, I was unable to convince them of the second part of the proposition. The unhappy society had to pay tax upon the lecture, and I was never invited to lecture there again. That illustrates the strange idea that anything which is at all entertaining is something in the nature of an offence on which a fine ought to be imposed.

So much for the principle of the tax. Another objection to it is on the ground of its incidence. I must remind hon. Members of the House who are probably too much occupied with graver matters to be aware of the fact, that this tax is levied not upon profits but upon receipts. Listening to recent discussions on the National Defence Contribution which, whatever its defects, is a tax upon profits, I have wondered how the representatives of business and industry would like a tax of 20 per cent., not on what goes into the savings bank but on what comes into the till. How would they like a tax which is not even levied upon receipts while profits are being gained, but is also levied upon those receipts even where a loss is being made?

I remember that in the old days at the Lyric Theatre in Hammersmith where I was humbly associated with the late Sir Nigel Playfair in the great work which he did there, we produced a long series of very instructive and, on the whole, beneficial plays, but nobody ever made any money there. I remember in the case of one play of mine we started with a capital of about £1,000, and it ran for five months, I am glad to say, but during most of that period losses were being made. We would have £600 of takings where the expense; were £800 and on that loss of £200. we would pay a tax of £100 to the Inland Revenue. The result was that a play would fall short of its proper normal run by four or five weeks, which was not only a disadvantage to me and to the people of the neighbourhood, but also to actors, scene-shifters and others who were deprived of employment. A big show which is running in London at the present time took £2,200 the other day. The profit was £200, but the tax paid was £450. Is there any business man here or any representative of industry in the country who would cheerfully consent to a tax of that kind?

It may be said that the tax is paid by the consumer, but, in general, that is not so. Here, again, I have the authority of the late Chancellor of the Exchequer, though I cannot give the reference I will not labour these points on the present occasion. But I want hon. Members to recognise that this is a tax on receipts and a tax which is charged whether the business is making a loss or not. And it is still a tax of 20 per cent. on all entertainments, with the exception of a small area of entertainments in regard to which a much appreciated concession was made in 1935.

To pass from material considerations, I want to say that the objections to this tax are not based on material grounds only. It is not only a question of damaging enterprise and employment, although, Heaven knows, those are important considerations. There is another form of damage as well. Here, I think, is a case in which the House of Commons can do something to improve the quality of dramatic and artistic entertainment whether in plays, in cinemas, in concerts, or in whatever form it may be. It is easy to find fault with any particular entertainment. You may say, and I am sure some hon. Members will be inclined to say here, that, judging by the last show you have seen, some particular entertainments ought to be taxed more severely, in fact taxed out of existence. Unfortunately that is not how things work. This kind of burden bears most heavily upon the better kind of entertainment. The greater the burden the greater the risk in these very speculative enterprises, and the greater the risk the greater the temptation to produce what is crude and vulgar, and, as those responsible may think, more likely to captivate the public mind.

To take a crude illustration, it is easy to advertise a "Strip Tease" show, and all that is necessary is to have a couple of girls in a very dim light in front of a curtain. But obviously you will have to pay a great deal more than the expense involved in that kind of a how, if you engage good artists, design a good set, have good costumes and present a well-lighted, intelligent show. That is the real point. This is not only a question of material things but of keeping the theatre alive. I am not excepting cinemas. I am embracing the whole field of entertainment in this plea, and, as far as the theatre is concerned, I am not one of those who say that it is going to die. The question is not whether it is going to die or not, but in what form is it going to exist, and the more we can relieve it of special burdens in a specially difficult time, the more we shall be doing for it artistically as well as otherwise.

I apologise for having detained the House so long, and I sum up my argument by saying that we object to this tax as we have objected to it for the last 21 years, first, because it was imposed as a temporary tax, and because it is one which ought to have been examined many times since. As it does not appear in the Finance Bill each year it is difficult to criticise it, and there is always the same story, that the cost of abolishing would be so much, and that hon. Members must not vote against the Government on a matter of this kind, and so on. Secondly, we object to it because it is a tax on the things of the mind, because it is a tax on receipts and not upon profits, and because it is operating against the higher quality of entertainment. I think I can address this argument with great hope to the right hon. Gentleman the new Chancellor of the Exchequer. I will not make any invidious distinctions, but I venture to say that in point of culture and appreciation of the arts, the right hon. Gentleman is not the least among his colleagues. He is a great master of the language, he is one of my constituents, and with his upbringing and background I am perfectly sure that in his secret soul he cannot persuade himself that this is a good tax. I know very well that if I were proposing to cut it out altogether in the present financial year, he would have a good reply, but I remind him that that is not our intention. Our intention is that he shall be the first Chancellor of the Exchequer to have the great opportunity and honour of saying that this barbarous tax, which has endured for 21 years, shall be by him remodelled and reshaped and made into something better.

6.58 p.m.

Mr. Liddall

I beg to second the Motion. I will give just one more instance of the extent of the burden imposed by the present duty. A certain London theatre has seating accommodation for 495 people. The Entertainment Duty paid in respect of last week's takings amounted to £247 10s. 9d., which works out at 10s. per seat. No wonder many of our theatres are having to close their doors and more and more of our theatrical people are finding it increasingly difficult to obtain employment.

6.59 p.m.

Sir J. Simon

The House has greatly enjoyed the speech of my hon. Friend the Member for Oxford University (Mr. Herbert). It is natural that he should raise the question of entertainment in this House and should do it so entertainingly. At the same time, nobody recognises more than I do that there is a serious purpose and a real meaning in what he has presented to the House. He makes a very entertaining proposal. He avoids the common objection that his plan would upset the finances of the year, because he suggests that this tax might go on until 31st March next year not because 31st March is the date of the Budget—which is produced some time in the month of April—but in order, I suppose, that 1st April next year might be the date on which I would find myself without his tax. I am afraid that I could not agree to that. It really is essential in our system that we should so levy the taxes which are going to be proposed as a whole at the proper time, and the proper time is when the Budget is presented in the Spring of the year, when we know what are the burdens which have to be borne. We can then consider which class of tax we may be able to dispense with. The hon. Member spoke of this as a bad tax, and seemed to think that that marks it out. But does he know a good tax? Is there a good tax?

Mr. MacLaren

Hear, hear!

Sir J. Simon

All taxes, in my view, are evil.

Mr. MacLaren

Hear, hear!

Sir J. Simon

Even that single tax which the hon. Member for Burslem (Mr. MacLaren) advocates as a cure for all evils.

Mr. MacLaren

You said so yourself in your Liberal days.

Sir J. Simon

There is no such thing as a good tax. When we come to survey the field, I hope that it may be my good fortune if I am Chancellor of the Exchequer not to have to provide so heavy an income from taxation, and if that is so, we will survey the field of taxation and endeavour to select which of these most painful instruments can best be dispensed with. Some hon. Members may think it more important to enlarge the relief to married persons under the Income Tax, and there may be other suggestions. We cannot very well here in advance declare that this is the one instrument in the whole collection of instruments of torture which we will here and now abolish.

My hon. Friend made an important point when he urged that this tax has an unthinking and automatic operation. It is due on entertainments of very different kinds. He said that the quality of the entertainment should come into the calculation in some way. But can it? If, with his ingenious mind, when he has relieved us of any doubts we may have on the present merits of the marriage law, he will devote his next entertainment to producing sound proposals for classifying entertainments for the purpose of this tax, he may do a great service, but at present all that Parliament has found it possible to do is to say that educational entertainments are to be exempted. If an entertainment is provided partly for educational purposes but by a society or committee which is not conducted or established for profit, then, again, there is exemption from the tax, and that is the reason why Shakespeare provided at the "Old Vic" escapes the tax. It is not because a preference is given to any particular set of producers or players, but that after a good deal of investigation, and, I rather think, after taking the opinion of the Law Officers, the conclusion was reached that performances at the "Old Vic" were partly for educational purposes and were conducted by a society not established or conducted for profit. I agree that it is a misfortune that you should have an instrument of taxation which hits—I will not say the just and the unjust—but the finest and most beautiful examples of art and culture in exactly the same way as it hits very much more vulgar, less elaborate or less well contrived forms of entertainment. But how are you going to do otherwise?

Some hon. Members tried the other day to make a refinement in the tax by making a distinction as to living entertainments. I was glad that they did. But even that does not draw the distinction between the good artist and the bad artist. This is a difficult matter, and if my hon. Friends will be good enough to look into it I shall be most interested to hear what their conclusions are, and will consider them with the greatest care. But we must recognise that this is no time to determine in advance the particular source of taxation we can dispense with next year. I hope that it may be possible to dispense with certain taxes. But I certainly could not agree that we should take this particular impost, whatever be the objections to it, and declare that it is by the judgment of the House of Commons the first on the list to go. There may be other modifications in other directions which, put in comparison, will appear more desirable to hon. Members. I am sorry not to be more obliging, and no one has enjoyed the speech of the hon. Member for Oxford University more than I have, and no one is more sorry to oppose his brilliant ideas, but I cannot be party to a proposal that the Entertainments Duty shall cease on 31st March next.

