HC Deb 28 June 1938 vol 337 cc1788-825

As from the first day of April, nineteen hundred and thirty-eight, Section nineteen of the Finance Act, 1937 (which relates to charge of national defence contribution), shall not apply to any trade or business carried on by a society registered under the Industrial and Provident Societies Act, 1893, unless such trade or business is carried on by a society existing primarily for the purpose of earning and distributing profits on its capital.—[Mr. Barnes.]

Brought up, and read the First time.

6.55 p.m.

Mr. Barnes

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

I should like to claim the indulgence of the Committee for making, perhaps, a rather longer statement on this Clause than is customary during our finance debates. I do not think the Chancellor will begrudge that, because he has made very satisfactory progress so far, and I assume that many Members in all part of the Committee would like to find an acceptable solution for the problem of the surplus of co-operative societies in relation to their Income Tax liability. The purpose of this Clause is not an innovation in connection with the National Defence Contribution, because the Chancellor himself has allowed many exemptions to important groups of trades that might have come within the ambit of this tax.

I should like to remind the Committee of the various groups of exemptions or modifications which the Chancellor himself has initiated. First of all, there is the category of complete exemptions. Provision has been made for the exemption of public utility corporations and all small business undertakings—although I do not think the description "small" can really be applied to the whole of them—whose profits are under £2,000 a year are also completely exempted from this charge, as well as businesses the heads of which are professional persons. Then we have the partial exemptions or modifications, under which companies whose profits are under £12,000 a year come under a graduated scale. Building societies have been met by a special arrangement which has considerably reduced their contribution, and there are also modifications in the case of private companies and certain groups of policy holders in insurance companies. The third category consists of those companies which have to pay the full charge of 5 per cent. of their taxable profits.

The Chancellor himself, in describing the operation of National Defence Contribution in the case of the third group of companies, which have to meet the full obligation, said that the tax was in the nature of an increase of one-fifth, or 20 per cent., in the Income Tax liability of traders. Language of that description conveys a very natural and legitimate impression that no trading body would have to pay more than one-fifth of the sum that it now pays, whereas, owing to the alteration of the practice of the Treasury with regard to co-operative societies in dealing with the interest sum administered within a co-operative society, this is now taken back into the charge for National Defence Contribution purposes, which means that a good many of our co-operative societies in fact pay more than one-fifth of the sum which they now pay in Income Tax. Therefore; many co-operative societies fall into a fourth category, and are subject to the incidence of this tax in a much more severe form than the Chancellor himself led the House to believe would be the case. I do not think, unless evidence can be submitted to the contrary, that any public company would have to pay more than one-fifth of the sum that it now pays in Income Tax—

Sir P. Hannon

If the hon. Member's argument proceeds on these lines, I think he ought to give to the Committee examples of the instances in which the contribution of co-operative societies is more than one-fifth.

Mr. Barnes

I shall be delighted to do that later on in my remarks, if the hon. Member will do me the favour of listening to the argument. I felt that it was desirable, first of all, to deal with the four groups for the purpose of bringing out the point that, if my contention is correct and some societies do pay more than one-fifth of their present Income Tax payments, it stands to reason that there must be some circumstances in regard to cooperative societies that are different from the general experience, and it is that information that I desire to bring out. There are two factors which, in the case of co-operative societies, produce that difference. One is the fact that the wages or incomes of 8o per cent. of our members or shareholders are below the Income Tax assessment limit. That would not prevail in any other trading corporation.

The second fundamental difference between a co-operative society and an ordinary trading corporation is the fact that practically the whole of our surplus arises from mutual trade, and, therefore, is not profit for taxation purposes. Dividends, in any case, are not taxed, and our members who are eligible to pay Income Tax on their own individual incomes include the interest that they get from co-operative societies in their returns. In 1933, before the alteration in the law, co-operative societies paid the full rate of tax under Schedules A and B, and the Board of Inland Revenue at that time stated clearly and specifically that there was no loss to the Revenue as the result of that practice. In fact, in 1933, when we were in direct negotiation with the then Chancellor of the Exchequer, now Prime Minister, a special test was carried out throughout the whole of our retail societies and we were able to prove that, in paying the full rate under Schedules A and B, no society was escaping its burden of taxation in any way, although one or two of our federal bodies, owing to the fact that special circumstances represented a measure of nonmembers' trade, could not be brought within that category, but we made an offer for special arrangements to cover those exceptional cases. The Board of Inland Revenue in 1919 said: The surplus that arises in a mutual concern from transactions with members, though it is sometimes described as profit, is not a profit chargeable to Income Tax. The Board of Inland Revenue are aware that this fact has at times been challenged, but the question is one of law, and, as such, the Board are advised, in the light of decided cases, it admits of no reasonable doubt. This does not rest merely on the opinion of the Board of Inland Revenue. There were certain cases decided in the courts, in one instance in the case of the New York Life Insurance Company and in the other of the South-West Lancashire Coalowners, Limited. In the discussion on a previous Clause the Chancellor quoted the decision of Mr. Justice Rowlatt as an authoritative opinion which should guide the decision of this Committee. We observe from the cooperative angle that, if our case has been supported by many important appeal test cases in the House of Lords, the decisions of the courts have been overridden in our case and will not be considered from the angle of our claim. Then it is important to note that the present Chancellor, in his capacity not as politician but as one of the most eminent lawyers in the country, gave the following opinion in 1920: The main object of the co-operative society is to prevent any profit from arising at all. It is clear that the whole of the balance is nothing more than money provided by the members in excess of what was, as it turned out, actually required for the purchase of the goods, and there is in principle no difference whatever between that part of the balance that is handed back to the members as being not required and those parts with which their consent are used for purposes which are incidental to the operations of the society over and above the mere purchase of goods. None of this money can possibly be called a profit either of the society or of individual members.

Sir P. Hannon

On a point of Order. The Clause has relation to the Charge of National Defence Contribution not to apply to industrial and provident societies. The argument on which the hon. Member is now proceeding relates to the whole question of the extent to which the mutual earnings of a co-operative society should be subject to Income Tax. The argument ought to be directed to the responsibility of a co-operative society trading on the principle of mutuality to make its contribution for national Defence, and not to the general circumstances in which a cooperative society ought to be subjected to Income Tax.

The Chairman (Sir Dennis Herbert)

The National Defence Contribution being based upon the machinery of the tax, I cannot at present see that there is anything out of order in what the hon. Member has said.

Mr. Barnes

That is the real point to which I am leading up, that if it were not for this position, automatically co-operative societies would have been without the charge of National Defence Contribution, and it has an important bearing on the case that I propose to make later. This is emphasised by the next opinion that I wish to quote of the right hon. Gentleman in his capacity as Chancellor of the Exchequer last year: In 1920 I was asked to give an opinion on a matter affecting co-operative societies. The question then put to me was this. Here is a tax described as a tax on profits. Will you tell us whether, in your view, and with your knowledge of the law, this is a tax which will catch the co-operatiev societies? ' The answer was—and I think it was perfectly accurate—' The law does not regard as profit for the purpose of such a tax as this the advantage which co-operative societies make, and therefore we think that co-operative societies gains—I want to use a neutral word —will be exempt.' That was a perfectly correct opinion and I hope it was worth the money. What has happened in regard to National Defence Contribution? Years afterwards Parliament took up this subject and altered the law. I am not saying whether it was right or wrong. The Chancellor did not advance an opinion, but he made it quite clear that Parliament altered the law specifically in this case to apply to co-operative societies. I hope I have made it plain, even to the hon. Member, that when I was asked in 1920 whether, seeing that the law was so-and-so, would so-and-so happen, I gave a correct answer. I am now pointing out that in 1933 the law was altered. That means that in this case Parliament overrode the courts' decisions, the opinion of the Board of Inland Revenue, and the opinion of one of the most important lawyers in the country at the time. If this had not been done we should not be discussing this issue to-day. The application of National Defence Contribution to co-operative societies emphasises the injustice that we suffered on that occasion, and the fact that it falls with greater severity on co-operative societies should bring home to the Committee the undesirability of further emphasising this inequity. Now it has come to the application of the National Defence charge to co-operative societies. It is the surplus a rising from mutual trade which is affected by this charge, less the sum paid out in dividends. The investment income is not affected. When we come to the administration of the National Defence Contribution charge, not only in our case but in the case of all trading corporations, certain allowances are provided within the present administration of Income Tax law. Allowances include wear and tear, interest on loans, pension funds, and similar expenditure. Again, as indicating that the Chancellor has made a variety of modifications and has not adhered strictly to previous practice with regard to Income Tax law in the case of National Defence Contribution, there are certain other allowances which are admitted which do not apply for ordinary Income Tax purposes. For instance, I understand that allowances are admitted for ground rent, royalties and annuities. If the Government can see their way to exempt certain groups of traders, if they can modify the charge to one group, if they can widen the scheme of allowances to corporations, why are they so adamant in refusing to meet the claim that we are putting forward, first, that we should not be charged National Defence Contribution, secondly, if we are, that in our case the interest charge and the alteration of Treasury practice should not be proceeded with? In our case the modification has not been to our advantage, while the modifications in every other direction have eased the burden of the paying body. The one charge that is applied in our case has added to the severity of the burden, and that is a very definite disadvantage.

