HC Deb 27 June 1938 vol 337 cc1573-93

5.10 p.m.

Mr. Spens

I beg to move, in page 13, line 27, after "transfers," to insert "for valuable consideration."

I confess at once that I have read and re-read this Clause a number of times and I am still not the least sure that I have discovered exactly what machinery is being applied to effect the desire of the Government to put into effect the taxation of these bonds. It is quite clear that the opening words of Sub-section (1) of the Clause prescribe that, if I am the owner of a bond to which coupons are attached and I detach those coupons and either sell them or give them away, that creates at once some liability on someone for Income Tax. If I sold them and I received a certain sum of money for them I should have to bring into my income the proceeds of sale. I visualise a bond with 20 years' coupons attached to it on which I have no reason to believe that there will be any default, and I want to provide my son with a fairly safe income year by year for the next 20 years. I tear off these coupons, while retaining the bond myself, and hand them over to him, and say, "Present them every six months and there will be an assured income for you for the next 20 years." If I do that I am making a gift to my son, and as they may presumably be bearer coupons, my son may pass them on and do all sorts of things with them. Although the coupons may have got into other hands, the amount which they represent, whether it be the total nominal amount or the amount which may be paid on them from year to year, appears to remain my income. I am not quite clear whether, in the year in which I detach the coupons, I have to bring in the whole nominal amount of the coupons which I gave away, or whether it means that I have to bring into my Income Tax during each of those 20 years the amount of what my son, or somebody else to whom he has given the coupons, has received.

I suggest to my right hon. Friends that the first scheme of taxation, that is to say, to tax the man who deals with the coupons and receives a sum of money for them on about the day on which he parts with them, seems to be a transaction complete in itself, and there is no difficulty in bringing the amount he receives into his Income Tax account. But to attempt to tax gifts in this case, although I fully appreciate that there is a good precedent for it in attempts to tax gifts in other cases, is really going to be rather unworkable. I ask my right hon. Friends whether it is worth while. Are there so many people who, while keeping the bond itself, detach the coupons and give them away? There are thousands of cases of people who detach the coupons and sell them at a discount, but how many cases in the year are there of people who keep the bonds and detach the coupons and give them away to somebody else? Is it worth while to go through the process of making the person who keeps the bond liable for the amount that some other person, of whom he may never hear, gets on the coupons? There is not much in it for Revenue purposes, and it would make it much simpler and watertight if it was confined to transactions for value.

5.20 p.m.

Sir Douglas Thomson

May I ask the Attorney-General whether this provision applies to gifts to charity, whether the income relates to coupons or bearer bonds or to stock transferred to the charity? Normally speaking, these settlements are made for six or seven years to the charity, and the charity has the income from the shares or securities for that period. If this provision affects such gifts, can it operate retrospectively for six or seven years?

5.21 p.m.

The Attorney-General

My hon. and learned Friend the Member for Ashford (Mr. Spens) in moving the Amendment said that the case he had in mind did not very often arise and he seemed to think that that was a reason for accepting the Amendment. It might equally be an argument for resisting the Amendment. Let me tell him the main purpose of the provision, because I am not sure that he quite appreciated it. In the previous Clause we have dealt, broadly speaking, with those coupons which are either sold through a coupon dealer in this country or realised by a banker on behalf of his customer. In both those cases there is somebody here who is getting the value, the holder of the bond is the person who receives payment, and the coupon dealer or banker deducts the tax and accounts for it to the Revenue.

If Parliament left the matter there there would be a very easy means of evasion by reason of that part of the Paget decision which says that the proceeds of the sale of the coupon rights are not income. In that case all that a person would have to do, instead of selling it to a coupon dealer here, in which event the Income Tax would be deducted in London, would be to sell it to a coupon dealer in Amsterdam and collect the gross amount from him, because the coupon dealer in Amsterdam is not affected by British Income Tax. The seller would escape Income Tax, because the Court has held that the proceeds of the sale are not income. The main purpose of the Clause is to fill up that blank and to say that if he sells or transfers the right to receive any interest payable on the coupon, that is deemed to be his income. My learned Friend wants to put in the words "for valuable consideration." I am not quite clear what is his object. I do not think that he wants to produce this position, that a man who has a large block of these coupons can say, "I will give them to my son instead of drawing a cheque which would come out of my income. What I am doing is to make a gift out of my income resources to my son, but I shall be able to do it without paying taxation on the amount so transferred.