7.8 p.m.

Mr. Alexander

I do not propose to keep the House from coming to an early decision on this Clause. The way in which it was presented was very persuasive indeed. The Chancellor of the Exchequer has made a clear and reasoned statement in regard to some of the arguments of the hon. Member for Oxford University (Mr. Herbert). Anyone who has tried to devise a method of imposing taxation for revenue knows how difficult it is to get over some of these complex features within the tax to which the Chancellor has referred. But as I listened to the Chancellor's answer, I became more and more convinced that there was an unanswerable case for repealing the duty as a whole, because, while it is true that the operation of the duty affects very adversely those responsible for entertainments, it is also true that although we have had some relief in respect of some of the poorest classes of the community and in respect of the lowest-priced seats, there are people who have to pay much more than they otherwise would for an evening's entertainment even of an educational character.

General relief is necessary—relief for those who are now being increasingly taxed in every direction. I was interested in the reference of the hon. Member for Oxford University to some of the older and more virulent forms of taxation, but under the National Government since 1932 we have seen the working classes and consumers generally taxed and taxed again, so that there is practically nothing which they taste, see or handle on which they do not have to pay a tax, and if we can persuade a leader of political thought and erudition like the hon. Member for Oxford University to lead us in our attempt to get relief from that situation we shall be glad to support him.

7.9 p.m.

Mr. Silverman

I have no sympathy for the suggestion that it would be right to draw some kind of distinction in this matter between the various kinds of entertainment. I hope that the Entertainments Duty will, at some early date, be abolished entirely, but I hope that the House will never commit itself to the point of view that it is right that some people should pay a tax on entertainment, because in the opinion of other people their taste in entertainment is lower than it ought to be. I see no reason why if it is wrong to charge Entertainments Duty on somebody who buys a. ticket for a high-class concert or a performance of "Hamlet," it is not equally wrong to make a child who goes to a circus on Boxing Day pay a tax for doing so. The Entertainments Duty should go, but the hon. Member for Oxford University (Mr. Herbert) is embarking on a dangerous principle if he lends his influential support to the idea that it is right to bring any form of intellectual snobbery into this question.

7.10 p.m.

Mr. Herbert

In view of the right hon. Gentleman's undertaking, I beg to ask leave to withdraw the Motion.

Hon. Members

No.

Question put, "That the Clause be read a Second time."

The House divided: Ayes, 118; Noes, 207.

Division No. 288.]	AYES.	[7.12 p.m.
Acland, R. T. D. (Barnstaple)	Hall, J. H. (Whitechapel)	Parker, J.
Adams, D. (Consett)	Harris, Sir P. A.	Parkinson, J. A.
Adamson, W. M.	Hayday, A.	Pethick-Lawrence, Rt. Hon. F. W.
Alexander, Rt. Hon. A. V. (H'Isbr.)	Henderson, J. (Ardwick)	Pritt, D. N.
Ammon, C. G.	Henderson, T. (Tradeston)	Riley, B.
Attlee, Rt. Hon. C. R.	Hills, A. (Pontefract)	Ritson, J.
Banfield, J. W.	Johnston, Rt. Hon. T.	Roberts, Rt. Hon. F. O. (W. Brom.)
Barnes, A. J.	Jones, A. C. (Shipley)	Robinson, W. A. (St. Helens)
Barr, J.	Jones, Morgan (Caerphilly)	Rawson, G.
Benn, Rt. Hon. W. W.	Kelly, W. T.	Salter, Dr. A. (Bermondsey)
Broad, F. A.	Kennedy, Rt. Hon. T.	Sanders, W. S.
Bromfield, W.	Kirby, B. V.	Seely, Sir H. M.
Brown, C. (Mansfield)	Kirkwood, D.	Sexton. T. M.
Brown, Rt. Hon. J. (S. Ayrshire)	Lathan, G.	Shinwell, E.
Buchanan, G.	Lawson, J. J.	Short, A.
Burke, W. A.	Leach, W.	Silverman, S. S.
Cape, T.	Lee, F.	Smith, E. (Stoke)
Charleton, H. C.	Leonard, W.	Smith, Rt. Hon. H. B. Lees- (K'ly)
Cluse, W. S.	Leslie, J. R.	Smith, T. (Normanton)
Clynes, Rt. Hon. J. R.	Logan, D. G.	Sorensen, R. W.
Cooks, F. S.	Lunn, W.	Stewart, W. J. (H'ght'n-le-Sp'ng)
Cove, W. G.	Macdonald, G. (Ince)	Taylor, R. J. (Morpeth)
Cripps, Hon. Sir Stafford	McEntee, V. La T.	Thorne, W.
Dalton, H.	McGhee, H. G.	Thurtle, E.
Davies, R. J. (Westhoughton)	MacLaren, A.	Tinker, J. J.
Davies, S. O. (Merthyr)	Maclean, N.	Viant, S. P.
Day, H.	MacMillan, M. (Western Isles)	Walker, J.
Dobbie, W.	Mainwaring, W. H.	Watkins, F. C.
Ede, J. C.	Mander, G. le M.	Watson, W. McL.
Fletcher, Lt.-Comdr. R. T. H.	Marshall, F.	Welsh, J. C.
Foot, D. M.	Milner, Major J.	Westwood, J.
Gardner, B. W.	Montague, F.	White, H. Graham
Garro Jones, G. M.	Morrison, G. A. (Scottish Univ's.)	Whiteley, W. (Blaydon)
Graham, D. M. (Hamilton)	Morrison, Rt. Hon. H. (Hackney, S.)	Wilkinson, Ellen
Green, W. H. (Deptford)	Morrison, R. C. (Tottenham, N.)	Williams, T (Don Valley)
Grenfell, D. R.	Muff, G.	Windsor, W. (Hull, C.)
Griffith, F. Kingsley (M'ddl'sbro, W.)	Nathan, Colonel H. L.	Woods, G. S. (Finsbury)
Griffiths, G. A. (Hemsworth)	Nicolson, Hon. H. G.	Young, Sir R. (Newton)
Griffiths, J. (Llanelly)	Oliver, G. H.
Groves, T. E.	Paling, W.	TELLERS FOR THE AYES.—
		Mr. Alan Herbert and Mr. Mathers.

NOES.
Acland, Rt. Hon. Sir F. Dyke	Cooke, J. D. (Hammersmith, S.)	Grimston, R. V.
Acland-Troyte, Lt.-Col. G. J.	Cooper, Rt. Hn. T. M. (E'nburgh, W.)	Guinness, T. L. E. B.
Adams, S. V. T. (Leeds, W.)	Cox, H. B. T.	Gunston, Capt. D. W.
Agnew, Lieut.-Comdr. P. G.	Cranborne, Viscount	Guy, J. C. M.
Alexander, Brig.-Gen. Sir W.	Crooke, J. S.	Hannah, I. C.
Anstruther-Gray, W. J.	Crookshank, Capt. H. F. C.	Hannon, Sir P. J. H.
Asks, Sir R. W.	Groom-Johnson, R. P.	Harbord, A.
Assheton, R.	Cross, R. H.	Harvey, Sir G.
Astor, Hon. W. W. (Fulham, E.)	Crossley, A. C.	Harvey, T. E. (Eng. Univ's.)
Atholl, Duchess of	Crowder, J. F. E.	Haslam, Henry (Horncastle)
Balfour, G. (Hampstead)	Cruddas, Col. B.	Haslam, Sir J. (Bolton)
Barclay-Harvey, Sir C. M.	Davies, Major Sir G. F. (Yeovil)	Heneage, Lieut.-Colonel A. P.
Baxter, A. Beverley	Dawson, Sir P.	Hepburn, P. G. T. Buchan-
Beaumont, M. W. (Aylesbury)	De la Bère, R.	Hepworth, J.
Beechman, N. A.	Denman, Hon. R. D.	Higgs, W. F.
Beit, Sir A. L.	Dodd, J. S.	Hills, Major Rt. Hon. J. W. (Ripon)
Bernays, R. H.	Dorman-Smith, Major Sir R. H.	Hoare, Rt. Hon. Sir S.
Birchall, Sir J. D.	Drewe, C.	Holdsworth, H.
Blaker, Sir R.	Duckworth, Arthur (Shrewsbury)	Holmes, J. S.
Boothby, R. J. G.	Eastwood, J. F.	Hope, Captain Hon. A. O. J.
Bossom, A. C.	Elliot, Rt. Hon. W. E.	Hore-Belisha, Rt. Hon. L.
Boulton, W. W.	Ellis, Sir G.	Horsbrugh, Florence
Brass, Sir W.	Elmley, Viscount	Hudson, Capt. A. U. M. (Hack., N.)
Briscoe, Capt. R. G.	Emery, J. F.	Hudson, R. S. (Southport)
Brown, Col. D. C. (Hexham)	Emrys-Evans, P. V.	Hume, Sir G. H.
Brown, Rt. Hon. E. (Leith)	Evans, D. O. (Cardigan)	Hunter, T.
Bull, B. B.	Everard, W. L.	Inskip, Rt. Hon. Sir T. W. H.
Butler, R. A.	Fildes, Sir H.	Jones, Sir G. W. H. (S'k N'w'gt'n)
Gartland, J. R. H.	Findlay, Sir E.	Kerr, Colonel C. I. (Montrose)
Carver, Major W. H.	Fleming, E. L.	Kerr, H. W. (Oldham)
Cary, R. A.	Furness, S. N.	Kerr, J. Graham (Scottish Univs.)
Cayzer, Sir C. W. (City of Chester)	Fyfe, D. P. M.	Keyes, Admiral of the Fleet Sir R.
Cayzer, Sir H. R. (Portsmouth, S.)	Ganzoni, Sir J.	Lamb, Sir J. Q.
Chamberlain, Rt. Hn. N. (Edgb't'n)	Gilmour, Lt.-Col. Rt. Hon. Sir J.	Latham, Sir P.
Channon, H.	Gledhill, G.	Law, Sir A. J. (High Peak)
Chorlton, A. E. L.	Gower, Sir R. V.	Law, R. K. (Hull, S. W.)
Clarke, F. E. (Dartford)	Grattan-Doyle, Sir N.	Lees-Jones, J.
Colville, Lt.-Col. Rt. Hon. D. J.	Gretton, Col. Rt. Hon. J.	Leigh, Sir J.
Conant, Captain R. J. E.	Gridley, Sir A. B.	Lennox-Boyd, A. T. L.
Cook, Sir T. R. A. M. (Norfolk, N.)	Grigg, Sir E. W. M.	Levy, T.