Now I come to specific cases. Taking a society which I will call A, its Income Tax liability this year will amount to £126 10s. With the total charge for National Defence Contribution added, it is £407 14s. The Income Tax charge of society B less National Defence Contribution is £178, with National Defence Contribution added it will be £412. I agree that they represent the exceptional type of case; but let me now quote the normal case of a Midland society of very large dimensions, with 6o0,000 members. Its Income Tax charge will amount to £7,000, while its National Defence Contribution charge will amount to 3,000—that is 42.8 per cent. of its Income Tax payment, whereas the Chancellor endeavoured to convey the impression that no company would pay more than one-fifth of its Income Tax payment. I do not think hon. Members can defend a situation of that character.

Let me further illustrate it by taking the comparison of the building societies. I claim that a co-operative society conveys far greater social benefits to the public than a building society, although I do not wish to under-estimate the value of the part that building societies play in our national life. I am chiefly quoting this because last year the Chancellor made a special modification which has the approval of this Committee. In building societies there are just over 2,000,000 shareholders, while there are 8,000,000 shareholders in co-operative societies. The share capital of building societies is £480,000,000. The share capital of cooperative societies is approximately I£150,000,000. Although the shareholders of the building societies number only one-fourth of those of co-operative societies their share capital is immeasurably greater. The average capital holding of a shareholder in a building society is £240, and the round figure of interest which the individual member draws is in the neighbourhood of L£8 a year. The average shareholding of members of co-operative societies is £18, and the average share interest drawn works out at 15s.

It is this small sum of interest per member—but which in the aggregate case of the millions of members amounts to a large sum—that is added together for the purpose of the National Defence Contribution charge, and which throws the whole Income Tax payment out of proportion. I say that that is grossly unfair. I am confident that there is not a Member of the Committee who would allow that to operate in any other form of business, and, if it were not for the prejudice developed in this direction, it would not be allowed in this case. When we come to the operation of National Defence Contribution in regard to the building societies, the Committee should remember that it was the original intention of the Chancellor to apply the full charge. What happened? It will be observed that the trade of the building society is in capital advances entirely. The whole of that £480,000,000, therefore, constituted, as it were, the trade of the building societies. The sum they would have to pay under National Defence Contribution would probably have amounted to £750,000 a year—an impossible and inequitable charge on building societies. I want to make it perfectly plain that cooperative opinion fully agrees with the special arrangement the Chancellor made for building societies. We would, in fact, go further and say that if public utility companies are entirely exempt, building societies should be. That is not my point for the moment.

When you come to depositors, cash loan holders, of building societies, you find that the value of their loans amounts to £141,000,000. I would ask the Committee what would have been the position if the figures had been reversed, and the share capital had been £141,000,000 as against loans of £480,000,000? The problem would not have arisen in regard to building societies. It is this problem of share interest which distorts the whole thing. That vast sum which the Chancellor originally proposed to collect from building societies confronted them with this problem. They had only three ways of dealign with it: either to raise the guaranteed interest rate to borrowers, to take the money out of reserve, or to reduce the interest rate to depositors. If they had adopted the first, it would have had a most adverse effect on the incentive to people to purchase their own houses. The second was impossible; the sum was so large that it would have made them financially unsound in a very short period. The third would have put them out of the market so far as attracting capital to that particular form of investment was concerned. The Chancellor was wise to recognise this and make that special arrangement. But if the Committee agree with the wisdom of that decision, as they do, it removes any possibility of hon. Members disagreeing with the proposal I am now putting forward, because our case rests not only on the same facts as the case of the building societies but on wider, stronger and more comprehensive facts.

Both in the case of building societies and of public utility societies, the person who invests capital does so in order to make a profit out of providing a service to another body of persons. In the case of shareholders of co-operative societies, they do not make their surplus through trading with another body of people; it arises through trading with themselves. Again, if the Chancellor admits the exemption to public utility societies and a modification in regard to building societies, he has not the slightest ground for refusing our contention with regard to co-operative societies. If you take the shareholders of building societies, more than 80 per cent. pay Income Tax as individuals, whereas more than 80 per cent. of the members of co-operative societies do not pay Income Tax, because they are too poor.

We advanced in the Debates last year numerous and specific examples of companies that one would assume came within the definition of public utilities, to indicate the considerable profits which these organisations made and to prove, by the dimensions of those profits, that service to the public was not their primary object and consideration. We obtained no information from the Chancellor last year as to what type of organisation would come under this heading. I would invite the Chancellor definitely to state what is the test applied to transport, electricity or gas companies, or water boards to see whether they come within this category. Then we can judge this problem more from the angle of equity. If one tests the profits of almost all these types of company that the public generally classify as public utilities, it will be found that their profits vary between 7 per cent. and 20 per cent.; and they are in the habit of distributing periodically large cash and capital bonuses. Will the Chancellor please state what test the Treasury apply, so that one may not make public statements that are not founded on fact in discussing this matter?

May I bring my remarks to a close by putting a number of further points to the Chancellor? On what ground is he justifying the exemption of the whole category of smaller traders that represent a very powerful competitive element in the distributive trades, whose profits may reach up to £2,000 a year? A business earning £1,800 or £1,900 a year may have a capital outlay of £100,000 to £20,000. How can the Chancellor exempt that type of business, and continue to charge National Defence Contribution to the smallest trader in the community, the individual member of the co-operative society, whose individual capital averages only £18 per member, and whose average interest drawn amounts to only 15s. a member? There must be many of our members who do not hold that amount of capital and draw that amount of interest. If the Chancellor can justify the exemption of public utility societies, which represent one of the soundest units of investment to-day, on the ground of their service to the public and limitation of interest—although their interest limitation is very high—on what grounds does he justify this continuance of taxation on co-operative societies, which operate on a limitation of interest much lower than these public utility corporations—usually operating on 3 per cent., and practically never more than 4 per cent.? If the Chancellor can justify exemption of building societies in order to enable people to buy their own houses, why is he so adamant in regard to co-operative societies, which assist people to buy their own food, clothing and furniture, to make their homes a little more comfortable to live in?

I would urge the Chancellor to accept this Clause. If he is unable to see his way to do so, I hope the Committee will press the point upon him. I would remind the Committee that the membership of the co-operative societies represents a very laudable effort on the part of the great working classes of this country to share the general sense of independence that is characteristic of our people, who have learned that, except by directing their purchases through a co-operative society, they would be unable to secure part in the ownership of the industrial and commercial life of the country, and who have discovered that the accumulation of their dividends helps them to maintain themselves during unemployment. The accumulated dividend is a valuable asset in a time of sickness, and many people anxious to give their children a better education than they themselves enjoyed use this accumulated dividend to meet some of the excessive expenditure on education that their weekly wages do not permit.

Many of them, in their efforts to buy their own houses under the intolerable conditions that prevail in the housing of the working classes to-day, fall back on these sums that they have accumulated in the co-operative societies to pay the very heavy mortgage interest rates, and many of them find this accumulation valuable to meet their rates to the local authorities. It assists also in the payment of insurance premiums, and at times, when heavy items fall in replenishing the family boots, clothing, and furniture, the co-operative society, above any other type of commercial organisation, helps the millions to meet this need. When you compare the service of public utility and building societies, professional bodies, and others, I say there is no comparison with the social service and value of the co-operative movement, and if this Committee is not lost to all sense of justice, it will accept this Clause.

7.33 P.m.

Sir P. Hannon

Before the Chancellor replies to the very interesting and indeed exhaustive speech which has been made by the hon. Member for East Ham, South (Mr. Barnes), may I, as an old cooperator, the oldest co-operator in this House, offer a few comments on the case which he has submitted? Is the Committee to understand that the Co-operative movement as it exists to-day is to make no contribution at all to national defence? Is it the argument of the hon. Member that because the Co-operative movement is trading on the lines of mutuality, it is not to take its part in making the necessary financial provision for the defence and security of the people of this country in the future? The hon. Gentleman would indicate to the Committee that the trading side of the Co-operative movement is a sort of sacrosanct section of the community to whom the ordinary obligation of contributing to the defence of the country must not apply. That seems to me to be a very hopeless case to put before this Committee in the present exigencies of the State.