Let us look into the position. Let us suppose that there is a man who is paternally benevolent in the month of June, and he wants to give his son £50. Normally, he would sit down and write a cheque for £50 which would come out of his taxable income, but suppose we accepted the Amendment, it might be that he would say, "I have some coupons maturing in June; if I sell them to a coupon dealer in London or realise them in Amsterdam I shall have to pay income tax upon them, because they are my income. Suppose therefore, instead of drawing a cheque I hand the coupons to my son and he sends them to Amsterdam, neither of us will have to pay Income Tax on them, because I shall not have transferred them for valuable consideration, and he will not pay because he does not own the source, namely, the bond to which the coupons relate."

Mr. Bellenger

What would be the value? Would it be the nominal value of the coupon or the value he receives for the transfer?

The Attorney-General

The amount of the interest. As I understand the Amendment I do not commend it to the Committee and I would advise the Committee not to accept it.

Mr. Spens

Would the Attorney-General study the matter from another point of view. How long is the owner of the parent security the person whose income it is deemed to be, if he parts with the parent security?

The Attorney-General

That does not seem to arise on the Amendment. Very difficult questions can arise under this as under other provisions of the law where it passes out of one area into another. The hon. and learned Member suggested a very unlikely case of a man handing over to his son coupons extending over a period of 20 years. That is very unlikely to arise in practice. I will look into the point that was put by my hon. and learned Friend. My hon. Friend the Member for South Aberdeen (Sir D. Thomson) raised a question in regard to charity. I do not think that this Clause affects in any way the sort of position that he has in mind. He put the case of stocks being transferred to a charity and the charity receiving the income. Charities do not pay Income Tax on their income. If tax has been deducted at the source they can recover it. Therefore assuming that on coupons the tax has been deducted they will, as in the past, be able to recover. Their position is unaltered by this Clause by reason of the words "deemed to be his income." The Clause has not altered the position so far as charities are concerned.

Sir D. Thomson

What about the settlor? Would he be liable?

The Attorney-General

No; a settlement is unaffected by this Clause. What we are dealing with in this Clause is the question whether certain products of coupons shall be treated as income. If a man has been making ordinary annual gifts to charity out of his taxed income he is in exactly the same position as anybody else.

Sir D. Thomson

I am not a lawyer and I do not understand the Clause. The point that I want to be sure about is that it does not apply to any one settling money or stocks on a charitable institution, say, for a period of six or seven years.

The Attorney-General

If the funds in the settlement come within the provision of the Clause, then of course the provisions will apply to them. I can, however, give the hon. Member the most categorical assurance that no charity will be in any worse position as a result of this Clause.

5.30 p.m.

Mr. Pethick-Lawrence

This Clause deals largely with matters of detail, but in regard to the Amendment which we are now discussing an additional point occurs to me. Suppose a man resident and domiciled in this country has a son resident and domiciled in a foreign coun- try and wants to hand over a sum of money to his son, he has to do it after he has paid Income Tax, but if the Amendment is accepted would it not enable a man who was proposing to hand over a sum of money to a relative living in a foreign country to escape Income Tax entirely on the money he sends? I think it would, and that is a point which I think must be carefully considered. There is another point which occurs to me—it may be that I have not read the Clause with sufficient care. I can well understand a man who has a coupon which is either ripe or nearly ripe for encashment handing it over, but the transaction contemplated is when coupons are handed over several years in advance, and I am not clear in which year income tax would have to be paid. I should have thought that tax would be paid each year as the coupon is cashed.

The Attorney-General

That is so.

Mr. Pethick-Lawrence

The Attorney-General says it is so. Otherwise it would mean that they would all have to be paid before the transfer was effective. The hon. Member for Aberdeen, South (Sir D. Thomson) raised one or two points.

The Attorney-General

I was wrong. Income tax becomes chargeable for the year in which they are transferred.