Liddall, W. S.	Pickthorn, K. W. M.	Spears, Brigadier-General E. L.
Llewellin, Lieut.-Col. J. J.	Plugge, Capt. L. F.	Spens, W. P.
Lloyd, G. W.	Porritt, R. W.	Stanley, Rt. Hon. Oliver (W'm'I'd)
Locker-Lampson, Comdr. O. S.	Procter, Major H. A.	Strauss, E. A, (Southwark, N.)
Loftus, P. C.	Ramsbotham, H.	Strickland, Captain W. F.
MacAndrew, Colonel Sir C. G.	Ramsden, Sir E.	Stuart, Lord C. Crichton- (N'thw'h)
MacDonald, Rt. Hon. M. (Ross)	Rathbone, J. R. (Bodmin)	Sueter, Rear-Admiral Sir M. F.
McKie, J. H.	Rawson, Sir Cooper	Tasker, Sir R. I.
Macmillan, H. (Stockton-on-Tees)	Reid, J. S. C. (Hillhead)	Taylor, C. S. (Eastbourne)
Macnamara, Capt. J. R. J.	Remer, J. R.	Titchfield, Marquess of
Magnay, T.	Robinson, J. R. (Blackpool)	Tryon, Major Rt. Hon. G. C.
Maitland, A.	Ropner, Colonel L.	Wallace, Capt. Rt. Hon. Euan
Making, Brig.-Gen. E.	Rosbotham, Sir T.	Ward, Irene M. B. (Wallsend)
Manningham-Buller, Sir M.	Ross Taylor, W. (Woodbridge)	Wardlaw-Milne, Sir J. S.
Margesson, Capt. Rt. Hon. H. D. R.	Rowlands, G.	Warrender, Sir V.
Markham, S. F.	Royds, Admiral P. M. R.	Waterhouse, Captain C.
Mason, Lt.-Col. Hon. G. K. M.	Russell, Sir Alexander	Wells, S. R.
Mayhew, Lt.-Col. J.	Russell, S. H. M. (Darwen)	Whiteley, Major J. P. (Buckingham)
Mellor, Sir J. S. P. (Tamworth)	Salmon, Sir I.	Williams, C. (Torquay)
Mills, Major J. D. (New Forest)	Sanderson, Sir F. B.	Williams, H. G. (Croydon, S.)
Moore, Lieut.-Col. Sir T. C. R.	Savery, Sir Servington	Windsor-Clive, Lieut.-Colonel G.
Morrison, Rt. Hon. W. S. (Cirencester)	Salley, H. R.	Withers, Sir J. J.
Nall, Sir J.	Shaw, Major P. S. (Wavertree)	Wolmer, Rt. Hon. Viscount
Neven-Spence, Major B. H. H.	Shaw, Captain W. T. (Forfar)	Womersley, Sir W. J.
O'Neill, Rt. Hon. Sir Hugh	Simmonds, O. E.	Wood, Hon. C. I. C.
Orr-Ewing, I. L.	Simon, Rt. Hon. Sir J. A.	Wood, Rt. Hon. Sir Kingsley
Patrick, C. M.	Sinclair, Rt. Hon. Sir A. (C'thn's)	Young, A. S. L. (Partick)
Peaks, O.	Smith, L. W. (Hallam)
Peat, C. U.	Somervell. Sir D. B. (Crewe)	TELLERS FOR THE NOES.—
Petherick, M.	Southby, Commander Sir A. R. J.	Lieut: Colonel Sir A. Lambert
		Ward and Mr. Munro.

NEW CLAUSE.—(Exemption from Death Duties in case of land transferred to National Trust.)

1. (1) Where any estate or interest in land (in this section referred to as "the settled property") is given, devised or bequeathed by any person (in this section referred to as "the disponer") in such manner as to render the National Trust entitled indefeasibly to the settled property subject to one or more life interests created by the gift, devise or bequest, being life interests to which this section applies, but to no other interest so created, exemption from death duties shall be granted subject to and in accordance with the provisions of this section.
2. (2) The life interests to which this section applies are:
1. (a) a life interest (whether extending to the whole or to a part only of the rents and profits arising from the settled property, and whether or not determinable upon an event other than death) given to the disponer;
2. (b) a like interest given to the spouse or a child of the disponer and commencing, so as to entitle the beneficiary as from its commencement to receipt for his own use of all the rents and profits to which it extends, on the date of the cesser of an interest given to the disponer as aforesaid;
3. (c) a like interest given to the spouse or a child of the disponer and commencing as aforesaid on the date on which the gift is made;
4. (d) a like interest devised or bequeathed to the spouse or a child of the disponer and commencing as aforesaid on the date of the disponer's death.
3. (3) In the case of any estate duty that would, but for this provision, have been leviable in respect of the settled property or any part thereof on or with reference to the 1350 death after the passing of this Act of the disponer, or of a person, whether being the disponer or a spouse or child of his, to whom such an interest as aforesaid is given, devised or bequeathed, exemption shall be granted, if on the death the settled property passes, or a benefit accrues therefrom, to the National Trust, as follows, that is to say—
1. (a) exemption shall be granted as to an amount of that duty (whether being the whole or a part thereof) corresponding to the extent to which the settled property passes, or a benefit accrues therefrom, to the National Trust as compared with the extent to which the settled property passes, or a benefit accrues therefrom, to any person or persons entitled to such an interest or interests as aforesaid;
2. (b) for the purposes of this subsection the extent to which on a death the settled property passes, or a benefit accrues therefrom, to any person shall be computed by reference to the extent to which that person becomes on the death entitled to receive for his own use the rents and profits arising from the settled property computed as at the death:
• Provided that where the death is that of the disponer under a gift and the National Trust is immediately before the death entitled to any extent to receipt of the rents and profits of the settled property for its own use, the settled property shall be deemed to that extent to pass to the National Trust on the death;
3. (c) where exemption is granted as to a part of the Estate Duty leviable on or with reference to any death, the residue thereof shall be charged and borne in like manner as if the passing on the death, or the benefit accruing on the death, as the case may be, had been a passing, or a benefit accruing, wholly to the person or persons other than the National Trust mentioned in paragraph (a) of this Subsection.
1351
4. (4) In the case of any Succession Duty that would, but for this provision, have been leviable in respect of a succession taken by the National Trust after the passing of this Act and comprising the settled property or any part thereof, exemption shall be granted as to the whole of that duty:
• Provided that the exemption from Succession Duty granted by this Subsection shall not have effect in the case of a succession conferred otherwise than by such a gift, devise or bequest as aforesaid.
5. (5) The exemptions from duty conferred by the foregoing provisions of this Section shall not have effect unless within six months from the date on which the gift is made, or the date of the death of the testator, as the case may be, or, in the case of a gift madé before the date of the passing of this Act, that date, or within such extended period as the Commissioners of Inland Revenue may allow, the interest of the National Trust has been so dealt with as to be held by the Trust inalienably.
6. (6) Where the requirements of Subsection (1) of Section forty of the Finance Act, 1931, are fulfilled in relation to any estate or interest in land given, devised or bequeathed by any person to the National Trust, then, if that person dies after the passing of this Act, the estate or interest shall be exempt from any duties which might under that Subsection have been remitted by the Treasury.
7. (7) In this Section the expression "the National Trust" has the same meaning as in Section forty of the Finance Act, 1931.—[Mr. C. Williams.]

