Commons Sitting of 4 May 1938

Preamble
The House met at a Quarter before Three of the Clock, Mr. SPEAKER in the Chair.
NEW WRIT.
For the County of Bucks (Aylesbury Division), in the room of Michael Wentworth Beaumont, esquire (Manor of Northstead).—[Captain Margesson.]

PRIVATE BUSINESS.
IRVINE AND DISTRICT WATER BOARD ORDER CONFIRMATION BILL,
" to confirm a Provisional Order under the Private Legislation Procedure (Scotland) Act, 1936, relating to Irvine and District Water Board," presented by Mr. Elliot; and ordered (under Section 7 of the Act) to be considered To-morrow, and to be printed. [Bill 137.]
Ministry of Health Provisional Order (Keighley) Bill,
Read a Second time, and committed.

ORAL ANSWERS TO QUESTIONS.

  GERMAN AND AUSTRIAN REFUGEES.
  Mr. Hall-Caineasked the Prime Minister for what reason it has now been decided that British visas are to be insisted upon in the case of German and Austrian citizens desiring to visit Great Britain; and whether there is any proposal that British subjects should in future obtain German visas before visiting Germany?
  Mr. Creech Jonesasked the Prime Minister for what reasons the British Government are introducing visa restrictions against Austrians travelling to Britain; what instructions in the matter have been isued to British consuls; and whether any difficulties will be put in the way of
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  political and religious refugees escaping from Austria?
  The Under-Secretary of State for Foreign Affairs (Mr. Butler): I would refer the hon. Members to the reply given yesterday by my right hon. Friend the Home Secretary to the hon. and gallant Member for the Central Division of Wandsworth (Colonel Nathan). The necessary instructions have been sent to consuls and passport control officers. I am not aware as yet of any proposal that British subjects should in future obtain German visas before visiting Germany.
  Mr. Riley: Does the hon. Member not consider that the insistence on such visas may well prevent innocent persons from escaping from Nazi persecution?
  Mr. Butler: If the hon. Member will refer to the statement made by my right hon. Friend the Home Secretary he will see that it is necessary, in order to assist refugees coming to this country; and certain organisations in this country dealing with refugees have recognised the necessity for this provision.
  Mr. Mander: Will it not make it difficult for genuine refugees coming to this country to go back to Germany or Austria?
  Mr. Butler: I would refer the hon. Member to the full statement made by my right hon. Friend the Home Secretary.

  GERMANY.

    FOREIGN POLICY.
    Mr. Manderasked the Prime Minister whether, in view of the unrest and insecurity felt in Denmark, Belgium, Czechoslovakia, Hungary, and other countries bordering on Germany as a result of the policy of the German Government, he will consider bringing the question of the preservation of peace in this part of Europe before the League of Nations or making direct representations to Germany with this object?
    Mr. Butler: His Majesty's Government do not consider that any useful purpose would be served by adopting this course at the present moment.
    Mr. Mander: In view of the fact that the British colonies are also threatened, would it not be better for us all to hang together than to hang separately?

    NON-ARYANS (EXPROPRIATION).
    Commander Locker-Lampsonasked the Prime Minister whether he can give time for an early Debate on the Motion standing in the name of the hon. Member for Handsworth?
    [That this House protests against the expropriation in Germany of non-Aryan nationals, and urges joint action with the United States to preserve the primitive rights of helpless minorities.]
    The Prime Minister (Mr. Chamberlain): No, Sir. In view of the state of public business I am afraid I cannot afford a special opportunity for the discussion of this Motion.