Mr. Pethick-Lawrence

I thought that was so under the Clause. But the rate of income tax may vary considerably from one year to another. If a man thought there were going to be foreign complications in which the rate of tax would considerably increase, and disposed of his coupons 10 or 15 years in advance, it seems to me to be unsatisfactory that he should be able to compound his Income Tax seven years in advance. I think he should be assessed each year on the interest as it becomes due. That is a more equitable way and also a more suitable way for the collection of the revenue. But passing to the point raised by the hon. Member for South Aberdeen there seem to me to be two distinct points involved. The hon. Member was not afraid of what will happen with regard to coupons but as to whether the verbiage of the Clause could be construed as applying to something entirely different from coupons. That of course is a purely legal matter which the Attorney-General must consider and decide; whether words which were intended to apply to one kind of transaction are so broad as to cover an entirely different kind of transaction. I thought the point of the hon. Member was this: Suppose a man desires to present a hospital with seven years' income and transfers to the hospital seven years' coupons. What is the position in that case? Is his position precisely the same? Does he pay on the one year's assessment and then does the hospital recover, or what precisely is the position? That is an entirely different point from that with which the Attorney-General dealt. If instead of sending each year a sum of money to the hospital he detaches seven years' coupons and hands them in bulk, how is his Income Tax affected in that case?

5.36 p.m.

Mr. Benson

There is one point, arising out of the remarks of the hon. Member for South Aberdeen (Sir D. Thomson), which I want to put. I can find nothing in the Clause which limits its operation to coupons. The first two lines are perfectly clear: where in any year of assessment the owner of any securities sells or transfers the right to receive any interest payable. If the Amendment is carried it means that the owner of any securities of any kind, if he wishes to transfer them for a non-valuable consideration, or wishes to transfer one year's interest for a non-valuable consideration, can do so and avoid Income Tax. In other words, if the Amendment is carried it means that this Clause will simply make hay of the seven years trust Clause. The position, if the Amendment is accepted, will be that interest not transferred for a valuable consideration will not be taxed. It does not need to be handed to a hospital; it can be handed to a private individual, and he pays Income Tax, which may not be at the same rate as paid by the donor, who may be a Surtax payer. Income Tax will be paid at the rate of the recipient, who may not be subject to Income Tax at all. If the Amendment is carried we have torn up the limitation we have put that you cannot make tax free presents for less than seven years.

The Attorney-General

I will consider the point put by the right hon. Member for Edinburgh, East (Mr. Pethick-Lawrence), but I still think that the right position is that embodied in the Bill. It is unlikely that people are going to realise in advance interest rights for five or six years. I have been attacked for speaking as if the Clause only referred to coupons. I agree that the words are clear, but the reason I did so is because the Clause says: Where in any year of assessment the owner of any securities sells or transfers the right to receive any interest payable"— and that is a transaction which is very unlikely to be entered into except in the case of coupons.

Mr. Benson

In normal circumstances it is very unlikely, but if the Amendment is accepted it opens immediately opportunities for tax avoidance, and once the Amendment is inserted it will be very likely.

The Attorney-General

That is why I suggest that the Committee should not accept the Amendment. As to the point put by the right hon. Member for East Edinburgh, I think the most satisfactory thing is to take the year in which the interest rights are realised. After all, these things are ex hy1othesi interest rights, and if a man chooses to sell in March something which is due in September it is proper he should be taxed in the year when the income accrues.

5.41 p.m.

Mr. Spens

I quite agree that there is a possibility that the Amendment might be used for tax avoidance, but it is perfectly easy to put in words to deal with that difficulty. I suggest with great respect that the Attorney-General should look at the matter solely as far as it affects voluntary transactions of any sort or kind, and in that case I think he will find that there will be great difficulty. May I add one word to what the hon. Member for Aberdeen South (Sir D. Thomson) has said. The words are that interest— shall be deemed to be the income of the owner"— and— shall not be deemed to be the income of any other person. Therefore, if anybody did what the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) envisaged, that is hand over seven-year coupons to a charity, it is quite clear that the interest payable on those coupons must be regarded under the Clause as the interest of the donor and cannot under any circumstances be deemed to be the income of any other person. In these circumstances it is quite clear that neither directly nor indirectly will there be any income recoverable on behalf of the charity. If Income Tax is deducted at the source the charity will suffer to that extent and it means that the charity will be that much less valuable. However, I have raised all the points I desire to raise for the consideration of the Attorney-General and I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

5.44 P.m.

Mr. Hely-Hutchinson

I beg to move, in page 13, line 28, after the first "or" to insert "less than six months."