Brought up, and read the First time.

7.20 p.m.

Mr. Charles Williams

I beg to move, "That the Clause be read a Second time."

The Clause seems rather long, but in fact it has been worked out by certain of the bodies concerned and will, I believe, meet with the unanimous support of the House. I have been told that it is a model of Parliamentary draftsmanship, but I have also noticed that every lawyer who has talked to me about it has given a slightly different interpretation of it. At present, under certain circumstances, if land is given or devised to the National Trust, it can, with the consent of the proper authorities, be exempted from Death Duties. Under this new Clause under certain circumstances, if land is accepted by and goes ultimately to the National Trust, it will then be exempted from Death Duties; in other words, we are endeavouring, in the first place, to exempt the National Trust from the payment of Death Duties where land goes to it permanently, instead of at the will of the Treasury or whatever the authority is.

Supposing a person wishes to leave to the National Trust a house or a piece of land which is of national interest, he can still carry on as the occupier for life and he can then bequeath a life interest either to his wife or to one of his children, and ultimately it goes to the National Trust. Under these provisions the National Trust, which to-day might have to pay Death Duties both on the death of the actual giver to the National Trust and on the death of the person who succeeds him—there have been definite cases where the National Trust has had to pay two Death Duties—in the future will not be in that disadvantageous position. I believe also that under this Clause there will be very little benefit to the actual giver or the person who succeeds him, though there may be some benefit. There will possibly be in some cases the benefit that the aggregate amount of Death Duties will not be as high, because you will be taking the amount given to the National Trust out of the whole estate for Death Duty purposes. But as, when you give anything to the National Trust, the whole of it becomes national property for ever and for ever, and is administered by the National Trust, I do not think that in these circumstances it can be said that the donor, who is giving away the whole of his interest, is getting any great benefit out of it, at any rate.

I have no doubt that other people could say a great deal about the details of this Clause. All that I will say is that it is intended to carry out a very definite wish, which has been expressed by those who occupy the Front Government Bench and the responsible positions in the Opposition, that everything possible should be done to preserve for the nation national monuments which are of historic or other interest. I believe there is a very strong feeling throughout the country in favour of doing that. You have, under your National Trust, a most remarkable movement, backed by men and women of every position in this country, that is gradually absorbing many places and works of great national interest into the Trust and preserving them for the nation for all time. Under this Clause you will be attempting, I hope successfully, to remove from the National Trust one of its great difficulties, in that it has had under certain circumstances to pay Death Duties on the land that it has inherited. For that reason, because I believe that it will accelerate the possibility of getting more of these national monuments into the hands of the National Trust and that it will release in that way a certain amount of the Trust's money for the preservation of other memorials, I ask the House to accept this Clause in the spirit in which I have tried to move it. I think it is in the best general interests of the nation as a whole, and I believe that, from many points of view, it is an agreed Clause.

7.26 p.m.

Mr. Ede

I beg to second the Motion.

It appears to be a necessary canon of Income Tax law that it shall be completely incapable of being understood by the layman. I had the same explanations tendered to me as to the meaning of this Clause as have just been given to the House by the hon. Member for Torquay (Mr. C. Williams). That was before I saw the Clause, but when I saw it I had to go back to the people who had asked me to support it and ask them whether this Clause which had appeared on the Paper was really the one about which they had spoken to me. I can only say that I rejoice that the hon. Member for Torquay is now generally supporting the Government, because I am bound to say, from my recollections of him between 1929 and 1931, that, if he had felt it his duty to cross-examine the Front Government Bench as to what this Clause meant, one would have been very wise to suspend the Eleven o'Clock Rule to-night. Assuming that this mass of verbiage really means what the hon. Member has said, and that it will effect that purpose, I cannot imagine that there is anyone in the House who will be other than a supporter of it.

Let us recollect that when the late Lord Curzon bequeathed Bodiam Castle and another castle to the National Trust, he reduced that body to a state of abject terror because it really could not understand where it would ever find the money that would enable it to meet the claims of the Exchequer when the property passed to it; and I am sure the right hon. Gentleman the Chancellor of the Exchequer will recall that when a predecessor of his in office, the late Lord Snowden, made a concession on this matter in 1931, it was the daughter of the late Lord Curzon who seconded the Amendment which that Chancellor of the Exchequer agreed to accept. No one who has been to Bodiam Castle on a fine summer's afternoon and seen the extent to which it is used by hundreds of people in rational enjoyment and in getting some real understanding of the way in which our ancestors lived their lives can feel that it was anything but a very great benefit that the concession was made which allowed Bodiam Castle to he secured for the nation, and nobody but the hon. Member for Norwich (Mr. H. Strauss) would dare to be sufficiently lyrical in this House to describe the feelings that one might have had on such an occasion.

The present concession of the law is very narrow and limited, and might be uncertain in its incidence in the event of any change of opinion at the Treasury, and, of course, a person who desires to bequeath property of this kind necessarily desires to know that when the time comes for his bequest to be taken over the condition of affairs at the Treasury shall be such as to ensure that his wishes can be carried out. Quite frankly, the more I read the new Clause, the less I understand it. I was once a member of a council whose clerk gave an explanation of a clause, and the chairman said, "Until the clerk explained it I understood what the clause meant." The more I read this new Clause, and the more eminent lawyers in the House try to explain it to me, the less it appears to me to fulfil the purposes for which it was designed. I am prepared, however, to accept in faith the views of those gentlemen. I can only say that those of us who have pressed this matter in the House for some years are hopeful that this afternoon the Chancellor will find his way open to accept the proposal and to secure a great benefit, not merely for this generation, but for a good many generations to come. Whether we like it or not, the effect of taxation and legislation during the last 40 or 50 years has been to create a grave jeopardy for some of these priceless national heritages. They have up to the moment largely been in the occupation of one class, and the majority of people have had few opportunities for seeing them. If this new Clause means that an increasing number of these heritages will be available for the country as a whole, I am sure that it will be a very good afternoon's work on the part of the House of Commons to accept it.

7.33 P.m.

Sir J. Simon

I am very glad that the two hon. Gentlemen have brought this matter forward. I know that there are Members in all parts of the House who are prepared to support the proposal, and I am very glad to be the Chancellor of the Exchequer to accept it. I hesitate to offer further confusion to any explanation of my hon. Friend. At any rate, my explanation shall be simple, and if it turns out to be not quite right, no doubt some learned gentleman will correct me. This is the way, at any rate, that I understand it. It has nothing to do with Income Tax, but with Estate Duties, Succession Duties and things of that sort. How does the law stand at present in relation to gifts of land to the National Trust? I assume, of course, that everybody will desire to facilitate, if we can, the passing to the National Trust of places of great beauty and architectural interest in order that they may be preserved for ever for the nation. As the law has stood since 1931, if the property is given direct to the National Trust no Estate Duty is payable which will burden that property.

What we want to do by this new Clause is to go further. There are many cases in which the owner of property—it may be a beautiful rural property or a great historic house—does not find it possible to pass it direct to the National Trust, but is ready to do so provided there is interposed the life interest of himself, or of his widow, when he dies, or it may be of a child. The question is whether we can make any provision which will assist that arrangement by way of exemption from Estate Duty. The answer in this new Clause, which I agree is elaborate, and inevitably so, is that we can. If all that the owner does is to reserve a life interest to himself and to say that the property shall pass to the National Trust at his death, no Estate Duty will be payable, and the National Trust will receive the property without any charge of duty upon it. Suppose he says, "I want to interpose the life interest of my widow or my son or daughter, and after that it shall go for ever to the National Trust." In that case, again, this Clause gives assistance which is not given now, because, although there will have to be Death Duties paid when the property passes from the donor to the life interest, there will be no Death Duty to be paid when the property passes at the end of that life interest to the National Trust.

At present the law leaves the question whether Estate Duty shall be charged or not in the case of direct gifts to the National Trust to the discretion of the Treasury. They need only decide when the occasion has actually arisen and when the death has occurred. That is very inconvenient, because, suppose the donor does not know what decision will be given and the National Trust does not know, there may be uncertainty whether he will make this disposition of his property. We, therefore, propose by this new Clause to say, "You shall not be required to pay Death Duties, and exemption will automatically be given provided that the other conditions of the Clause are fulfilled." That is the way in which I understand it.

Perhaps I may finish by reading two sentences which, I believe, state the matter accurately. The proposal is that if a testator "A" leaves property to the Trust, but interposes a life interest to a second person "B"—a son or a daughter—Death Duty will be payable on "A's" death when the property passes to the next person, but Death Duty will not be payable on "B's" death when it passes to the Trust. That duty will be payable on "A's" death on the capital value of the estate and not on the value of "B's" life interest in it. The matter, I think, is now capable of being decided by the House. I cannot believe that in any quarter there will be any objection to it. I hope that it will result in the more constant accumulation in the hands of this great independent, impartial body, the National Trust, of things which are of great beauty and a joy for ever. It is a small matter compared with that that the House of Commons should agree to sacrifice the amount of money involved.