But the point that I would like to submit is this, that the Co-operative movement, as it exists and carries on its trading activities to-day, has departed very far from the original idea of the cooperators who were responsible for the foundation of the movement in the past. The Co-operative movement to-day is a trading community, in actual, direct, and positive day-to-day competition with masses of small traders all over the country. Take the great co-operative society in my own city of Birmingham, a most successful body, prosecuting its activities over many years on the most carefully considered business lines, acquiring large blocks of property from month to month, and exercising all the rights and privileges and taking advantage of all the opportunities of the ordinary business corporation in competition with the private trader outside. I do not take any exception to that, but what I take exception to is that if co-operative societies depart from the old principle of regulating their trade among their own members, and go into competition outside, taking pages of the daily papers to advertise the advantages that they can present in competition with the private trader of this country, who, after all, deserves some consideration from this House of Commons, I think the Committee ought to be very careful before it allows itself to accept a proposition of this kind.

There is no real comparison between the position of the building societies and that of the co-operative societies. If the Co-operative movement in this country were conducted on the original principles upon which its founders stood, men with whom I co-operated in my younger days, men like George Jacob Hoiyoake., Vansittart Neale, Owen Greening, and others, Members who were in this House in the earlier years when I was here, we should all agree that exceptional consideration should be extended to it in relation to the imposition of national taxation, but the Co-operative movement today is a great business concern, competing with every private trader in the country, sending its ships overseas, acquiring great harbour facilities, controlling rates on railways. The Co-operative Wholesale Society in Manchester is one of the most influential bodies in this country, not merely from the economic standpoint, but from the political standpoint also, and I think this Committee ought to be extremely careful in lending its authority to the acceptance of a Clause of this kind, which would place the Co-operative movement as a whole in a position of exceptional preference in relation to the collection of the national revenue. Members of the Co-operative movement have the same obligation, whether they are shareholding to the extent of X18 or whatever it may be, to take their part in sustaining the national revenue and providing for the national defence as any other citizen of this country, and I think it almost amounts to sheer impertinence for the Co-operative movement to come here and ask to exempted from the general obligation which applies to every citizen of this country to take his part in defending his country in the difficult circumstances in which we find ourselves to-day

7.39 p.m.

Sir J. Simon

I am glad that the Committee should have had the vigorous speech from the old co-operator who has just sat down. I will not say that I stand as a neutral between the rival parties in this matter, but I would like to state two or three considerations which I think will really show the Committee that they should not exempt from the National Defence Contribution the cooperative societies and the Co-operative movement. The hon. Member for East Ham, South (Mr. Barnes) has made, as he always makes on this subject, an extremely well-composed and well-informed speech. He has assembled the points, but he will not think any the worse of me if I say that I think he has assembled them rather from his point of view.

May I first get rid of what I have always thought to be a rather ridiculous hare? Certain observations have been made about an opinion which I gave in 1920 as to whether or not the proceeds or surplus of a co-operative society would be liable to, I think it was, Corporation Profits Duty. Although I would not say it of every legal opinion that I have given, that particular legal opinion was, I believe, perfectly right. There is no doubt that I was quite right when I said, when asked in 192o, "Do you consider that the profits or proceeds of our co-operative societies are caught by that tax?" that I did not think that they were so caught. The argument was that any surplus resulting from "mutuality trading," as my hon. Friend the Member for Moseley (Sir P. Hannon) called it, in the sense that all the members of the body were trading with one another, was not what are called profits for the purposes of the Corporation Profits Tax. I do not wish to withdraw from that view in the least, and if I was to be remembered by nothing else than by that opinion, I should be content that that opinion was correct. But it was not for me or for anyone else to prophesy what, 13 years later, would be done by the Imperial Parliament, and 13 years later, in the Finance Act of 1933, Parliament enacted this Section: In the application to any company or society of any provision or rule relating to profits or gains… any reference to profits or gains shall be deemed to include a reference to a profit or surplus arising from transactions of the company or society with its members which would be included in profits or gains for the purposes of that provision or rule if those transactions were transactions with non-members. I think we shall all say that the moment that Parliament enacted that in 1933, we had this situation, that things which till then were not profits, because they were the proceeds of a co-operative society, became by the very language of Parliament profits for the purpose of Income Tax. Whoever may be to blame for that, a poor, miserable, struggling lawyer, writing an opinion in 19200, cannot be blamed for it at all.

Mr. Alexander

The right hon. Gentleman was also a Minister in the Government that made the alteration. In the opinion that the right hon. Gentleman gave to the Co-operative movement in 1920, it is true that he stated the legal position, but he also argued that the proceeds of co-operative societies could not on any rational ground be said to create a taxable surplus.

Sir J. Simon

That is perfectly right, but we must pay due respect to the enactments of the Imperial Legislature, which in 1933 proceeded to say that, for purposes of Income Tax, the surplus, as it was called, of a co-operative society should count as part of the taxable profits of the society. And I must say, since the right hon. Gentleman interposed just now, that if you consider the common sense of the position, it would be, I think rather remarkable to take three great enterprises which have been mentioned as all sharing in a common public service, that is to say, Messrs. Joseph Rank and Company, Messrs. Spillers, and the Co-operative Wholesale Society, three great bodies which lent their aid on equal terms to help the Government in getting food supplies—and we are all grateful to all of them—I think it would be very remarkable if, as a matter of fact, when we all have to make our contribution, having regard to our resources and abilities, we were to say that two of those bodies ought to make contributions to the national defence, but that the third of them should not. That would be against every possible judgment of common sense. I quite agree with the view taken. You have drawn a distinction, and I have always admitted that on that basis it is quite honest and that, if you use strict reasoning, it is perfectly arguable. But we are a fair people in this country—we do not want to victimise—and on the whole we thought it right and reasonable to ask for a contribution of Income Tax by co-operative societies. So much for that.

Will the Committee please observe what follows from that? You would almost have supposed that as the National Defence Contribution is now on the Statute Book, having been enacted last year in the Finance Act, you might think that there was a provision which said that the co-operative societies should also, and especially, be made to pay National Defence Contribution. There is not a word about them in the Statute from beginning to end. They are not mentioned. The reason is that the National Defence Contribution was levied by Parliament upon profits arising from a trade or business in each accounting period, such profits to be computed on Income Tax principles. Since in 1933 Parliament laid down that the surplus of co-operative societies shall come within the conception of profit, it follows that when you got the new tax put upon profit arising from a trade or business computed on the Income Tax principle, automatically co-operative societies had their contribution to make. Therefore, the hon. Gentleman is press- ing upon us that we should insert in our legislation about National Defence Contribution a special clause which would specially exempt people who automatically fall under it.

Mr. Alexander

That is perfectly true.

Sir J. Simon

That, I think, is the real answer to the question. Is the surplus of the co-operative societies to be regarded as profit? The answer is, that by the deliberate act of Parliament in 1933, it undoubtedly is. The next question which arises is one which the hon. Gentleman also developed last year, when I did my best to deal with it. He has repeated it., which is quite natural, and I must, therefore, repeat my explanation. He says that the National Defence Contribution calls for a contribution from co-operative societies on an exceptional principle which really results in their having to bear a larger burden than they ought to bear. In order to understand this point it is necessary to give an example, and I am going to give the same example as that which I gave last year. With great respect to the hon. Gentleman, whose knowledge of the subject I very sincerely acknowledge, this is really all based on a confusion.

Let us suppose that there is a successful co-operative society, and for the purposes of what I am saying I speak of profits, as it is no good continually using a different phrase. Suppose a co-operative society during a given period makes £I00,000 profit, and suppose it distributes, say, £60,000 of that sum as interest on share capital to its shareholders, and it keeps undistributed the balance, namely,£40,000. As the hon. Gentleman pointed out just now, quite correctly, the Income Tax to be applied to that co-operative society would be applied in this way. As far as drawing the cheque is concerned, the co-operative society would pay Income Tax on £40,000, and perhaps it is more convenient to take 5s. in the £— though unfortunately that is not the rate at the moment—because it is an easier calculation to make. The cheque in respect of Income Tax at 5s. in the £ on £40,000 would be £10,000. Now says the hon. Gentleman "Yes, but the National Defence Contribution of the cooperative society may be more than one-fifth." The reason of the Income Tax is this; and it is to be found in the Act of 1933. That Act provides that the figure on which the co-operative society has to be charged is £100,000, but it is to be treated as having met the claims of the Revenue if it first distributes a portion of that surplus to its shareholders, that is, £60,000, and draws a cheque in respect of tax on the balance.