The Clause does not seem quite clear as to its possible effect on reorganisation and dealing with annuities. When reorganisation takes place the usual course is for cash consideration to be given to the holder of the security in consideration for his accepting a lower rate of interest. At the time that is carried out it is always regarded as a capital item and equivalent to reducing the original cost of the security he bought. Any holder of a bond who accepts such a cash consideration for giving up part of his interest would be selling or transferring the right to receive interest for a long period in the future and, therefore, we propose this Amendment in order to tie that down to transactions in the current year.

Let me give the Attorney-General an example from the field of annuities, because the definition in Sub-section (4) shows that the word "interest" includes annuities and shares of annuities. If somebody owns an annuity for £100 a year, he pays a definite capital sum down for it. If three years later the owner of that annuity goes to the insurance company and says that he wants to cut the annuity down from £100 to £50 a year, and asks whether they will give him back the corresponding amount so as to cut it down, surely, in those circumstances, he would be transferring the right to receive interest payable in the future. It is for that purpose, and in order to clarify the Clause, that I have moved the Amendment.

5.46 p.m.

The Attorney-General

I am bound to say that I had not appreciated what was meant by the wording of the Amendment until my hon. Friend explained it. He said that when companies are reorganising, there may well be cases in which a debenture holder previously entitled to 5 per cent. is asked, and agrees, to accept £200 down and 3 per cent. for the rest of the life of the debenture. My hon. Friend wonders whether the £200, which he suggests at present would be a capital receipt, would, under this Clause, be regarded as an income receipt. At the moment, I should have thought that the debenture owner was not selling or transferring a right to receive interest, because the company with whom he made it would not get a right to receive interest. The right to receive interest would be extinguished. However, I will certainly look into the point. I have not considered the provisions of this Clause in their relation to a case of that kind, and so far, it seems to me that a transaction of that kind would remain to be dealt with under the general principles of law. I will have the point looked into, but I think that the Committee will agree that it is one which did not leap to the eye on first looking at the Amendment on the Paper.

5.48 p.m.

Lieut.-Colonel H. Guest

I wish to raise a small point concerning reorganisation. Sometimes, when a company is being reorganised, there may be a preference dividend that is in arrears, and that may be satisfied by the transfer of a portion of the equity from the equity holder. Would the shareholder who received the equity or a portion of it to cancel his arrears be subject to any form of taxation by so doing?

5.49 P.m.

The Attorney-General

I think I can say fairly categorically, although it is a legal question and I am sure my hon. and gallant Friend will appreciate that it is a little difficult to grasp it straight away, that undoubtedly they would not be liable under this Clause. I do not see how transfers from equity in that form could be regarded as a sale or transfer of the right to receive any interest by the owner.

Mr. Hely-Hutchinson

In view of the remarks of my hon. and learned Friend the Attorney-General, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

5.5o p.m.

Mr. Spens

I wish to make an appeal to my right hon. Friend the Chancellor of the Exchequer on this Clause, as on the other Clauses in this Section. Clauses 18, 19 and 20 mainly concern one particular set of facts which could be dealt with in the courts, namely, funding bonds and the disposal of income arising from funding bonds. In accordance with an all-too-well established Revenue practice, instead of confining amendments of the law to the particular instances on account of which the law requires to be amended, these three Clauses are worded in the widest possible terms that could be devised. My hon. and gallant Friend the Member for the Drake Division of Plymouth (Lieut.-Colonel H. Guest) has raised a point, which has been mentioned before by many hon. Members who are interested in this Clause, concerning a possible outcome of it, namely, that in our every-day reconstruction of companies in the winding-up division—where there are outstanding rights to interest either on debentures or preference dividends declared as not paid, and possibly even arrears of unpaid preference or other dividends, and where, in the course of these reconstructions, the persons who ought to have received them do, in fact, receive some sort of consideration for those rights—suddenly, for the first time, this Clause will have the effect of making that type of consideration assessable, in some shape or form, to Income Tax. That is a sort of complication that has never had to be dealt with, as far as I know, except possibly where there has been a very definite consideration attributable to debenture interest overdue; but apart from that, overdue interest rights have generally been tackled on quite general lines, without there being this complication.