    CHINA AND JAPAN.
    Sir John Wardlaw-Milneasked the Prime Minister whether his attention has been drawn to the complaint made by British residents in the International Settlement in Shanghai of 12th April that incidents involving violence by Japanese military authorities to the persons and property of foreigners are a frequent occurrence, ranging in gravity from a pistol threat, under the eyes of Japanese sentries, to the commandant of the Durham Light Infantry to physical assaults on civilians; and what steps have been taken to protect the lives and property of British subjects in the area of the settlement occupied by Japanese troops?
    Mr. Butler: My attention has been drawn to this complaint. His Majesty's Ambassador at Tokyo has made energetic representations to the Japanese Government with whom he has instructions to take up all these matters urgently.
    Sir J. Wardlaw-Milne: Is my hon. Friend not aware that conditions in the International Settlement are entirely different from conditions in the rest of China; and is it not possible for the British Government, in consultation with the American Government, to insist on action being taken to protect the integrity of the International Settlement?
    Mr. R. Acland: Is the hon. Member aware that that could not be done without a war?
    Mr. Butler: Representations on the subject have been made by our Ambus-sador at Tokyo.
    Sir J. Wardlaw-Milne: Is the hon. Member aware that no question of war arises in the case of the International Settlement, which is not on foreign territory?
    Mr. Moreingasked the Prime Minister whether his attention has been drawn to the obstacles placed by the Japanese authorities in the way of Chinese workers desiring to return to work in British factories in the Shanghai International Settlement, particularly with regard to the refusal to allow the necessary service of tramways; and what steps is he taking to remedy this state of affairs?
    Mr. Butler: Yes, Sir. His Majesty's representatives both in Shanghai and Tokyo have done their utmost to bring about an improvement in the situation.
    Mr. Moreingasked the Prime Minister whether he will instruct His Majesty's Ambassador in Tokyo to request the Japanese Government to refrain from preventing the British-owned Shanghai tramways from sending their tramcars for necessary repairs to the company's repair shops in Yangtsepoo, in the International Settlement?
    Mr. Butler: The Shanghai Electric Construction Company, Limited, obtained permission through the efforts of His Majesty's Consul-General at Shanghai on 28th March to send trams for overhaul in Yangtsepoo and they have been sending them regularly to repair shops there since 31st March.
    Mr. Moreingasked the Prime Minister whether his attention has been drawn to the attempts of the Japanese Government to impose Japanese currency upon the Shanghai International Settlement, particularly with regard to the refusal to allow the tramcars to work in certain districts unless the fares are collected in Japanese yen; and whether he will instruct His Majesty's Ambassador to protest against this interference with the established currency in the International Settlement?
    Mr. Butler: I have received no information from Shanghai in this sense. Perhaps my hon. Friend will be good enough to communicate with me in the matter.
    Mr. Hannahasked the Prime Minister what steps have been taken to put a stop to the extensive smuggling of Japanese goods into the Hongkew and

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    Yangtsepoo districts of the International Settlement of Shanghai, to the prejudice of the trade of other nations?
    Mr. Butler: The Japanese Government have repeatedly been urged to put a stop to this abuse, and it is hoped that more effective action will be taken as a result of the arrangements recently reached regarding Customs matters in the areas occupied by the Japanese forces.
    Mr. George Griffiths: Cannot we bring this matter to the notice of the Non-Intervention Committee?
    Sir John Haslam: May I ask the hon. Gentleman to recognise that some of us are very keen on this Chino-Japanese question, although Members in certain parts of this House do not seem to be troubled at all?
    Mr. Butler: I appreciate that fact.
    Commander Marsdenasked the Prime Minister whether he will call a conference of the Powers enjoying treaty rights in the International Settlement of Shanghai with a view to issuing a joint demand to the Japanese Government to withdraw from the area of the International Settlement all Japanese naval and military forces, save such as may be reasonably required in accordance with treaty rights for the protection of the lives and property of Japanese nationals in the area of the Settlement?
    Mr. Butler: I fear that my hon. and gallant Friend's suggestion presents many difficulties and would not be likely to lead to any practical results.
    Commander Marsdenasked the Prime Minister why the Chinese Customs service is allowed to operate normally in the French Concession at Shanghai and not in the International Settlement?
    Mr. Butler: The reason is that the French Concession is solely under French control and the armed forces of other nations are not permitted to exercise authority therein.
    Commander Marsden: Is my hon. Friend fully aware that, owing to the Japanese control of Customs, a lot of Japanese goods are going into the Settlement free of duty to the detriment of our trade; and will he not adopt a more determined attitude?
    Mr. Butler: I will consider the point which my hon. and gallant Friend has put to me.
    Major-General Sir Alfred Knoxasked the Prime Minister whether he has any information as to the quantity of munitions imported into China since the outbreak of war and from what countries these munitions chiefly came?
    Mr. Butler: As regards munitions imported into China from other countries, I have nothing to add to the reply given to my hon. and gallant Friend on 7th February. So far, however, as imports from the United Kingdom are concerned, the total value of the arms, ammunition and military and naval stores exported from this country to China was £204,908 during the period 1st June, 1937, to 31st March, 1938, the latest date up to which figures are available.
    Sir A. Knox: Is it not true that 80 per cent. of these munitions are supplied by Germany and Italy and that the bill is backed by Soviet Russia?
    Mr. James Griffiths: Can the hon. Gentleman say how it comes about that the Foreign Office have such specific information about arms going to China and such vague information about arms going to Spain?
    Mr. Noel-Bakerasked the Prime Minister whether he can make a statement concerning the negotiations of His Majesty's Government with the Government of Japan regarding the Chinese Customs service?
    The Prime Minister: His Majesty's Ambassador in Tokyo has, since February last, been carrying on unofficial conversations with the Japanese Vice-Minister for Foreign Affairs, regarding the servicing of the foreign obligations secured on the revenues of the Chinese Maritime Customs and other matters connected therewith. His Majesty's Government in the United Kingdom have now received from the Japanese Government a communication stating what temporary measures they propose to take during the period of hostilities to regulate these matters. His Majesty's Government will offer no objection to the application of these measures for the period mentioned. They appear to His Majesty's Government to offer the