An exactly similar thing happens in the case of the ordinary limited company. Take a limited company which makes £100,000 profit. It also is charged Income Tax on the £100,000, which would be £25,000, but if it declares a dividend and distributes £60,000 out of the £100,000 to its shareholders, it deducts from the shareholder the 5s. in the for Income Tax. To that extent it recoups itself, and what the limited company itself bears in tax is, in the end, tax on what it does not distribute. That is to say, it is taxed on £40,000 which is £10,000. The two cases are exactly the same in the result. The difference is a difference of machinery, and it is due, as the hon. Gentleman said, quite justly, to the fact that it was realised that a very large number of the members of co-operative societies are poor people who even if they bear the tax in the first instance get it back. There are a great many limited companies who have also shareholders who are poor people, and there is no difference at all between the burden of the Income Tax on a limited company and the burden of Income Tax on a co-operative society. The figures are the same.

The real criticism, if it is a criticism, as I pointed out last year, of National Defence Contribution—and with great respect to the hon. Gentleman, that is not the point which he urged—is that the tax simply does not pay any attention to the question as to how many fractions the money to be distributed is divided into, or whether the people who get the money are small shareholders or small co-operators or persons above or below the Income Tax limit. It really is a complete delusion to suppose that something special is being done in the case of co-operative societies. Except as a mere matter of machinery, the arrangement since 1933 is as I have described it. The result is that if we accept the view taken in 1933 we must regard them as making profits, and if we accept the provision of last year that National Defence Contribution is a tax upon trading profits made by enterprises in this country, there really is no justification at all for claiming that co-operative societies should be excluded from that tax.

Co-operative societies enjoy, as they are perfectly entitled to, the concessions incorporated in the National Defence Contribution in various respects. For example, the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) knows very well—and this is very important—that National Defence Contribution does not seek, generally speaking, to exact any contribution from interest on investments. It addresses itself to trading profits, strictly so called. If the Imperial Chemical Industries, or Unilever, or any ordinary trading company, the butcher, baker or candlestick-maker, have investments, as many of them have, money which they have preserved and put away, and are receiving year after year income from those investments, the National Defence Contribution does not ask for any contribution; neither does it in the case of the Co-operative Society. That, in the case of the great co-operative societies—the great central one, for example—is very important. Take another example. In the course of trade many enterprises have to borrow by debentures or otherwise, and they have to find somehow or other out of their gross profits the interest to be paid on the loan. That is true, I suppose, of many private companies, and, no doubt, of co-operative societies. National Defence Contribution does not take any account at all of that portion of income needed for the purpose of paying interest on loans. The co-operative society is entitled to deduct that before the contribution begins to be paid. That, again, is exactly analagous to what is done in the case of the ordinary trader.

I have not approached this matter with any sort of prejudice against the co-operative movement, but rather the opposite, for I have a great admiration for the services rendered by the co-operative society, which is an absolutely essential institution in many parts of the country, but I really cannot bring myself to believe that there is any good case to be made for exempting co-operative societies from a contribution to the National Defence Contribution. The hon. Gentleman made a reference, which was quite natural, though it is a little difficult for me to deal with it under the rules of Order, in which he proceeded to travel further afield and pointed to certain other people whom he thought got better terms. I will take one instance to which he referred. He said—and this was also mentioned last year—that the public utility companies have been given an exemption from National Defence Contribution, and he urged that in one sense the great movement for which he was speaking is also rendering a public service, which I am not disposed to deny. He challenged me to give a definition of public utility companies. Last year I remember very well that the right hon. Gentleman the Member for Hillsborough called attention to the fact that there were some instances within the public utility definition of enterprises which, though they wire serving, no doubt, a definite public purpose, none the less made a pretty tidy profit. He was quite right. I had those instances looked at, and I exercised my wits as well as I could to see what I could do, and I hope that when we have the opportunity of legislation, such as an Electricity Bill, or whatever it may be, we shall put upon them much stricter restrictions in cases where they are too lax.

But I cannot proceed on any other principle than that, in enacting this national contribution principle, we voluntarily decided to exempt companies where they are statutory undertakings consisting, wholly or mainly in the United Kingdom or the Dominions, of certain services, such as the supply of water, gas, electricity, and so forth. I do not think that it would be possible for the House of Commons to take out individual cases and say, "It. is true you are within the definition, but I will tax you." You must proceed on some definition, and the definition here is the best we can make, though I confess that some of them are escaping when you might reasonably expect them to come in; that is because definitions sometimes break down on being interpreted. But the principle of the thing is as plain as possible. The principle is that where you have a public service company rendering public services in supplying water, gas, or electricity, where there are provisions which limit profits or charges, you are dealign with a special case rather different from the trader who is enter- prising and endeavouring to carry on his business as successfully as he can.

I hope that I have made a full and fair statement, and I would urge the Committee to consider whether we can now adopt a Clause which would exclude co-operative societies from National Defence Contribution. I submit that that would not be a reasonable thing to do. The patriotism of these people nobody questions. It is perfectly true that the Co-operative movement is rendering very useful service in all parts of the country, but I think that the contribution they have been asked to make is a fair one, and I cannot but believe that on the broadest public grounds their members would be willing to make the contribution, and that Parliament should ask them to make it.

8.1 p.m.

Mr. Alexander

I have listened with great care to the Chancellor of the Exchequer's answer to the case for the new Clause which was made by my hon. Friend the Member for East Ham, South (Mr. Barnes). The right hon. Gentleman has completely failed to meet the main points in my hon. Friend's speech. In the first place, let us deal with the question of the legal opinion about which so much has been said to the Chancellor of the Exchequer in his presence and in his absence during the last five or six years. That legal opinion was given by the Chancellor of the Exchequer on the principle of mutuality in regard to Income Tax law in 1920. It was given not merely in regard to Income Tax law as it existed prior to the Finance Act of 1920, but also in relation to the Act of 1920 when, for the first time, by the imposition of the Corporation Profits Tax the principle of the exemption of mutual surpluses was encroached upon.

The outstanding thing about that opinion was that the Chancellor of the Exchequer, with his usual facility in the use of words and ideas, went out of his way to argue not merely the legal basis of his judgment, but he stated that there was no rational ground in the actual process of mutual association for producing a profit as a profit. It is peculiarly interesting to me, in view of that statement, that in the opinion that he has enunciated to-night he advances as an argument of what is a profit something which is entirely new. Instead of its being related as it has always been in the past, to what is a profit on capital, he now relates it to an entirely new principle, and that is, what is to be regarded as profit for taxation purposes in the case of a co-operative society. Our real complaint about the Act of 1933 was that it changed not only what was the existing law, as described in the well known case which went to the Courts, but the law in actual practice.

I come much nearer to the Chancellor of the Exchequer's real intellectual view of the situation when I follow more closely his record in dealign with this matter in the House of Commons. I cannot find in relation to his votes on the mutual principle anything on which he could be indicted as being different in intellectual outlook to myself, until he became Chancellor of the Exchequer. Take the vote in 1933. The Chancellor of the Exchequer may say that in 1933 he was so busy that he could not spare time to come and vote, but I regard it as highly significant that in the crucial Division in 1933 he did not bother to vote. Therefore, if he is entitled to claim absence, I am entitled to claim that the expression of his intellectual judgment of years before would not allow him, conscientiously, to come and assist his Government to put this penal imposition upon millions of working-class members of co-operative societies in this country. However, that decision was made, and we find him, in a position of national emergency, putting an increasing imposition upon us, and having to get up in the House of Commons and cast overboard his surplus cargo—the great judgment that he gave to our movement in 1920.

Because of the excellent arguments put forward by my hon. Friend, I shall not take up too much of the time of the Committee, but there are a few other things that I must say in reply to the Chancellor of the Exchequer. He referred to the growth and the position now achieved by the co-operative movement and to the fact that in the very serious national provision which has to be made to meet what may be an impending danger, the co-operative movement is to be found side by side with great concerns, like Rank's and Spiller's, willing and able to serve the country. What has that to do with the question we are discussing to-night? It certainly disposes entirely of the contention of the hon. Member for the Moseley Division of Birmingham (Sir P. Hannon), who seemed to indicate that we were wishing to escape our real responsibilities to the State. That is not so. The Chancellor of the Exchequer knows that when it is a question of helping in any national emergency the movement I represent is always willing to help.

Sir J. Simon

I am afraid that I want a money contribution also.

Mr. Alexander

Let us look at the effect of the money contribution. In the case of the savings which are affected by the operation of mutuality, again and again the Chancellor of the Exchequer is bound to admit, if he will only examine the evidence that I gave before the Committee in 1932–33, that the ultimate effect of the operation of the mutual principle is to release from the worst forms of poverty tens of thousands of people who would otherwise be a partial charge upon the Exchequer, and certainly a charge upon the local rates. Thereby we are always making a substantial contribution to the revenue of the State. In the second place, there are large numbers of our shareholders and members who, by their mutuality, create the first little parcel of actual saving which they can put away, which brings them as individuals much more rapidly into the contributory field of taxation revenue than would otherwise be the case but for the exercise of the mutual principle.