In the same way, this Clause will apply to any sort of assignments by individuals on income arising from any security for trust or any other purposes. It is difficult to see how far the net is being laid by the Revenue under this Clause. I ask my right hon. Friend to consider at a later stage whether it would not be possible to make these three Clauses deal specifically with the matter on which the Government quite properly desire the law to be altered, and to make that a precedent in dealing with changes in the Income Tax law. In these Clauses there are wide general provisions which will cause a great deal of litigation in the courts as to what they are intended to include.

5.54 p. m.

Sir William Davison

I desire to lodge a protest once again, as I have done in the past, with regard to the obscurity of this and other Clauses in this Finance Bill, which lays down the principles upon which the taxpayers of this country are being asked to provide very large and ever-increasing sums of money, for the State. The taxes it imposes should not be set out in Clauses that are unintelligible. We have in the Committee some of the most able minds, which are accustomed to legislation dealing with taxation. Yet any hon. Member who has sat through the proceedings to-day must have been struck by the fact that one hon. Member after another, from the Attorney-General downwards, has repeated that he was unable to understand the Clause before the Committee. [Interruption.] I do not say that the Attorney-General used those words, but he asked for more time to consider simple Amendments, and if he had thoroughly understood the Clause he would not have required more time, but would have said, "The effect of this Clause is so and so, and that is why certain taxpayers will have to pay or will not have to pay." The mover of one Amendment, my hon. and learned Friend the Member for Ashford (Mr. Spens), who is no mean lawyer, himself admitted in his speech that he had read and re-read the Clause and was unable to understand it.

I say that if the Treasury and the Chancellor of the Exchequer are unable to frame a Clause dealing with taxation in words that are capable of being understood, not only by the learned gentlemen who are present here, but by the man in the street—the thousands of people who have to pay these taxes—they ought to abandon the particular taxes until such time as they are able to find words that will be understood by the people who have to pay them. It is an outrageous thing that citizens of this country should he asked to pay taxes when nobody really understands what is meant by the provisions imposing those taxes. This Bill ought really to be known, not as the Finance Bill, but as the "Legal Profession Endowment Bill." It is impossible to understand this Clause and other Clauses, such as Clause 32, of which I confess I could not make head or tail—I do not know where the tail begins and the head ends—and I doubt whether the Attorney-General understands it. I desire to lodge a protest now on this Clause, as it is the first opportunity I have had of doing so this year. The complications of the Finance Bill are increasing year by year, and it is high time that the question of putting into concrete form and simplifying the form of taxation should be dealt with, and that Parliament should not be asked to pass further Bills dealing with Income Tax until the Treasury find phrases and forms which will make the taxes understandable by the people.

5.58 p.m.

Mr. Bellenger

I have no doubt that hon. Members will be in sympathy with many of the things said by the hon. Member for South Kensington (Sir W. Davison), but in fairness to the Government I do not think that it can be said that it is entirely the fault of the Chancellor of the Exchequer, who I believe is the instigator of these unfortunate Finance Bills, or even the Attorney-General or the drafting authorities. I am inclined to think that the reason we have clauses like Clause 19, which are so unintelligible to the man in the street—and, by the way, it is not the man in the street that this Clause is after, but far bigger game than the average taxpayer—

Sir W. Davison

Every man has to walk in the street.

Mr. Bellenger

—is the ingenuity of those so-called men in the street, and those who aid and abet them—members of the legal profession—in trying to get out of paying taxation; and the Chancellor of the Exchequer has to place before us what are admittedly unintelligible Clauses in order to try to obtain something which is likely to deal effectively with those people. However, I submit to the Government that it would be well to try to make this finance legislation as clear as possible. To do so is as much in the Government's interest as in the taxpayer's interest. If the Government want the sympathy and assistance of the taxpayer, which they must desire nowadays, with the standard rate of Income Tax at 5s. 6d. in the £then they ought to make their proposals as clear as possible to the taxpayer without imposing on him the necessity of going to law in order to define his obligations. The rules of taxation should be made as simple as possible. We all realise, of course, that it is practically impossible to put a Clause of this kind into language which the average man in the street can understand. But we might, at any rate, ask those who draft these Clauses to do so in language which the judiciary can understand. We know how often learned judges have criticised the drafting of Bills of this kind. I support, if not all, at any rate, the main part of the contention of the hon. Member for South Kensington.