7.40 P.m.

Mr. Mander

This is a matter of great national interest, and we are all very grateful for the acceptance of the proposal by the Chancellor of the Exchequer. I am delighted that he has accepted it, because I am sure it will give great encouragement to a movement, which is developing and may grow considerably in the next few years, for people to hand over property of historic interest or natural beauty. There is a tendency for persons who feel that because of the Death Duties they cannot keep up their estates, to wonder whether to sell them and to give them up for development. If they are able to hand them over to the National Trust, and if they and their families are able to remain as occupiers with a right to the public to go in and see the houses as they are lived in they will be encouraged to do that, and it will be a great advantage to the nation.

One of the advantages of the National Trust owning properties in this way is that the public, instead of going into an empty museum or a house with bare walls, are able to go in at intervals and see a house as it is lived in from day to day by an ordinary family. That is the great advantage which accrues from legislation of this kind. Owners of these places have to make up their minds between two things. It is very nice to be the owner in fee simple of a historic place and to desire to keep it up. If that is not possible, it is at least as attractive a position to be a sort of custodian or trustee for the nation—for that is what the owner and the family would be in future—as just the owner in fee simple. It is because this new Clause will give great encouragement to people who are in this difficult position to make the decision to hand the property over to the nation to keep the family association and to give the public an advantage at the same time, that I think we are doing a very fine afternoon's work in persuading the Government to accept it.

7.42 p.m.

Mr. Bossom

I wish to join with other hon. Members in thanking the Chancellor for accepting this new Clause. I do not want to assume a dog-in-the-manger attitude, but the inducement extended to surrender property is very small to the existing possessor, and when you consider the condition of the wife or son who may be given a life interest you find the Chancellor's interpretation does little more than is done at present. The National Trust in the past has had properties presented to it and no Death Duty has been charged. This interpretation means that after the existing owner's death, the wife or son will pay Death Duty as at present, but will not have the same rights over the property as the present owner enjoyed. I am in favour of that situation, under justifiable circumstances, but benefits or advantages ought to be carried further and Death Duty entirely eliminated from the property if it is to be given to the nation. Other Measures have been passed by the Government for town and country planning and the preservation of ancient monuments, and both those Measures tend to preserve for the nation magnificent sites and buildings, and that was the purpose for which they were designed, but in order that that should be accomplished the public authorities have to inflict rates to provide compensation. We have seen all over the country, however, that the authorities are not able in many cases nor are they imposing the rates to provide this compensation. It is hoped that the public will donate to the National Trust properties and thus fill in the gap in our national preservation ambitions which are not being filled by the Town and Country Planning Act and the Ancient Monuments Act at this time. I hope that next year the Chancellor will see his way to make greater inducements to those capable of making presentations to the National Trust so that this very well run organisation will have the opportunity of possessing for ever for the benefit of the nation many of these fine buildings and sites which now are in a position of risk of destruction or despoilment. I thank the Chancellor very much for what he has done, but I sincerely hope that next year he will be able to go further and so help the Acts which are not fulfilling the function everyone desires they should.

7.44 p.m.

Sir J. Withers

I should like to associate myself with what the last speaker has said. I regret the fact that the National Trust is not to be relieved entirely from Death Duties. However, the new Clause does a considerable piece of practical work. As a lawyer I have found it difficult to persuade anybody to leave anything to the National Trust because they have to do it out and out, either by gift or by devising it at death. This Clause does give power to interpose a life interest to a wife and, as I understand it, to one of the children, and to that extent it will facilitate matters, but I should have thought that the right thing to do would be to exempt the National Trust from Death Duties altogether, and simply make the life tenants pay the Succession Duties on their life interest. Subject to that I heartily congratulate the Chancellor of the Exchequer.

Question, "That the Clause be read a Second time," put, and agreed to.

Clause read a Second time, and added to the Bill.

7.46 p.m.

NEW CLAUSE.—(Exemption from Import Duty of materials used in house building.) Articles imported into the United Kingdom, on or after the first day of August, nineteen hundred and thirty-seven, of the categories specified in the Fifth Schedule to this Act, being articles used for the purpose of constructing houses or dwellings, shall be imported free of any duty.—[Mr. White.]

Brought up, and read the First time.

Mr. Graham White

I beg to move, "That the Clause be read a Second time."

This Clause is related to the Fifth Schedule, which includes a comprehensive list of the materials used in building. I invite the House to give consideration to this new Clause, because it is a matter of public importance that no increased charges should be placed by this House upon the building industry, if that can possibly be avoided. There has been considerable anxiety about the rise in the price of building materials which has been taking place spasmodically but insistently during the last 18 months. It is proper that the House should watch very jealously anything which affects the building industry, for one thing because of its importance to the great social service of assisted house building, and bearing in mind that in many parts of the country, particularly in Scotland, there is still an urgent need for houses to be built at the lowest possible cost. And apart from that we cannot forget that the building industry has been a very important element in our national recovery. It was the core of industrial recovery and led to a very substantial reduction in unemployment, because it must be remembered that the building industry employs a very large amount of labour in proportion to the total cost of its output.

Among many competent observers there has been speculation as to whether costs have not reached the point where a slackening in the rate of building must inevitably take place. From such inquiries as I have been able to make and from my personal knowledge I think the time has come when the rise in prices is leading to a slackening of building activities. That is certainly so in the case of commercial building. Within my own limited experience I have heard of several projected undertakings which have been postponed, and may never be put in hand, on account of the increase in costs, and that is in the last nine months only. Where building is not immediately necessary and can be undertaken when trade generally is slackening I think there is no evil in such a postponement, but it is the case that many buildings which were urgently required for commercial purposes have been postponed. Further, we know that the rise in prices is causing considerable anxiety to local authorities, who must feel concern about whether they will be able to carry through their housing schemes. The matter must also be of concern to the Government, because building costs will affect the whole of their Estimates for the Defence Services. Although we do not know the actual way in which the money is being spent, we know that a considerable proportion will be devoted to building or capital works.

It is difficult to give accurate figures, because they vary so much in different parts of the country, but the average cost of a non-parlour three-bedroom house in this country was £338 in June of this year, as compared with £311 in June, 1936. Of that increase only £3 is due to the increased cost of labour. In Scotland, where I understand the housing situation is lamentably acute, the position is so much worse. There the cost of a house has risen by £100 between June, 1936, and June of this year. I am quoting the figures which were given in the course of a discussion in April of this year. The Government admit that they feel concern about this rise, because the Secretary of State for Scotland said that he was looking not only into the question of costs but also into the supply of materials. On that occasion I think he said that something like 60 per cent. of the rise in Scotland was due to the fact that contractors were asking higher prices because they did not want the business, and the reason why they did not want the business was that they were afraid; they had to protect themselves against rising prices, which in the case of some materials was at that period almost phenomenal.

Plumbing has had a rapid and heavy rise. The cost of plumbing two months ago, though it may have receded somewhat with the decline in the price of copper, was 150 per cent. above the point touched when costs were at their lowest. That is a very serious rise indeed. My attention was drawn to a speech made by an authority on housing in Scotland, Provost Martin, at the Convention of the Royal Burghs. He went into this matter in some detail a it affects Scotland, and pointed out that the rise in lead piping was 100 per cent.; copper 50 per cent.; that cement had risen by 10s.; and so on throughout the list. It is clear there is great danger that local auhorities will be hampered in carrying out their housing scheme, and there is a danger of jams being created in the general business of the country, owing to the shortage of material and to the state of feeling, which makes people put higher and higher prices in order to protect themselves not only against an immediate rise in prices, but against rises which they anticipate will take place later, and which their experience indicates are almost certain to take place. In that same discussion Provost Martin made some observations to account for some of the rise in prices and gave a clear indication of what the remedy might be. He said: I wonder whether it has come to the minds or consciences of most of the members here that tariffs are placed by the Government on steel and quite a number of other commodities. He was speaking before the Government, recognising the shortage of steel, had taken action to place steel in a special category. These tariffs are not only increasing prices, and to that extent the Government is to blame for the increase, but they are also preventing other goods coming in from other countries, with the result that there is not the same competition as there was before, so allowing combines to charge practically any price. That is the situation. If this rise in prices were confined to copper, cement and one or two other materials it might be a satisfactory answer to say that the procedure of the Import Duties Advisory Committee should be adopted, but the situation has gone far beyond that, and there is a necessity now for an indication to be given of the policy of the country in this matter. I need not remind the House of the change in the situation which has taken place since the fiscal policy of the country was changed in 1932. At that time many other countries were putting their tariffs higher and higher as a defensive measure. There was no question then of extended trade; it was a case of trying to save what trade there was. The situation has changed vastly in these four years. Not only has equilibrium been established between supply and demand, but there is now a positive shortage where in many cases there was a glut.

The cumulative effect of these rising prices is a serious matter to tens of thousands of people living in overcrowded dwellings and to those who are responsible for conducting the business of the country. In this Clause we suggest to the Government a way to remove the anxieties of their own Departments, including the Defence Departments, and the Housing Department of Scotland, which must be particularly anxious about the rise, as we have seen from what has taken place at Question Time throughout the whole of this year. We submit that Parliament will not be doing its duty if it allows the continuance of any increased costs which it is possible to lower.