Because we put forward an argument for the exemption of mutuality, it is beside the mark for the hon. Member for the Moseley Division to suggest that we are not patriotic and not making our proper contribution to the State. The real fact is that the whole theory of Income Tax is that it is an individual tax. It is not a tax upon corporate funds. It is true, as the Chancellor of the Exchequer said, that if you make £100,000 profit in a public company and you distribute only £60,000 in interest upon the shares, you pay tax upon the sum put to reserve, but over and over again that is recovered. Again and again these companies escape the total charge of Income Tax, and when it comes to the distribution of the huge cash reserves they very nicely escape large amounts of Surtax which they would have to pay to the State.

The Chancellor of the Exchequer has not been sufficiently comprehensive in his answer, and I am sure that on the moral ground as well as the technical and legal ground he will need to look into the matter again. Take his case about the Act of 1933 as applied to co-operative societies and its treatment of share interest. Do not let us argue as to what the Act does or does not do. Let us see how the Chancellor of the Exchequer acts. He says that the share and loan interest of industrial and provident societies shall be deducted after you have assessed the whole of the aggregate income of the society for tax. His case was that a large number of shareholders would be so poor that they would not be liable to Income Tax, and therefore it would not only be better for them but cheaper for the revenue to allow that to be deducted in that way. If that was a proper assessment, in justice, in relation to the individual shareholders of co-operative societies in 1933, why is it not an assessment, in justice, to individual shareholders of co-operative societies in regard to National Defence?

It is no answer to say to us that in the case of Income Tax the small shareholder of a company also is put in this position. The point is that in respect of the Income Tax treatment of co-operative shareholders under the Act of 1933 the Exchequer make this special provision. I know that the Chancellor of the Exchequer argues that the net result is about the same in his treatment of a company arid in his treatment of an industrial and provident society for Income Tax. That is not wholly the case. It is true that we are allowed an Income Tax deduction in respect of share interest, but we are not treated like a building society, because every one of our shareholders who is liable to Income Tax has to pay separately on the share interest he receives. In the case of a company the shareholders do not pay twice.

Sir J. Simon

There is a little difference of machinery, but I do not think it is more than that. Take a limited company. When I have distributed to me my share of the interest due to me, I get it less tax. Then I am left to get the tax back if I am able to prove that I come within the proper limits of exemption. In that case I do not have to bear the tax, but if I am within the taxable limit then I have to bear it. Exactly the same result is reached in connection with the cooperative society but by the reverse process. You begin by giving each shareholder his share interest without having deducted any tax. Suppose there is a shareholder who comes within the Income Tax limits, then, as the right hon. Gentleman correctly says, there has to be a separate assessment on him for Income Tax. Therefore, we arrive at the same result in the end. In the first case you start by deducting the tax and getting it back again if you are not within the Income Tax limit, and in the second case you give the interest gross and you assess the recipient separately if necessary.

Mr. Alexander

We understand the machinery just as well as the right hon. Gentleman. The Chancellor of the Exchequer was very anxious to say that my hon. Friend the Member for East Ham, South put up a good argument from his point of view. The Chancellor of the Exchequer has put up a good argument from his own point of view. But what happens is this: that the Government use this special type of machinery in respect of co-operative societies in order to save money in collection, they do it deliberately, and leave co-operative societies to pay the tax upon the whole of the balance although the individual shareholder in the society has to pay direct. If the Government wanted us to be assessed for Income Tax under the 1933 Act—we do not concede the principle at all—then in fairness they ought to allow us to deduct the tax—because we are taxed on reserves—from everyone of our shareholders however small the amount may be. But not for the sake of justice, but mainly for the convenience and economy of the Treasury, they adopt the other method. If the Government decide that this is just treatment, we claim that we should not be worse off in respect of the machinery for National Defence Contribution than we are in respect of Income Tax. That is my general answer to the case put by the Chancellor of the Exchequer in reply to my hon. Friend the Member for East Ham, South.

I am very concerned indeed that the Chancellor has ridden off in the way he has on the points put by my hon. Friend with regard to public utility societies and building societies. In the first place, the Chancellor of the Exchequer did not make any real answer to the case put in regard to building societies. We have made it plain that we are not critical of the wisdom of the action of the Chancellor of the Exchequer in giving special treatment to building societies, but it must be observed that the average depositor and holder of shares in a building society is a much wealthier person than the average member of a co-operative society, and that in a number of cases the revenue is robbed by wealthy families having three and four, and seven or 10 or a dozen holdings in a building society in order that their total income may pay at only half the Income Tax rate. It is only in that way that you keep up the average of the shareholding figures in building societies. But the Government have deliberately gone out of their way to scale down the National Defence Contribution in respect of building societies. Why? Not for the sake of the poor people who are shareholders, but in order that one of the alternatives mentioned by my hon. Friend shall not be taxed, and that is the reduction of the rate of share interest to these wealthy depositors in building societies. You give no such treatment to the 8,000,000 shareholders in industrial and provident societies, with only an average holding of f £18.

In the second place the Chancellor of the Exchequer has ridden off on the case put in regard to public utility societies. What case is there at all for the exemption of public utility societies? If they are making the ordinary provision of the necessities of life for poor people day after day, electricity, water, transport, what is there of greater virtue about that than when co-operative societies provide tea and sugar and bacon and bread and milk? These are matters of daily necessities as much as other things. The only thing is that this great country in which we live has not gone as far forward in recognising the need for collective provision for these other commodities as they have in the case of electricity, water and transport. Yet you see behind the financial provisions of these public utility societies a very sound investment for the ordinary profit-making investor, and you exempt them from this extra imposition. Why? I am certain that we have not had the vestige of an answer, and if there is an answer I think we should have it before this Debate finishes.

I apologise to my hon. Friends for having intervened perhaps too early, but I wanted to answer the Chancellor of the Exchequer while the points were in my mind. I feel myself far more convinced and much more determined in the rightness of our case as the result of the Debate, as far as this has gone, than I did last year, and I hope that my hon. Friends and fellow members throughout the country will stick to this job until we defeat this injustice.

8.22 p.m.

Sir J. Mellor

I feel that there is every reason why co-operative societies should pay their full share of taxation in general and of the National Defence Contribution in particular. One reason is that it is a great sheltered industry. It is sheltered in the sense that it is a distributing trade in the main part, and, therefore, sheltered from the difficulties which attend export businesses, and also is not so much subject to the fluctuation of prices which hits so hard and so often the primary producer.

Mr. James Griffiths

Will the hon. Member develop that argument and show in what way co-operative societies are sheltered, and also whether public utility societies are not sheltered?

Sir J. Mellor

That does not alter my argument in the least. Everyone recognises as a fact that primary producers are much more liable to be hit by fluctuations in prices than the distributive trades. Also, this is a very large concern. We have been told by the hon. Member for East Ham South (Mr. Barnes), who moved the Amendment, that the share capital of the co-operative societies amounts to £150,000,000. I do not know how much one ought to add to that in respect of loan capital in order to arrive at the amount of capital which is employed in the co-operative society movement generally. There is also this point, that as compared with other businesses, as compared with private enterprises, cooperative societies pay a very small amount of tax in proportion to their turnover and, therefore, I feel it is right that they should bear the taxation which is at present imposed upon them.

Mr. Alexander

Can the hon. Member give me a single instance in which taxation either for revenue purposes or for National Defence Contribution has ever been based upon turnover?

Sir J. Mellor

I do not suggest that it has been based upon turnover. I am pointing out that as the "divi" is treated, and properly treated, as a trade discount, the amount of profits in relation to the turnover which are subject to taxation in the case of co-operative societies, is very small indeed as compared with the position of private companies. My next point is that the Chancellor of the Exchequer not only needs to collect a fair proportion of taxation from the co-operative societies, but also to protect the Revenue. If the co-operative societies were put in a relatively privileged position, they would have an unfair advantage over competitive private enterprise, and one would expect the ultimate result to be that private enterprise would tend to be driven out of business. Hon. Members on my side of the Committee believe in the maintenance of private enterprise, but at the same time we recognise that cooperative societies are performing a very valuable function in this country. We recognise that they should have equality, but we do not see why they should have more than equality.

Therefore, I say that the Chancellor of the Exchequer is perfectly right in requiring them to pay their full share of taxation in order to protect the Revenue, because if we allowed a privileged form of enterprise to drive out of business a form of enterprise which was much more heavily taxed, then the Chancellor would naturally lose revenue to an increasing extent every year. I do not think that hon. Members should press academic theory too far in their arguments on behalf of co-operative societies. In the Finance Bill we are passing retrospective legislation, which is contrary to all academic theory, in order, in some cases, to prevent evasion, where it is unquestionably right, but also, as was discussed yesterday, in certain other cases where it is much more doubtful. I think hon. Members ought to look at the realities of the position. I am certain that if a co-operative method had been used by, say, a certain number of rich men for the purpose of the evasion of taxation, hon. Members of the Opposition would have been the very first to say that we must not adhere too strictly to an academic theory of legislation, but must immediately set to work to put a stop to it.