6.2 p.m.

Sir John Withers

I wish to reinforce what has been said by my hon. Friend the Member for South Kensington (Sir W. Davison) and if I had my way, I would be inclined to use some very much stronger expressions than he has used on this subject. At the same time I appreciate the fact that these complications are not the fault of the Government. In fact, I think the Bill is a splendid example of the ingenuity of the Government and especially of the Chancellor of the Exchequer. What I object to is that we should have legislation affecting everybody in the country, which nobody understands. I have been a practising lawyer for a long time and I have sat here this afternoon listening to things which sounded pure gibberish. I tried to intervene the other day in order to congratulate the Chancellor of the Exchequer on having produced in the Clause dealing with the Tea Duty, a Clause which, at any rate, somebody could understand. Now I sincerely hope some energy will be put into the task of bringing these various Measures into proper shape. What we want is that somebody should sit down with the Macmillan Report and to start de novo to codify the whole Income Tax law so that anybody can take it up and read it and understand it. If the Clauses are made wide enough it should be possible to do so. I appeal strongly to the Chancellor of the Exchequer to use his great influence and his great ingenuity in getting the Macmillan Report put into effect and a codification made of the whole law on this subject.

6.5 p.m.

Sir J. Simon

The complexity of Clauses in a Finance Bill is no new topic and I do not complain of the fact that it has been raised again on this occasion. I am not at all surprised that my hon. Friend the Member for South Kensington (Sir W. Davison) should, on the Question "That this Clause stand part of the Bill," have made the observations which we heard from him. But there are one or two things which, in fairness, ought to be remembered on what I may call the other side of the account. In the first place, we are dealing in this Clause with a very complicated subject which has been dealt with in a large number of judgments and argued out on a number of very precisely reasoned cases. It is absolutely necessary in the public interest that we should state the changes which we want to make in terms which those who devote their minds to this subject believe will really stop the hole that we are trying to stop. Indeed, in this case we have a number of rather complicated holes—a network, possibly—and the difficulty is to stop one set of holes, while at the same time ensuring that another set of holes will not be made in a different but analogous direction. That is really the answer to those who say, "Why cannot you apply ordinary commensense language to these matters and write these things out in words of one syllable and two or three sentences?" When you are dealing with a complicated subject which is capable of a great many ramifications you must, in the language which you use, have regard to the subject-matter.

I am glad to have this opportunity of making another observation. It is rather the fashion, if I may say so, as an old Member of the House of Commons, for us legislators here to speak with great complacency and sometimes with a slight touch of contempt of the drafting of Bills. The drafting is done by very skilful public servants, namely, the draftsmen. I have in the course of my experience as a Minister had to deal with a number of draftsmen all of whom have given me their help just as they have given their help to whatever Government happened to be in office. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) knows very well, because he has been Financial Secretary to the Treasury, how these public servants devote their whole skill to the task of getting these things stated as well as possible. Therefore, we should not get into the habit of lightly speaking as though these things were made unnecessarily complicated.

I may mention, for what it is worth, that all my life I have tried as far as I could to cultivate the habit of saying things plainly. I have always tried to state what I had to state as clearly as I could, whether I said it or wrote it. A Chancellor of the Exchequer who happens to have had experience, as I have had, as a Law Officer, knows very well when he comes across Clauses or Amendments which are put in unnecessarily elaborate language that it is his duty to the House of Commons or the Committee to do his best to simplify the language in which these proposals are framed. With my knowledge, I would suggest that the draftsman in drawing up these Clauses has not been engaged in any unnecessary elaboration. He has been trying to state the thing as well as he could, having regard to the subject-matter and the purposes which we are trying to serve. In many consultations connected with this Bill, I have myself gone into this question. I have tried my own prentice hand, once or twice, perhaps not very successfully, at putting things into simpler terms, but I am completely convinced that, having regard to the method which Parliament adopts, it is not right to blame the undoubted complexity of these Clauses upon any want of skill or of purpose on the part of those who serve the whole House of Commons in this respect.

