§ (1) In the case of any assurance business to which this Section applies carried on by a body corporate, the amount of income arising from investments or other property to be included, by virtue of paragraph 7 of the Fourth Schedule to the Finance Act, 1937, in the profits of the business for any period for which the accounts of the business are made up shall not exceed such a sum as bears to the investment income the same proportion as one-and-a-half times the net premium revenue bears to the value of the investments.
§ (2) In this Section, in relation to any such business and any such period—
- (a) the expression "investment income" means the aggregate amount of income arising from investments and other property which would, but for this Section, have been included in the profits of the business for that period by virtue of the said paragraph 7;
- (b) the expression "net premium revenue" means the aggregate amount of the premiums received, less any re-insurance premiums paid, for the purposes of the business in that period or, in a case where the period is less than twelve months, a sum which bears the same proportion to that amount as twelve months bears to the length of that period; and
- (c) the expression "value of the investments" means the average value over that period of all the investments and other property held in that period by the body corporate, other than investments and property held in connection with any assurance business to which this Section does not apply.
§ (3) This Section applies to all assurance business, except life assurance business within the meaning of the Assurance Companies Act, 1909, and capital redemption business as defined in Sub-section (3) of Section twenty-five of this Act.
§ (4) In relation to any such period beginning before the first day of April, nineteen hundred and thirty-eight, references in this Section to income arising from investments and other property shall be construed as not including income so arising before that date.—[Sir J. Simon.]
§ Brought up, and read the First time.
§ 7.52 p.m.
§ Sir J. Simon
I beg to move, "That the Clause be read a Second time."
This Clause sets out, in what I think is the correct form, a change that I mentioned on the Committee stage. I am glad to see the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick Lawrence) opposite. He will recall the matter being raised in Committee. It is necessarily a little technical, although 1021 the principle involved is simple. National Defence Contribution is collected from the profits of business. It is not gathered from the profits on investments. To take an instance, the co-operative societies have investments, and very big ones, but nobody suggests that the Contribution shall be gathered from the interest on the investments. Manufacturing or distributing firms very often have, as everybody knows, quite substantial investments, and they bring the profits of those investments into their general accounts, but for the purposes of the National Defence Contribution they are excluded, because the principle is that the Contribution is levied on the profits from business. But there are certain kinds of business where the making of investments is the actual business. It is so in the case of the banks. It would be illogical to say, "The banks are liable to pay National Defence Contribution, but their investment income is excluded." In the same way, you have investment income of certain financial houses, to take another example, life insurance companies, none of which could carry on business at all except with investments.
I have been considering whether it is entirely fair and logical to treat all insurance companies as being in the same position as life insurance companies. I have come to the conclusion that we ought to make a slight adjustment. At one time the advocates for the fire, accident and other non-life insurance companies went so far as to contend that their investment income had nothing to do with the matter. I have always resisted that claim. I do not think the House of Commons will accept the view that a fire insurance company or an accident insurance company would get on at all without investments. But it is true to say—and I have looked into this matter closely—that some of these insurance companies really have investments which are in excess of what are strictly to be regarded as falling within their ordinary business reserves. You cannot get the figure mathematically and reach a conclusion. You must take a practical point. I think the practical point which I submit that the House should be prepared to accept is that stated in this Clause.
On the Committee stage my hon. and gallant Friend the Member for Clitheroe (Sir W. Brass) urged that so long as you took as much of their investments 1022 as was equal to 100 per cent. of their premium income you were taking as much as you should. I have looked into the matter and I do not think so. I am prepared to put the figure at 150 per cent. That will undoubtedly mean that all the old companies, which have very large investments, will get a certain relief.
I regard this case, as I have said before, as falling rather betwixt and between the two classical cases which are easy to deal with. On the one hand, you have taxpayers paying the National Defence Contribution simply on the basis of the business profits, and investments do not come into it at all; and, on the other hand, you have purely investment concerns, like banks, where you must include the whole of their investments, whether they be much or little. These companies stand in rather a middle position, and I am prepared to make this concession, provided that 150 per cent. is the figure accepted. I well understand that these enterprises would like a bigger concession, but I am not prepared to give that. I hope that this will end the controversy.
§ Mr. Bellenger
Has the Chancellor estimated the amount that he will lose in revenue by this concession?
§ Sir J. Simon
Probably in a full year it may mean something like £150,000, remembering of course, that I get something back again, because I save the Income Tax on it.
§ 7.59 P.m.
§ Mr. Pethick-Lawrence
I have never been particularly enamoured of the National Defence Contribution. It has seemed to me to be rather a hit-or-miss business. Certain people are exempt. Some of them, perhaps, on an equitable theory should be exempt. But very often a whole class is exempt, and some of that class are the very people who should be called upon to pay. On the other hand, there are sections of people who are brought under the scope of this contribution, and it may be that, taking the class as a whole, they are fairly dealt with, but others in that class, a small minority, are very unfairly dealt with. I have always taken the view that a small extra Income Tax would be much better than this large hit-or-miss hazard of the National Defence Contribution. But having said that, I can quite understand the appeal which has been brought 1023 to the Chancellor of the Exchequer to make the concession in this case, and I think there is some justice in that appeal. I think there are also a number of other cases where a concession ought to be made, and I hope the Chancellor of the Exchequer will accede to the one I am able to put before him. I do not think my right hon. Friend would like to make a case against this proposal, although it is making a very large concession to a section of society fully capable of looking after themselves if it can be defended as a just policy, and I will not vote against it. But it does not remove my general feeling that it is a very unsatisfactory method of taxation, and all that the Chancellor can hope to do is to try and make a rough equity between a number of people some of whom are particularly fortunate and might be expected to pay a heavy contribution, while others are very unfortunate and actually in some cases are being mulcted in this particular burden.
§ Mr. Gordon Macdonald
I am rather sorry that the Leader of the Opposition has decided not to divide on the issue. For myself I should have much preferred to divide. I have only one thing to say, that this is a class of people who do not need any concessions from the Chancellor. They can well afford to pay what they are paying and are not suffering any injustice. But I will follow the Leader of the Opposition.
§ Sir John Mellor
May I ask the Chancellor of the Exchequer if he will give some indication of the process of reasoning by which he arrives at 150 per cent. of the premium income as being the correct figure?
§ 8.4 p.m.
§ Mr. MacLaren
I want to say that I do not think the Chancellor should have made any concession at all. We have information of what went on at Cardiff the other day, of the enormous investment in the rising land values of this country. The insurance companies have most of them their funds invested, and, indeed, they aid and abet by this form of investment the enormous speculation in the land values of this country. Surely if any people should be asked to pay to the full for the defence of the country, it is the people who are taking advantage of the 1024 growing value of the land which comes to them under the guise of investment? Really there are times when the Chancellor is adamant to all sorts of appeals, but this is one where he has been weak and has bent the knee too readily. I am asking whence do they derive their enormous investments, and I say that if the country wants more money for defence, I would go to the insurance companies and demand 100 per cent.
§ 8.6 p.m.
§ Sir J. Simon
Frankly, I first of all considered the need of the case, and, secondly, I ascertained the figures connected with the income of the companies through my original correspondents. I found that the unexpired risks on the current premium could safely be taken at, say, 40 per cent. of the premiums, and the liabilities for claims notified but as yet unsettled, at 35 per cent., making 75 per cent., and I think provision must be made for exceptional cases and some catastrophic risks so that I thought it right to double the figure. I cannot make a precise calculation.
§ Question, "That the Clause be read a Second time," put, and agreed to.
§ Clause read a Second time, and added to the Bill.