Mr. Alexander

I would point out to the hon. Baronet that my hon. Friend the Member for South East Ham (Mr. Barnes) introduced a Bill in 1929 which was aimed at preventing the co-operative principle being exploited by such misleading of the public.

Sir J. Mellor

I see no objection to that. I feel that the theory of mutuality ought not to be pushed too far. I have already pointed out that co-operative societies have a very great advantage in their "divi" being treated as a trade discount, because it absorbs the great bulk of their profits before they become assessable to taxation. Therefore, I consider that the co-operative societies ought to be content to be on fair competitive terms with private enterprise. If they are content with that position, I am sure they will enjoy the good will of the country and of private enterprise itself.

8.29 p.m.

Mr. Ridley

I am grateful to the hon. Baronet the Member for Tamworth (Sir J. Mellor) for having addressed the Committee, since thet enables me to intervene with less trepidation than would otherwise have been the case. Most hon. Members on this side would hesitate before rising to address the Committee after the powerful speech made by my right hon. Friend the Member for Hillsborough (Mr. Alexander). The Committee has heard a very remarkable speech from the Chancellor of the Exchequer, not, as I hope to show, the first remarkable speech which the right hon. Gentleman has made in connection with this proposition. The Chancellor said that if we accepted the decision that was taken in 1933, we could not to-night accept the new Clause now under discussion. I am a tyro in these matters, but I thought that if there was one person in the Committee who did not accept the decision of 1933, it was the Chancellor. If I understand the position rightly, the 1933 decision extended the area to which Income Tax was applied. If the Chancellor's case to-night were that the National Defence Contribution was being applied to the whole of the area covered by Income Tax under the 1933 decision, he would have a stronger case than he has so far presented; but so far from accepting—

Sir J. Simon

I interrupt the hon. Gentleman because I am sure that he is putting a difficulty which he really feels, and I will try to remove it. If he will look at the provisions of the Finance Act of last year concerning the National Defence Contribution, he will see this: For the purpose of the National Defence Contribution, the profits arising from a trade or business… shall be so computed on Income Tax principles. That is the principle of 1933.

Mr. Ridley

Surely, the 1933 decision added to the area to which Income Tax was applied, and if the National Defence Contribution was being applied to the whole of that area as added to by the 1933 decision, the right hon. Gentleman would have had a more justifiable case to submit to the Committee than he has now. But so far from accepting that decision, he goes out of his way to provide a very considerable number of exceptions to it. If the 1933 decision, considered in the light of the circumstances of the Finance Act of last year and the Clause before the Committee to-night, is seen to be an unfair decision, surely the Committee is not to be guilty of that sort of consistency which Emerson described as the hobgoblin of little minds.

My hon. Friend the Member for South East Ham (Mr. Barnes) inquired as to what are public utility companies within the definition of the Finance Act of last year. I should like to ask what are professions within the definition of last year's Finance Act. I can understand a grocer complaining because an estate agent next door who is making a very considerable income is not required to bear the burden of the National Defence Contribution. I can understand his complaining because prosperous and opulent members of the profession which the right hon. Gentleman himself adorns do not have to bear the burden of patriotism known as the National Defence Contribution. I should like to know how far this exception goes in the matter of professions. Does it extend to great singers and great pugilists? To whom does the exception apply? In any case, it is applied to doctors, lawyers, public utility companies and building societies, thus destroying altogether the contention on which the Chancellor builds his case, that we are bound to stand by the 1933 decision.

As I have said, this is not the first remarkable speech which the Chancellor has made on this subject. My general feeling after the discussions that took place last year on this matter was that the tax, applied to the co-operative movement, was an unfair tax. That general feeling has been strengthened by a further attempt to understand the problem, especially in the light of the case made by the right hon. Gentleman himself last year. I have attempted to find some justification for that case in the language which the Chancellor used last year and in the cases which he cited, but I am sorry that I cannot find any. The more I examine the problem, the more its unfairness becomes obvious even to the point of being monstrous. Stripped of all complexities, the simple issue is, what should be regarded as profit for the purposes of this form of taxation? The Chancellor has made a comparison, which my right hon. Friend has shown not to be justifiable, in seeking to link two great limited liability companies with the Co-operative Wholesale Society. The Chancellor made a similar, and as I think, a non-relevant comparison last year. Speaking in Committee on 15th July the Chancellor in imagination strolled down a village street in which were situated the general businesses of Messrs. X and Company, of Messrs. Y X in partnership, and the Cooperative Society. He suggested, with some show of moral indignation, that to apply the tax to Messrs. X and Company and to Messrs. Y X in partnership but not to the Co-operative Society would be very unfair.

I often find it difficult to believe that the Chancellor persuades himself by the employment of his own arguments. If he does he must in that instance have been in his most persuasive mood to persuade himself that there was any taxable similarity between those three undertakings. Take X and Company. It is a public company. Its shares are on the Stock Exchange. They are bought by all sorts of people—by people who have no knowledge of grocery or of drapery, who are pure investors and who make a profit merely by lending or investing money. Most likely they spend none of their money with the firm in which their investments are made, either because they despise the goods which the firm sells, or because the firm has not a branch in Nice or Cannes. That is sheer profit, which is properly taxable. The investment too has propably been induced, if the Chancellor and I have the same firm in mind, by a remarkable financial experience in which, by selling inferior goods at superior prices and employing workpeople under unsatisfactory conditions, large profits have been made, high dividends paid and bonus shares distributed.

None of these things is characteristic of the co-operative society, and therefore no comparison in that case can be sustained. I wander a little further with the right hon. Gentleman down the village street and examine the partnership of Mr. Y and Mr. X. It is very improbable that they will make a profit large enough to rank for tax, especially if they have managed to employ themselves with each other as joint managers at salaries in the fixing of which care is taken to avoid tax. Or, they may be absentee partners, far away in Arcady, not soiling their fingers with currants or calico. Again, there is no similarity between such a partnership and the ordinary co-operative society. The co-operative society is in the main a working-class community very frequently a community of low wage-earners or perhaps a community many of whom are not wage-earners at all. Many of them may be unemployed in mining areas or in the areas covered by the cotton industry of Lancashire. Some two or three thousand of these people band themselves together in a co-operative society. What for? Is it for Stock Exchange speculation like X and Company? Not at all. It is in order to make their meagre incomes provide a little more cover for life's necessities than would be possible either with X and Company or the Y and X partnership.

This, I venture to suggest, is the best kind of thrift and is to be encouraged and not to be exploited. But there are dividends, a word which in this connection I feel tends to confusion. Those dividends do not arise from investments but from purchases. They are distributed, but they are spent and re-spent in hundreds of cases long before that. They are spent over and over again, so to speak, in a grim kind of speculation—speculation as to how far they will go and how much they will provide. Will the dividend provide a pair of boots for young John? Will it make a dress for mother? Will it buy a new carpet or a new rug? Will it replace worn-out sheets or unusable saucepans? Will it provide a ton of coal for the winter? How far will the dividend provide cover for all those grim necessities? It is a safe assumption and a very important assumption too, in my view, that almost every halfpenny of the co-operative dividend is immediately spent again with the cooperative society.

It is that kind of cash purchasing power which is the basis of all good trade and which I submit we limit at our peril. But the Chancellor seeks to limit it, and here again, as in the case of the Tea Duty, he goes to the poorest of our community and pinches the barest necessities of our people. If the Chancellor urges that for the individual the tax cannot amount to more than a shilling or two, I reply that a shilling or two in households like these means much more than the most comfortable people in this Committee are able to realise. Further, the wickedness of the incidence is not only in its size but in its character. Some things are meaner by their smallness than by their enormity, and here again, as in the case of the Tea Duty, I say the Chancellor has stooped very low indeed to pick up so little from the individual. I conclude by expressing the view that the repercussions of this matter have been making themselves felt in the constituency which the right hon. Gentleman once frequented before he was sent as a wanderer on the face of the political earth in search of a safe Tory seat.

8.42 p.m.