There is another method, of course, which might be applied. I believe it is applied to quite a large extent in some Continental countries, but we have never applied it here. It is possible to imagine taxing legislation applied to the citizens of this country not according to the exact words of a Statute which has passed section by section and line by line through the House of Commons, but on some more or less general proposition, stated in fairly simple terms, no doubt, and embodied in a Statute, and then left for its application to some organ of the executive or some special committee which would develop what may be called the jurisprudence of the section, and what many people in their innocence would call its plain meaning. We have never done that. We have always considered—and I think this is right—that, on the whole, it is better to have Sections of Acts of Parliament—which some of us might regard as rather elaborate—and that we should insist on the letter of the Section being complied with rather than that we should give the wide discretion, which I have described, to some outside body.

My hon. Friend the Member for Cambridge University (Sir J. Withers) just now expressed a wish that the Macmillan Committee's report could be put into an Act of Parliament and rather implied that if that were done, we should all live happily ever after, and that the Income Tax law could then be read by people as if it were a sort of three-volume novel. I ask my hon. Friend not to be too sure. I have had a look at the form into which some of the recommendations of that committee would have to be put, and while I greatly admire the results of the years of labour that have been devoted by the committee to the subject, I think it is a little sanguine to suppose that when the happy day desired by my hon. Friend arrives and we have swept away all these Statutes and substituted the result of the Macmillan report, we should find that we had a code of taxation so simple that a child could read it on the way to school. Taxation is a complicated thing, and complicated things have to be stated in complicated ways. You have to provide for exceptions, and so forth. For my part, while I think we ought to do everything we can to simplify the language of Statutes, and while I have not the slightest sympathy with any attempts to obfuscate or make more elaborate that language, yet we must recognise that the work of drawing up these Statutes is very complicated work indeed, and we ought to recognise the very great debt which we owe to those skilled people who devote their lives to trying to express the thoughts, possibly the inverted thoughts, of Ministers and the wishes, the doubtless very serious wishes, of the House of Commons in the necessary language of an Act of Parliament.

Sir W. Davison

The right hon. Gentleman referred to me as though I had made some criticism of the draftsman. May I say that I had no such idea at all. The point at issue does not concern the draftsmen who, with great skill have done their best and a very good best. It concerns the instructions which the draftsmen have had from the Treasury who have given them a practically impossible task. When the Treasury find that some little piece of the Income Tax framework is altered by the courts, they instruct the draftsmen to put in a plug in the barrel to stop the leak instead of scrapping that part of the barrel which has given way and giving instructions to the draftsmen to make a new one in simple form.

6.13 p.m.

Mr. Hely-Hutchinson

While sympathising with my right hon. and learned Friend the Attorney-General, I wish to ask one more question with regard to the interpretation of Clause 19 with particular application to the question of defaulted bonds. As I read the Sub-section (1) I understand that if the holder of a coupon bond of a face value of£3—a defaulted bond—sells that coupon or negotiates it through one of the regular coupon dealers or paying agents here, under the rules of the Inland Revenue Department, for 5s., he will have to pay tax on the 5s. But if he sells it, say in Amsterdam, for 10s., he will have to pay tax on£3. I may be wrong in that interpretation. I thought it was a question of draftsmanship until I read what my right hon. and learned Friend said on the Money Resolution on 4th May. He said in effect that if anyone sold to someone other than a coupon dealer, it would be taken as prima facie evidence of intention to evade taxation. If that is the case I would like to enter a protest against that view. It may often happen that the owner of a coupon of a defaulted bond which happens to be settled by means of blocked currency, is able to get a much better price for it by dealing with somebody who has commercial or other relations with the country in which that currency is available, whereas the regular coupon dealers or paying agents in England have not the same facilities and would not be able to give him as good a price as he could get by direct negotiation. Moreover, if my interpretation is correct, this enables the coupon dealers and paying agents within a limited sphere to get into a ring and to buy coupons very cheap on their own account if they wish to do so. I merely wish to raise the point with my right hon. Friend and ask whether he will give it his consideration.