7.58 p.m.

Sir Percy Harris

In seconding this new Clause I must express regret that apparently neither the Minister of Health, nor the Parliamentary Secretary to his Department, is able to be present. The Minister of Health, in his great speech in introducing his Estimates, expressed his determination to press forward with the whole of his housing programme. We are now at what is probably the most critical period of his attack on slums, and are also beginning to tackle what I consider to be an even more difficult and urgent problem, that of overcrowding. The success of that housing programme depends on our being able to build houses at rents which the slum dwellers and overcrowded people can pay. If we cannot build down to their pockets the whole housing campaign is bound to break down. The Minister of Health was conscious of it, but it is no consolation to the victims of overcrowding and slum conditions to know that he is conscious of it if he is not going to succeed. Everybody knows that the steady rise in all building materials is increasing the cost of housing. On top of that is the rise in interest rates. If something is not done and if Parliament remains quiescent, the building of suitable houses for the working class at rents that they can pay will be brought to a standstill in a very few months.

In the Schedule is a list covering most of the materials used in house-building, all of which are subject to tax. If our new Clause is accepted, we shall be quite prepared, when we reach the Schedule, to accept any reasonable Amendment, if a case can be made out for leaving out this or that article. If they could all be admitted free, a great stimulus would be given to the production of houses and a substantial contribution would be made to keeping down prices to a reasonable level. I hope that the Minister will be sympathetic and that he will accept our Clause. If he shows the reasonableness which the Chancellor of the Exchequer has just shown upon another Clause, we can also be reasonable when we reach the Schedule.

8.2 p.m.

The Parliamentary Secretary to the Board of Trade (Captain Euan Wallace)

I think it was exactly a week ago that a somewhat similar Clause to this proposed new Clause was put forward from the same benches. It was sponsored by the right hon. Member for North Cornwall (Sir F. Acland) and it referred on that occasion to agricultural machinery and foodstuffs. The arguments which I attempted to advance against accepting that new Clause upon the Committee stage apply with equal force on this occasion. If they were unpalatable to hon. Members opposite, I am afraid that they have lost none of their force in the view of His Majesty's Government. I was extremely shocked for a moment or two by the very savage attack made upon me when I sat down, and it was only later on that I realised that my reply had to be of necessity "inadequate" in order to allow the right hon. Gentleman the Member for Gorton to twit the Chancellor of the Exchequer on his conversion—I suppose the right hon. Gentleman would call it perversion—and incidentally to show the House and the country that the Chancellor of the Exchequer had moved with the times and that the right hon. Gentleman the Member for Gorton had not.

The reply to the arguments which were put with modesty and courtesy by the two Liberal Members is exactly the same as it was last week. There already exists machinery which is not only adequate but is eminently suitable for the purpose. It was suggested that the function of the Import Duties Advisory Committee was merely to readjust a duty here and there on some particular item, but the Import Duties Advisory Committee is empowered by Statute to deal not only with particular items but with whole classes of goods and they have, within the last week or two, dealt very drastically with a very large class of steel imports into this country. The hon. Baronet the Member for South-West Bethnal Green (Sir P. Harris) referred to the Schedule which is an essential part of his proposals and he showed considerable wisdom in attempting to disarm a good deal of criticism by offering in advance to alter the Schedule in any way that the Government might like.

Even the most cursory examination of the Schedule shows that the proposed new Clause was drawn up without any expectation that it would be accepted. For instance, the Schedule begins by referring to articles used in the production of houses and dwellings. It does not say anything about shops, cinemas or commercial buildings. What are the customs officers to do when a consignment of tiles is brought into this country? How are they to know whether the tiles will be used in the construction of a dwelling-house, a shop or a cinema? Any hon. Member who has had experience of administration would know that to attempt to follow those tiles to their destination and to the site in order to decide whether they should be exempted from duty, is practically an impossible task.

Mr. White

We do it in the shipyards.

Captain Wallace

We need not do it more than is necessary and in this case it would be an almost impossible task. Several other matters call for comment. There is a reference to water heaters; is that description restricted to geysers or does it include kettles? What are "garage door outfits"? What are the customs officers to do when the articles mentioned in line 23 come into the country, "plumbers, brass, stop cocks, ball valves, etc."? Then there is the question of timber. We have just concluded a very important and advantageous agreement with the Dominion of Canada, binding us to maintain a 10 per cent. duty on certain classes of timber. Is it suggested that we should scrap that agreement? As to tiles, the duty was approved not very long ago in this House. In putting forward their recommendation for a duty on foreign imported tiles, the Import Duties Advisory Committee said that there was an increase of imports attended by foreign price cutting below the level of the British prices, which the Committee regarded as reasonable. They thought that if they were protected by a tariff it would be possible for the United Kingdom manufacturers to make reductions in prices, and I understand that reductions were made in those prices after the order was made.

Iron sheets are mentioned twice in this Schedule. They appear in line 21 and again in line 30 and I do not know why they should have been selected for that particular honour. These are some of the reasons which make me feel that even if we could accept the proposed new Clause, which I regret we cannot, we should have a very great deal of trouble with the Schedule. The hon. Gentleman who moved the Motion referred to the increased price of cement, but my information does not confirm that there has been an increase. My researches go to show that, although certain items undoubtedly have risen considerably, cement, tiles, bricks, slates and sheet glass are cheaper to-day than they were in 1930.

One of two things must be true; either this is a proposal for certain minor adjustments of duty within the general tariff scheme of this country, in which case it is obviously a matter for the Import Duties Advisory Committee, or else this is a proposal which goes a long way beyond that and is the forward sap of a general attack upon our tariff system. If this is not something eminently suitable for the Import Duties Advisory Committee, it might be stigmatised as an attempt to get rid of our tariff system piecemeal and to return to a policy of free imports by stealth. That may be what the Liberal party in opposition wants, but it is not a proposition which the Government can accept. I will not weary the House with a recitation of what the tariff, coupled with other sound policies which have been pursued by the National Government, has achieved during the last five years. To any unprejudiced person it is clear that the Government would be unwise to scrap a system which has served us so well, and for that reason we cannot accept the new Clause.

8.11 p.m.

Mr. McEntee

I regret that the Minister has been unable to accept the new Clause. A few days ago, during a discussion, an hon. Member opposite referred to the Liberal party as dead, and somebody on this side retorted that we should always speak well of the dead. I do not know whether I shall be accused to-night of assisting in the resurrection of the dead in supporting the proposed new Clause, but even if that is so, I want to support it. I must express surprise at the weakness of the reply which we have just heard, the whole essence of which was that, because of certain defects in the Schedule, the Government were unable to accept it. The Schedule has been altered before and it can be altered again. The right hon. and gallant Gentleman representing the Government told us that the proper way to make this alteration would be to take the proposal to the Import Duties Advisory Committee, but if it were altered there, the Schedule would have to be altered, and if it can be altered by taking it to the Import Duties Advisory Committee it can surely be altered by the passing of the proposed new Clause.

The issue is not related to any small question such as that referred to by the right hon. and gallant Gentleman but is whether the proposal is good for the nation. He does not deny that the prices of building materials for working-class houses are going up, although he mentioned glass and other materials, the prices of which are lower than they were in 1930. That may be so, but I wish to refer to an answer which was given to me on Thursday of last week by his colleague the Minister of Health. My question to the Minister of Health was: Whether he can give figures for England and Wales showing the percentage rise in the prices of the materials used in the construction of working-class houses, the percentage rise in the wages of building trade workers, and the percentage increase in tenders for this class of house for one year to the latest possible date? The Minister replied as follows: The estimated percentage rise in the prices of materials used in the construction of a working-class house for the three months ended 31st March last as compared with a similar period a year previous is 7.0. The estimated percentage rise in the cost of labour used in a working-class house over the same periods is 2.8. The percentage increase on the average tender price of a non-parlour working-class house over the same period is 8.7. An increase of 8.7 per cent. in the price of working-class houses is a very serious thing for the people who have to live in those houses. That is evidenced by the answer given by the Minister of Health to a further question which I put to him on the same day: Whether any local authorities in England and Wales have decided to postpone housing schemes or to reduce schemes already approved by them, owing to the rise in the prices of building; and will he give the names of such authorities? The Minister of Health said in reply: I understand that postponements have occurred in Leeds, Brighton, Southampton, Oswaldtwistle, and in the rural district of Marlborough and Ramsbury, because the tenders received were too high for acceptance."—[OFFICIAL REPORT, 8th July, 1937; cols. 549–550, Vol. 326.] In some important places in the country the building of working-class houses has been stopped entirely because of the increase in prices, and one can reasonably assume that, until prices fall to something like the level of a year or two ago, the building of working-class houses is not likely to be re-commenced. It occurred to me, when I saw this Clause on the Paper, that it afforded an opportunity to the Government to prove that they are really in earnest in what is said by them, particularly by the Minister of Health, with regard to the need for slum clearance and for dealing with overcrowding under the Act of 1935. I do not know how much the acceptance of this Clause would cost the Government, but I think I am right in saying that it would be a very substantial contribution towards reducing the cost of building, which is causing the building of working-class houses to be stopped to-day.