Mr. Gallacher

The extraordinarily well-reasoned speech of the hon. Member for East Ham, South (Mr. Barnes), backed by the powerful arguments of the right hon. Gentleman the Member for Hillsborough (Mr. A. V. Alexander), has presented a case which the Chancellor of the Exchequer cannot possibly answer. He has made no attempt to answer it. I was interested, however, in the speech of the hon. Member for Moseley (Sir P. Hannon), who said that co-operators should contribute in the same way as any other citizens, and added that it was something like impertinence on the part of hon. Members on this side to put forward such a proposition as this new Clause. One can only answer by saying that only ignorance of the subject can excuse the hon. Member for accusing hon. Members on this side of impertinence. He says the co-operators should pay their contributions the same as other citizens. All right, but I challenge the Chancellor of the Exchequer with the fact that he is demanding that the co-operators should pay more than other citizens. No member of this Committee has any right to allow his prejudices to decide his conduct on this question of justice to the co-operative movement. We had an example this afternoon of what prejudice can do. We were supposed to be discussing a Bill to deal with the protection of religion in this country against foreign freethinkers, but the hon. and gallant Member in charge of the Bill got up and talked about Bolshevism—

The Deputy-Chairman

I think we had better keep to the Clause which is before the Committee.

Mr. Gallacher

I was only giving an example of how prejudice works and I do not want to see prejudice against the co-operative movement influencing the voting of Members on this question. An hon. Member behind me spoke against this new Clause, and it was obvious that his concern for private trade and capitalism, which is to be continually shored up by the Government, weighed his mind against the possibility of justice to cooperators. When the National Defence Contribution was introduced by the Prime Minister when he was Chancellor of the Exchequer, he informed us that the idea of it was to ensure that the extra profits that were being made through armaments would contribute towards the armaments expenditure. The Chancellor cannot deny that that was the idea behind it.

When the National Defence Contribution was introduced nobody dreamed that there was to be any attempt to make it a general tax applying to the mass of the people. Nobody has any such idea now, but it has become a general tax, not applying to the people as a whole, but applying to a section of the people, namely, co-operators. When the Prime Minister made his speech introducing the tax no one dreamt that the day would arrive when old age pensioners and poor workers would have to pay a share of it. That is the position we have now reached with this tax on the Co-operative movement. It is not old age pensioners and poor workers as a whole who have to pay, but only old age pensioners and poor workers who are co-operators. The Chancellor took the instance of a street in which there was a business run by X at one end and a business run by Y at the other, with a co-operative store in between. The Chancellor said that it was an extraordinary thing to suggest that X and Y should pay the tax and that the co-operative store should not. I drew attention to the absurdity of his argument on the last occasion, and it is necessary to mention it again in order to emphasise the point I am making that this tax, which was supposed to be of a particular character, has now become of a general character applying to a section of the community.

The Chancellor of the Exchequer did not face this consideration of his own argument. The Chancellor these days seems to be better at dodging arguments than facing them. X makes a profit of £1,750 and Y at the other end of the street makes a similar profit. Between them they make a profit of £3,500. I ask the Chancellor how much they pay of this tax. They pay nothing. In between there is a co-operative store which makes £3,000 profit. It pays something. In this co-operative society there may be r1,000 members who have put in their shillings, and pounds if they can spare them, and have gradually built up a little business. These members have between them, out of their trading and selling among themselves, made £3,000. They are to pay tax. The two private traders with L£3,500 profit between them will pay nothing. Is there any justice in that? Take any tenant in Glasgow or any house where there are four families, poor working-class families having a hard and desparate struggle to live. Two of the families are represented by fathers and mothers who are old age pensioners. They trade in the co-operative society, having joined with others to build up a system of mutual co-operation in order to enable them to live. According to this tax which the Chancellor has imposed on the co-operative society, the poor old age pensioners who are members of the society have to contribute to the National Defence Contribution while the other two families do not have to contribute.

Is it possible to justify taxation of that kind? Is it possible for any Member to get up and have the audacity to say that co-operative societies should pay a share? Every co-operative society in the country is involved in general taxation. All co-operators, like anybody else, pay the Tea Duty, but here is a tax which no Member of the Government can justify. The Chancellor says that he has a good deal of sympathy with the co-operative movement, but he imposes this penal tax on it. I would rather do without his sympathy if it would get rid of the tax. Let him take away the tax and we will give him back his sympathy He says that there is nothing here specially against the co-operative movement and that we will not find it mentioned in the Finance Bill. That is the trouble. We want to see it mentioned. The Chancellor can mention utility companies.

One hon. Member argued that the cooperative movement is a sheltered industry with no competition from abroad. What about electricity companies, water companies and transport companies? Are they not sheltered? Of course they are, and making loads of profit out of other people. When does the Chancellor ever make any attempt to face the arguments of the hon. Member for East Ham, South? We find utility companies mentioned—not the co-operative societies. We find building societies mentioned—not the cooperative societies. I would appeal to hon. Members opposite. I know that it is very difficult to subdue prejudice—I have seen so much of it in all directions —but here is a case which has been argued well and powerfully by the representatives of the co-operative movement in this Committee, and the Chancellor of the Exchequer has not met, and has not attempted to meet, the case.

Mr. Kirkwood

He cannot meet it.

Mr. Ga!llecher

No, he cannot meet it in his own constituency, and that is why he has become known in this House as the outstanding political refugee in this country. I challenge any opponents of this Clause—and I know that I am safe in making the challenge, because no one on the whole of the Front Bench opposite will take it up—to face either the right hon. Member for Hillsborough or the hon. Member for East Ham on any public platform and try to justify their attitude. Therefore, not in the name of the cooperative movement, although I have been a member of it all my life, but in the name of justice I ask the Committee to put an end to this attempt to penalise the co-operative movement.

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

The committee divided: Ayes, 149; Noes, 210.