6.15 p.m.

Mr. Assheton

I should like to say that we do not complain of the draftsman. As the hon. Member for South Kensington (Sir W. Davison) said, his instructions are very often difficult to carry out. The difficulty, to my mind, seems to lie here: You get a case of a particular gap which the Treasury wishes to fill up, and instead of instructing their draftsman to fill it up, they instruct him to fill up the gap and to cover everything else he can think of. All sorts of results follow from the drafting of this Clause that were never originally intended, and it is impossible to foresee what will be all the consequences of such a complicated Clause. I suggest to the Attorney-General that this Clause 19 is an appalling Clause. It is difficult to understand, and I very much doubt whether anyone really knows exactly what its meaning is. I take, as an example, the question put by the hon. Member for South Aberdeen (Sir D. Thomson), to whom the Attorney-General replied, with regard to the question of the assignment of income in the case of a charity. I must say that I thought the reply of the right hon. and learned Gentleman was very unsatisfactory. He did reply as to what the intention of the Clause was, but it still appeared to me to be very doubtful whether in fact the Clause says what he intends to say. I would ask the Attorney-General whether before the Report stage he will make it clear that in fact the Clause is now in a shape which will carry out the intentions which he indicated to the hon. Member for South Aberdeen.

6.18 p.m.

Colonel Gretton

I have only one or two observations to make on the general effect of this Clause. I think everybody recognises that it is undoubtedly desirable that taxation should be stated in as clear terms as possible, that there should be no doubts as to what is intended, and that what is intended should not be exceeded. Unfortunately, these wide-sweeping nets are not liked, and a good many cases are brought in. When there is any doubt—and there is a great deal of doubt in this Clause—those doubts should be cleared up, and the Clause should state definitely what it means and leave out what it does not mean. A tendency is growing up of late years to tighten up the application of many of these Finance Acts. The Treasury people look upon it, rightly, as a duty to the public to get in as much taxes as they can, and undoubtedly claims are made which in many cases are doubtful. The only way to deal with those claims, if the taxpayer objects, is to go to court, which is a most expensive operation, because one cannot go to court in these matters without really expert advice, which is costly, and often it leads lo appeals. The old rule that where there is a doubt as to the meaning of taxation that doubt should be resolved in favour of the taxpayer and not in favour of the Crown has, it seems to me, been set aside. The taxation now, for one reason or another, is often pressed unduly on the taxpayer where there is a case in doubt. Therefore, I add my plea to those which have already been made that these doubts, when we are legislating, should be cleared up, that it should be clearly stated what the tax is intended to do and who the people are who are intended to pay, and that care should be taken that those who are not intended to pay are left out and are not required to defend themselves by a long, complicated, and difficult process.

6.21 p.m.

The Attorney-General

I would like to dispel a suggestion which was made by an hon. Friend behind me that the genesis of this Clause was that it was intended to go far wider than anything rendered necessary by the facts of the case. We believe that this Clause does restate the general principles bearing on the case. It is the interest which is paid which is the measure of the taxpayer's liability, and not the proceeds which he gets from the income.

Mr. Pethick-Lawrence

Surely the right hon. and learned Gentleman must mean the interest due to be paid?

The Attorney-General

The assessment comes in that year, although the amount in respect of that year may not be ascertainable until later. If we make provision for events that are wholly unlikely to take place, I am afraid that we shall get even more violent complaints than we have had already.

Mr. Pethick-Lawrence

The question arises here in the case of those bonds which are in default.

The Attorney-General

The ordinary case where interest is being paid regularly is quite clear. In the case of a defaulted bond, it all depends on the nature of the default. With regard to charities, no rights of charities are affected by this Clause. With regard to other points, I will study what has been said. We may not all at times express ourselves with complete clarity, even when making our speeches in this House, and it is sometimes difficult to follow an hon. Member while he is speaking, but there is an opportunity afterwards of studying what he has said.

Question, "That the Clause stand part of the Bill," put, and agreed to.