Apart from that, I am familiar, as a member of a trade union in the building industry, with the conditions in that industry, and I can say without any hesitation that the cessation of this work is causing great concern to those engaged in the industry from the point of view of employment. I am surprised that the Minister seems to regard this as a trivial matter; it is not a trivial matter to those engaged in the industry. I regret very much that we cannot go to the industry and say, "Here is a proof that the Government are in earnest when they make speeches in the country and in the House of Commons and tell those who are in need of houses how much they desire to provide houses, at any rate for slum dwellers." It is no reply, if I may say so with all due respect to the Minister, to say that there are difficulties. We know that there are difficulties. Everyone knows, when a matter like this is under discussion here, that there are difficulties. But, if the Government desire to get over those difficulties, they can do so—

Captain Wallace

I know that the hon. Member does not wish to misrepresent me. I must make it clear that we do not at all object to the Clause because there are practical difficulties. The Government cannot accept it because there is adequate machinery in existence to reduce these duties in so far as they ought to be reduced. I am not contesting what the hon. Member says about the rise in certain directions in the cost of building houses, but our contention is that there is in existence alternative and better machinery to do what he wants.

Mr. McEntee

I think the Parliamentary Secretary will agree that, if the Government were to say they would support any application that might be made for the purpose of altering these duties, the Import Duties Advisory Committee, being a body of reasonable people willing to consider seriously any proposal made by the Government, would consider such a proposal seriously; and they would, I think, accept the Government's point of view. But the Government will not put forward that point of view. They say that there are difficulties in the way, and that, after all, the prices of certain materials have declined. That statement was meant to convey, and I think did convey, that there has not been a serious rise in the cost of building; but that is not the case. There has been a serious rise in the cost of building materials, and, as a consequence, the building of houses has been entirely stopped in many of the principal cities of the country. From my personal knowledge of the building trade generally, I know, and the Government know, and the Minister of Health in particular knows, that many local authorities in addition to those already quoted are very seriously concerned in regard to the future of building working-class houses and of slum clearance schemes. They have not yet come to a decision, but they are seriously considering whether they will not have to stop building. That will mean greater unemployment, and it will mean that many of those people who to-day live in slum areas will have to remain there, possibly for some years to come.

8.24 p.m.

Mr. David Adams

In the matter of house-building we have reached a national crisis. A considerable number of local authorities, the larger ones in particular, have petitioned the Ministry of Health for protection against the rise in costs, and there is no diversity of opinion that the Import Duties Advisory Committee are in a large measure responsible for the present situation. Dear housing is having a serious effect on the cost of living of the working classes. A house built next year is bound to bear a heavier rental than one built before this rise took place, and that means that during the existence of that house, possibly a period of 60 years, the tenants will be called upon to bear this heavier charge because of the lack of protection afforded to the municipalities by the House of Commons.

The Parliamentary Secretary has directed attention, apparently to his satisfaction, but certainly not to the satisfaction of Members on this side of the House, to the instrument whereby all that we desire can be achieved. He tells us to go to the Import Duties Advisory Committee and, if there is a case in favour of the reduction or abolition of these duties, to present it to them. We know what ensued in the matter of steel, which he particularly mentioned. You had to have a situation which was positively alarming so far as our manufacturers were concerned. On Tyneside ships' plates were unobtainable, many works were shut down for two or three days per week, and it is common knowledge that our export trade, for lack of cheaper steel, has almost disappeared in certain directions. Indeed, certain manufacturers, on the North-East Coast in particular, have intimated that it was useless attempting, under the conditions in which steel was obtainable, to do any export trade whatever. A situation of that sort, in the nature of things, was bound to appeal to the Import Duties Advisory Committee and the pressure of national opinion compelled them to make a concession as far as steel is concerned.

What possibility is there of local authorities going to the Import Duties Committee and presenting to them a case for a reduction on the very diverse commodities used in house building? They could not possibly succeed in any such campaign. What might be reasonable in the case of timber might not be reasonable in the case of other commodities. It might be easy to demonstrate that the duty on tiles should be removed and the duty on something else should continue, and only the influence of the Government itself, by the measures suggested in the Clause, would be efficient for dealing with the present position. Some progress has been made with the abolition of slum property, but few, if any, authorities have made any serious start in the matter of building to lessen overcrowding. Their work is being arrested because of the high cost of building materials.

If the Government are serious in the matter, they are bound to deal with the situation. Local authorities are suffering from two things, high costs and the influence of combines and trading associations which are artificially forcing up prices and restricting the use of certain commodities. The Newcastle Corporation recently invited quotations for material required for the erection of house property and there were no fewer than 10 identically similar quotations, clearly indicating that the combine was at work. The only sound reason that has been advanced against the Clause is that there would be difficulties with the Dominions, but difficulties with the Dominions have been overcome before and could be overcome now. The problem confronting municipalities and the Government can only be dealt with by the drastic measures suggested in the Clause.

8.30 p.m.

Mr. Alexander

I hope that the hon. Members who have moved this new Clause will go to a Division upon it. The Parliamentary Secretary's reply was very unsatisfactory. I think the position in regard to the price of building materials cannot be controverted. At any rate, I was a member of the committee appointed by the present Prime Minister to examine the course of the price of building materials and it is no use to try to give the impression that there is no serious rise when some of us were actually watching the rise take place. While it may be true that there are other ways in which the matter could be examined, with a view to reducing the duties, it seems to me to be entirely unsatisfactory, because of the social importance of maintaining the output of housing for some considerable time to come, and the Government should, if necessary, operate the other machinery that has been referred to.

If there is anything sincere in the quotation of alternative machinery, the Government ought to say to the Import Duties Advisory Committee, "Will you examine at once the actual prices of building materials with a view to seeing whether any action is necessary?" There is omitted from the Schedule the manufacture of steel used for working-class flats. When one considers that we are having to pay anything from 14 to 16 per cent. more for plain and compound beams and

stanchions of the kind used in working-class flats—the Government have already conceded the principle, in respect of steel, that some reduction must be made in tariffs to meet the present high costs—I feel sure that on examination they ought to be persuaded that the principle of the Amendment is right and, if they cannot accept it in these terms, they ought to ask the Import Duties Advisory Committee to examine the whole question.

Mr. H. G. Williams

Would the right hon. Gentleman suggest that building materials have gone up in price in the last three or four years more than the general rise of prices of commodities on a world basis?

Mr. Alexander

In certain respects, yes. I have come across cases where the price of certain building materials is governed by at least a loose combine in which they are taking a profit, because of the tariff, of from 22 to 25 per cent. not on capital, but on turnover, and it is time that something was done.

Question put, "That the Clause be read a Second time."

The House divided: Ayes, 112; Noes, 198.