Division No. 254.] AYES. [8.58 p.m.
Acland, R. T. D. (Barnstaple) Hall, G. H. (Aberdare) Parkinson, J. A.
Adams, D. (Consult) Hall, J. H. (Whitechapel) Pearson, A.
Adams, D. M. (Poplar, S.) Hardie, Agnes Pethick-Lawrence, Rt. Hon. F. W.
Alexander, Rt. Hon. A. V. (H'Isbr.) Harris, Sir P. A. Poole, C. C.
Anderson, F. (Whilehaven) Harvey, T. E. (Eng. Univ's.) Price, M. P.
Aske, Sir R. W. Hayday, A. Pritt, D. N.
Attlee, Rt. Hon. C. R. Henderson, A. (Kingswinford) Quibell, D. J. K.
Bonfield, J. W. Henderson, J. (Ardwick) Richards, R. (Wrexham)
Barnes, A. J. Henderson, T. (Tradeston) Ridley, G.
Batey, J. Hills, A. (Pontefract) Riley, B.
Ballenger, F. J. Holdsworth, H. Ritson, J.
Bann, Rt. Hon. W. Hopkin, D. Roberts, Rt. Hon. F. O. (W. Brom.)
Benson, G. Jenkins, A. (Pontypool) Roberts, W. (Cumberland, N.)
Broad, F. A. Jenkins, Sir W. (Neath) Robinson, W. A. (St. Helens)
Bromfield, W. John, W. Salter, Dr. A. (Bermondsey)
Brown, C. (Mansfield) Johnston, Rt. Hon. T. Seely, Sir H. M.
Buchanan, G. Jones, A. C. (Shipley) Sexton, T. M.
Burke, W. A. Jones, Morgan (Caerphilly) Sitkin, L.
Charleton, H. C. Kelly, W. T. Silverman, S. S.
Chater, D. Kennedy, Rt. Hon. T. Simpson, F. B.
Cluse, W. S. Kirby, B. V. Sinclair, Rt. Hon. Sir A. (C'thn's)
Clynes, Rt. Hon. J. R. Kirkwood, D. Smith, Ben (Rotherhithe)
Cooks, F. S. Lansbury, Rt. Hon. G. Smith, E. (Stoke)
Collindridge, F. Lathan, G. Smith, Rt. Hon. H. B. Lees- (K'Iy)
Cove, W. G. Lawson, J. J. Smith, T. (Normanton)
Daggar, G. Leach, W. Sorensen, R. W.
Dalton, H. Leonard, W. Stewart, W. J. (H'ght'n-le-Sp'ng)
Davidson, J. J. (Maryhill) Leslie, J. R. Summerskill, Dr. Edith
Davies, R. J. (Westhoughton) Logan, D. G. Taylor, R. J. (Morpeth)
Davies, S. O. (Merthyr) Lunn, W. Thurtle, E.
Day, H. Macdonald, G. (Ince) Tinker, J. J.
Bobbie, W. McEntee, V. La T. Tomlinson, G.
Dunn, E. (Rother Valley) McGhee, H. G. Viant, S. P.
Ede, J. C. McGovern, J. Walkden, A. G.
Edge, Sir W. MacLaren, A. Watkins, F. C.
Edwards, Sir C. (Bedwellty) Maclay, Hon. J. P. Watson, W. McL.
Fletcher, Lt.-Comdr. R. T. H. Maclean, N. Welsh, J. C.
Gallacher, W. Marklew, E. Westwood, J.
Gardner, B. W. Marshall, F. White, H. Graham
Garro Jones, G. M. Mashers, G. Whiteley, W. (Blaydon)
George, Major G. Lloyd (Pembroke) Maxton, J. Wilkinson, Ellen
George, Megan Lloyd (Anglesey) Milner, Major J. Williams, D. (Swansea, E.)
Gibson, R. (Greenock) Montague, F. Williams, E. J. (Ogmore)
Graham, D. M. (Hamilton) Morrison, Rt. Hon. H. (Hackney, S.) Williams, T. (Don Valley)
Green, W. H. (Deptford) Morrison, R. C. (Tottenham, N.) Windsor, W. (Hull, C.)
Greenwood, RI. Hon. A. Muff, G. Woods, G. S. (Finsbury)
Grenfell, D. R. Nathan, Colonel H. L. Young, Sir R. (Newton)
Griffith, F. Kingsley (M'ddi'sbro, W.) Naylor, T. E.
Griffiths, G. A. (Hemsworth) Owen, Major G. TELLERS FOR THE AYES.—
Griffiths, J. (Lianelly) Palign, W. Mr. Groves and Mr. Adamson.
Guest, Dr. L. H. (Islington, N.) Parker, J.
Acland-Troyte, Lt.-Col. G. J. Browne, A. C. (Belfast, W.) Davies, C. (Montgomery)
Adams, S. V. T. (Leeds, W.) Bull, B. B. De la Bère, R.
Agnew, Lieut.-Comdr. P. G. Butcher, H. W. Denman, Hon. R. D.
Albery, Sir Irving Campbell, Sir E. T. Denville, Alfred
Allen, Col. J. Sandeman (B'knhead) Cayzer, Sir H. F. (Portsmouth, S.) Doland, G. F.
Allen, Lt.-Col. Sir W. J. (Armagh) Christie, J. A. Donner, P. W.
Assheton, R. Clarke, Colonel R. S. (E. Grinstead) Dorman-Smith, Major Sir R. H.
Astor, Major Hon. J. J. (Dover) Clarry, Sir Reginald Drewe, C.
Astor, Hon. W. W. (Fulham, E.) Cobb, Captain E. C. (Preston) Duckworth, W. R. (Moss Side)
Baillie, Sir A. W. M. Colfox, Major W. P. Dugdale, Captain T. L.
Baldwin-Webb, Cal. J. Colman, N. C. D. Duggan, H. J.
Barclay-Harvey, Sir C. M. Conant, Captain R. J. E. Dunglass, Lord
Beamish, Rear-Admiral T. P. H. Cook, Sir T. R. A. M. (Norfolk, N.) Eckersley, P. T.
Beauchamp, Sir B. C. Cooke, J. D. (Hammersmith, S.) Edmondson, Major Sir J.
Beaumont, Hon. R. E. B. (Portsm'h) Cooper, Rt. He. T. M. (E'nburgh, W.) Ellis, Sir G.
Beechman, N. A. Cranborne, Viscount Elliston, Capt. G. S.
Bennett, Sir E. N. Croft, Brig.-Gen. Sir H. Page Emrys-Evans, P. V.
Bernays, R. H. Crooke, Sir J. Smed'e Errington, E.
Bossom, A. C. Crookshank, Capt. H. F. C. Evans, Capt. A. (Cardiff, S.)
Bower, Comdr. R. T. Croom-Johnson, R. P. Everard, W. L.
Boyce, H. Leslie Cross, R. H. Fildes, Sir H.
Braithwaite, Major A. N. Crowder, J. F. E. Fremantle, Sir F. E.
Brass, Sir W. Culverwell, C. T. Fyfe, D. P, M.
Briscoe, Capt. R. G. Davidson, Viscountess Grant-Ferris, R.
Greene, W. P. C. (Worcester) MacDonald, Rt. Hon. M. (Ross) Salt. E. W.
Gretton, Col. Rt. Hon. J. Macdonald, Capt. P. (Isle of Wight) Samuel, M. R. A.
Gridley, Sir A. B. Maitland, A. Sanderson, Sir F. B.
Grimston, R. V. Makins, Brigadier-General Sir Ernest Scott, Lord William
Gritten, W. G. Howard Manningham-Buller, Sir M. Selley, H. R.
Hambro, A. V. Margesson, Capt. Rt. Hon. H. D. R. Shaw, Major P. S. (Wavertree)
Hannah, I. C. Markham, S. F. Shaw, Captain W. T. (Forfar)
Harbord, A. Maxwell, Hon. S. A. Shepperson, Sir E. W.
Harvey, Sir G. Mayhew, Lt.-Col. J. Simon, Rt. Hon. Sir J. A.
Haslam, Henry (Horncastle) Mellor, Sir J. S. P. (Tamworth) Sinclair, Col. T. (Queen's U. B'lf'st)
Heilgers, Captain F. F. A. Mills, Sir F. (Leyton, E.) Smiles, Lieut.-Colonel Sir W. D.
Hely-Hutchinson, M. R. Mills, Major J. D. (New Forest) Smith, Braoewell (Dulwich)
Hepworth, J. Moreing, A. C. Smith, Sir R. W. (Aberdeen)
Herbert, A. P. (Oxford U.) Morris-Jones, Sir Henry Smithers, Sir W.
Herbert, Major J. A. (Monmouth) Morrison, G. A. (Scottish Univ's.) Somervell, Rt. Hon. Sir Donald
Herbert, Capt. Sir S. (Abbey) Muirhead, Lt.-Col. A. J. Somerville, A. A. (Windsor)
Higgs, W. F. Munro, P. Southby, Commander Sir A. R. J.
Hope, Captain Hon. A. O. J. Nall, Sir J. Stanley, Rt. Hon. Lord (Fylde)
Hopkinson, A. Neven-Spenee, Major B. H. H. Stanley, Rt Hon. Oliver (W'm'l'd)
Horsbrugh, Florence Nicotson, Hon. H. G. Strauss, E. A. (Southwark, N.)
Hudson, Capt. A. U. M. (Hack., N.) O'Connor, Sir Terence J. Strauss, H. G. (Norwich)
Hume, Sir G. H. Peaks, O. Stuart, Lord C. Crichton- (N'thw'h)
Hunloke, H. P. Peat, C. U. Stuart, Hon. J. (Moray and Nairn)
Hunter, T. Perkins, W. R. D. Sueter, Rear-Admiral Sir M. F.
Hurd, Sir P. A. Petherick, M. Tasker, Sir R. I.
Hutchinson, G. C. Pickthorn, K. W. M. Taylor, C. S. (Eastbourne)
Jones, Sir H. Haydn (Merioneth) Pilkington, R. Taylor, Vice-Adm. E. A. (Padd., S.)
Jones, L. (Swansea W.) Ponsonby, Col. C. E. Thomson, Sir J. D. W.
Keeling, E. H. Radford, E. A. Thorneycroft, G. E. P.
Kerr, Colonel C. I. (Montrose) Wakes, H. V. A. M. Titchfield, Marquess of
Keyes, Admiral of the Fleet Sir R. Ramsbotham, H. Touche, G. C.
Lamb, Sir J. Q. Ramsden, Sir E. Tufnell, Lieut.-Commander R. L.
Latham, Sir P. Rankin, Sir R. Turton, R. H.
Law, Sir A. J. (High Peak) Rathbone, J. R. (Bodmin) Walker-Smith, Sir J.
Law, R. K. (Hull, S.W.) Rayner, Major R. H. Wallace, Capt. Rt. Hon. Euan
Leech, Sir J. W. Reed, A. C. (Exeter) Ward, Lieut.-Col. Sir A. L. (Hull)
Leighton, Major B. E. P. Reed, Sir H. S. (Aylesbury) Ward, Irene M. B. (Wallsend)
Levy, T. Reid, Sir D. D. (Down) Wardlaw-Milne, Sir J. S.
Liddell, W. S. Rickards, G. W. (Skipton) Waterhouse, Captain C.
Lipson, D. L. Robinson, J. R. (Blackpool) Wells, Sir Sydney
Little, Sir E. Graham- Ropner, Colonel L. Whiteley, Major J. P. (Buckingham)
Llewellin, Colonel J. J. Ross Taylor, W. (Woodbridge) Windsor-Clive, Lieut.-Colonel G.
Loftus, P. C. Rowlands, G. Wise, A. R.
Lyons, A. M. Royds, Admiral Sir P. M. R. Wragg, H.
Mabana, W. (Huddersfield) Ruggles-Brise, Colonel Sir E. A.
MacAndrew, Colonel Sir C. G. Russell, R. J. (Eddisbury) TELLERS FOR THE NOES.—
MeCorquodale, M. S. Russell, S. H. M. (Darwen) Mr. Furness and Major
Harvie Watt.