Division No. 289.]	AYES.	[8.33 p.m.
Adams, D. (Consett)	Groves, T. E.	Parker, J.
Adams, D. M. (Poplar, S.)	Hall, J. H. (Whitechapel)	Parkinson, J. A.
Adamson, W. M.	Harvey, T. E. (Eng. Univ's.)	Pethick-Lawrence, Rt. Hon. F. W.
Alexander, Rt. Hon. A. V. (H'Isbr.)	Hayday, A.	Pritt, D. N.
Ammon, C. G.	Henderson, J. (Ardwick)	Riley, B.
Attlee, Rt. Hon. C. R.	Henderson, T. (Tradeston)	Ritson, J.
Banfield, J. W.	Hills, A. (Pontefract)	Roberts, Rt. Hon. F. O. (W. Brom.)
Barnes, A. J.	Holdsworth, H.	Robinson, W. A. (St. Helens)
Barr, J.	Johnston, Rt. Hon. T.	Rawson, G.
Batey, J.	Jones, A. C. (Shipley)	Sanders, W. S.
Benn, Rt. Hon. W. W.	Jones, Morgan (Caerphilly)	Sexton, T. M.
Broad, F. A.	Kelly, W. T.	Shinwell, E.
Bromfield, W.	Kennedy, Rt. Hon. T.	Silverman, S. S.
Brown, C. (Mansfield)	Kirkwood, D.	Smith, E. (Stoke)
Brown, Rt. Hon. J. (S. Ayrshire)	Lawson, J. J.	Smith, Rt. Hon. H. R. Lees- (K'ly)
Burke, W. A.	Leach, W.	Smith, T. (Normanton)
Cape, T.	Lee, F.	Scrensen, R. W.
Charleton, H. C.	Leonard, W.	Stephen, C.
Chater, D.	Leslie, J. R.	Stewart, W. J. (H'ghl'n-le-Sp'ng)
Cluse, W. S.	Logan, D. G.	Taylor, R. J. (Morpeth)
Clynes, Rt. Hon. J. R.	Lunn, W.	Thorne, W.
Cocks, F. S.	Macdonald, G. (Ince)	Thurtle, E.
Cove, W. G.	McEntee, V. La T.	Tinker, J. J.
Cripps, Hon. Sir Stafford	McGhee, H. G.	Walker, J.
Dalton, H.	MacLaren, A.	Watkins, F. C.
Davidson, J. J. (Maryhill)	Maclean, N.	Watson, W. McL.
Davies, S. O. (Merthyr)	MacMillan, M. (Western Isles)	Welsh, J. C.
Dobbie, W.	Mainwaring, W. H.	Westwood, J.
Ede, J. C.	Marshall, F.	White, H. Graham
Foot, D. M.	Mathers, G.	Whiteley, W. (Blaydon)
Gardner, B. W.	Maxton, J.	Williams, T. (Don Valley)
Garro Jones, G. M.	Milner, Major J.	Windsor, W. (Hull, C.)
Gibson, R. (Greenock)	Montague, F.	Woods, C. S. (Finsbury)
Graham, D. M. (Hamilton)	Morrison, Rt. Hon. H. (Hackney, S.)	Young, Sir R. (Newton)
Green, W. H. (Deptford)	Morrison, R. C. (Tottenham, N.)
Grenfell, D. R.	Muff, G.	TELLERS FOR THE AYES.—
Griffith, F. Kingsley (M'ddl'sbro, W.)	Noel-Baker, P. J.	Sir Percy Harris and Sir Hugh
Griffiths, G. A. (Hemsworth)	Oliver, G. H.	Seely.
Griffiths, J. (Llanelly)	Paling, W.
NOES.
Acland-Troyte, Lt.-Col. G. J.	Gluckstein, L. H.	Perkins, W. R. D.
Adams, S. V. T. (Leeds, W.)	Gower, Sir R. V.	Petherick, M.
Agnew, Lieut.-Comdr. P. G.	Grattan-Doyle, Sir N.	Pickthorn, K. W. M.
Albery, Sir Irving	Grigg, Sir E. W. M.	Plugge, Capt. L. F.
Anstruther-Gray, W. J.	Grimston, R. V.	Porritt, R. W.
Apsley, Lord	Gritten, W. G. Howard	Procter, Major H. A.
Aske, Sir R. W.	Gunston, Capt. D. W.	Raikes, H. V. A. M.
Assheton, R.	Guy, J. C. M.	Ramsbotham, H.
Astor, Viscountess (Plymouth, Sutton)	Hacking, Rt. Hon. D. H.	Ramsden, Sir E.
Atholl, Duchess of	Hannah, I. C.	Rankin, Sir R.
Baillie, Sir A. W. M.	Hannon, Sir P. J. H.	Rathbone, J. R. (Bodmin)
Baldwin-Webb, Col. J.	Harbord, A.	Rawson, Sir Cooper
Balfour, G. (Hampstead)	Harvey, Sir G.	Rayner, Major R. H.
Balfour, Capt. H. H. (Isle of Thanet)	Haslam, Henry (Horncastle)	Reed, A. C. (Exeter)
Barclay-Harvey, Sir C. M.	Haslam, Sir J. (Bolton)	Reid, J. S. C. (Hillhead)
Baxter, A. Beverley	Heneage, Lieut.-Colonel A. P.	Remer, J. R.
Beauchamp, Sir B. C.	Hepworth, J.	Rickards, G. W. (Skipton)
Beaumont, Hon. R. E. B. (Portsm'h)	Herbert, Major J. A. (Monmouth)	Robinson, J. R. (Blackpool)
Beechman, N. A.	Higgs, W. F.	Ropner, Colonel L.
Bernays, R. H.	Hills, Major Rt. Hon. J. W. (Ripon)	Rosbotham, Sir T.
Blaker, Sir R.	Holmes, J. S.	Ross, Major Sir R. D. (Londonderry)
Boothby, R. J. G.	Hope, Captain Hon. A. O. J.	Ross Taylor, W. (Woodbridge)
Bossom, A. C.	Horsbrugh, Florence	Rowlands, G.
Boulton, W. W.	Hudson, Capt. A. U. M. (Hack., N.)	Royds, Admiral P. M. R.
Brass, Sir W.	Hudson, R. S. (Southport)	Russell, Sir Alexander
Briscoe, Capt. R. G.	Hume, Sir G. H.	Russell, S. H. M. (Darwen)
Brown, Col. D. C. (Hexham)	Hunter, T.	Salmon, Sir I.
Bull, B. B.	James, Wing-Commander A. W. H.	Salt, E. W.
Butcher, H. W.	Jones, Sir G. W. H. (S'k N'w'gt'n)	Sanderson, Sir F. B.
Campbell, Sir E. T.	Kerr, Colonel C. I. (Montrose)	Savory, Sir Servington
Cartland, J. R. H.	Kerr, J. Graham (Scottish Univs.)	Salley, H. R.
Carver, Major W. H.	Kimball, L.	Shaw, Major P. S. (Wavertree)
Cary, R. A.	Lamb, Sir J. Q.	Shaw, Captain W. T. (Forfar)
Cazalet, Thelma (Islington, E.)	Latham, Sir P.	Simmonds, O. E.
Clarry, Sir Reginald	Law, Sir A. J. (High Peak)	Simon, Rt. Hon. Sir J. A.
Colville, Lt.-Col. Rt. Hon. D. J.	Law, R. K. (Hull, S.W.)	Smith, L. W. (Hallam)
Conant, Captain R. J. E.	Leighton, Major B. E. P.	Somervell. Sir D. B. (Crewe)
Cook, Sir T. R. A. M. (Norfolk, N.)	Lennox-Boyd, A. T. L.	Southby, Commander Sir A. R. J.
Cooke, J. D. (Hammersmith, S.)	Levy, T.	Spans. W. P.
Cooper, Rt. Hn. T. M. (E'nburgh, W.)	Liddall, W. S.	Storey, S.
Courthope, Col. Rt. Hon. Sir G. L.	Llewellin, Lieut.-Col. J. J.	Strauss, E. A. (Southwark, N.)
Craven-Ellis, W.	Loftus, P. C.	Strauss, H. G. (Norwich)
Crooke, J. S.	Lyons, A. M.	Strickland, Captain W. F.
Crookshank, Capt. H. F. C.	Mabane, W. (Huddersfield)	Stuart, Hon. J. (Moray and Nairn)
Croom-Johnson, R. P.	MacAndrew, Colonel Sir C. G.	Sutcliffe, H.
Cross, B. H.	MacDonald, Rt. Hon. M. (Ross)	Tasker, Sir R. I.
Crossley, A. C.	McEwen, Capt. J. H. F.	Tate, Mavis C.
Cruddas, Col. B.	McKie, J. H.	Taylor, C. S. (Eastbourne)
Davies, Major Sir G. F. (Yeovil)	Magnay, T.	Thomas, J. P. L.
Dawson, Sir P.	Maitland, A.	Tryon, Major Rt. Hon. G. C.
Denman, Hon. R. D.	Makins. Brig.-Gen. E.	Turton, R. H.
Dodd, J. S.	Manningham-Buller, Sir M.	Wallace, Capt. Rt. Hon. Euan
Dorman-Smith, Major Sir R. H.	Margesson, Capt. Rt. Hon. H. D. R.	Ward, Lieut.-Col. Sir A. L. (Hull)
Drewe, C.	Markham, S. F.	Wardlaw-Milne, Sir J. S.
Duckworth, Arthur (Shrewsbury)	Mayhew, Lt.-Col. J.	Waterhouse, Captain C.
Edge, Sir W.	Mellor, Sir J. S. P. (Tamworth)	Wells, S. R.
Ellis, Sir G.	Mills, Major J. D. (New Forest)	Whiteley, Major J. P. (Buckingham)
Elmley, Viscount	Moore, Lieut.-Col. Sir T. C. R.	Williams, H. G. (Croydon, S.)
Emery, J. F.	Morrison, G. A. (Scottish Univ's.)	Windsor-Clive, Lieut.-Colonel G.
Everard, W. L.	Morrison, Rt. Hon. W. S. (Cirencester)	Withers, Sir J. J.
Fildes, Sir H.	Muirhead, Lt.-Col. A. J.	Womersley, Sir W. J.
Findlay, Sir E.	Nicholson, Hon. H. G.	Wood, Hon. C. I. C.
Fleming, E. L.	O'Connor, Sir Terence J.	Young, A. S. L. (Partick)
Fyfe, D. P. M.	O'Neill, Rt. Hon. Sir Hugh
Ganzoni, Sir J.	Orr-Ewing, I. L.	TELLERS FOR THE NOES.—
Gibson, C. G. (Pudsey and Otley)	Peake, O.	Mr. Munro and Mr. Furness.
Gledhill, G.	Peat, C. U.

Ordered, That further Consideration of the Bill, as amended, be now adjourned."—(Captain Margesson.]

Bill, as amended, to be further considered To-morrow.