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    best guarantee obtainable for safeguarding the interests of the holders of China's foreign obligations secured on the Customs revenues and thereby to assist in maintaining China's credit. I am circulating further details in the OFFICIAL RERORT.
    Mr. Noel-Baker: May we take it that this agreement does not in any way recognise the legitimacy of the action Japan has taken in respect of the Chinese Customs service?
    The Prime Minister: Yes, Sir.
    Mr. Thorne: Does that mean that you are depriving the Chinese Government of a good deal of the revenue by the attitude you are adopting?
    The Prime Minister: No, Sir.
    Following are the details:
    According to the arrangements notified to His Majesty's Government by the Japanese Government which will be subject to reconsideration in the event of a radical change occurring in the economic conditions, all revenues collected by the Customs at each port within the areas under Japanese occupation are to be deposited with the Yokohama Specie Bank. From revenues thus deposited foreign loan quotas will be remitted to the Inspector-General of Customs in order to meet in full the servicing of the foreign loans and indemnities secured on the Customs revenue. The servicing of such foreign loans and indemnities will be treated as a first charge on the revenue after deducting the maintenance expenses of the Customs Administration and certain Customs payments and grants. Foreign loan quotas for each port will be determined monthly in proportion to the share of that port in the total gross collections for all ports during the preceding month.
    Arrangements will also be made for payment to the Japanese Government of arrears on the Japanese portion of the Boxer indemnity held at the Hongkong and Shanghai Bank since last September, for meeting future payments in respect of the Japanese portion of the Boxer indemnity and the Japanese share of the re-organisation loan of 1913, for the repayment of the overdraft incurred by the Inspector-General of Customs since January in relation to the Shanghai share of the foreign loan service, which has been accumulating in Hongkong and
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    Shanghai Bank at Shanghai, and for transfer to the Yokohama Specie Bank of the balance of Customs accounts with the Hongkong and Shanghai Bank in each port under Japanese occupation and its utilisation for the future servicing of foreign obligations.

    GRECO-TURKEY TREATY.
    Mr. Thorneasked the Prime Minister whether he can state the text of the Greco-Turkey agreement, signed at Athens on Wednesday last; whether that agreement has been reported to the League of Nations; and whether the agreement links up with the Government agreement with Turkey?
    Mr. Butler: I have received a French translation of the treaty to which the hon. Member refers, published when the treaty was initialled on 28th February, and I am arranging for an English translation to be placed in the Library of the House. As this treaty was only signed on 27th April and has not yet come into force, I do not imagine that it has yet been registered with the Secretariat of the League of Nations. As regards the last part of the question, the new treaty, so far as I am aware, is not inconsistent with any instrument in force between His Majesty's Government and the Turkish Government.

    LONDON NAVAL TREATY.
    Mr. Thorneasked the Prime Minister whether the Government have given notice to the League of Nations of their intention to apply the escalator clause of the London Naval Treaty of 1933; and what effect it will have upon other nations?
    Mr. Butler: The answer to the first part of the question is in the affirmative. As regards the second part of the question, I am unable to express an opinion as to the effect upon other nations.

    LEAGUE OF NATIONS (STATES' CONTRIBUTIONS).
    Mr. Dayasked the Prime Minister the total budget of the League of Nations for the 12 months ended to the last convenient date, and the contributions of His Majesty's Government in the United King-

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    dom to the same date, including the International Labour Office and the permanent Court of International Justice; and which members of the League have not paid their quota?
    Mr. Butler: As the reply involves a number of figures, I will, with permission, circulate it in the OFFICIAL REPORT.
    Mr. Day: Are the States that are owing large sums of money taking any steps to reduce their obligations?
    Mr. Butler: I have enough responsibilities without that.
    Mr. Mander: Are we ourselves carrying out our obligations?
    Following is the reply:
    The total Budget voted for the financial period ending 31st December, 1937, was 23,347,302 gold francs. The Budget of the International Labour Office and the Permanent Court of International Justice are included in this sum. Of this amount 2,062,479.70 gold francs were provided out of the surplus from 1935 and the remainder in contributions from Member States. The United Kingdom contribution amounted to 2,490,531.75 gold francs. At the date of the most recent statement issued, the following States had not paid their contributions for 1937 in full: Albania, Cuba, Ecuador, Spain, Ethiopia, Greece, Guatemala, Haiti, Panama, Paraguay, Salvador and Yugoslavia.

    SPAIN.
    Mr. W. Robertsasked the Prime Minister whether, as protests have failed to safeguard British ships and British seamen from attacks by Italian aeroplanes, he will now consult with the French Government to devise means by which the navies of the two countries may protect such ships in the conduct of their lawful commerce?
    Mr. Aclandasked the Prime Minister whether he has received any information tending to show whether the insurgent aircraft whose raids damaged British shipping recently in Barcelona and Valencia were indiscriminately bombing the harbours or were deliberately attacking the British shipping?
    Mr. Noel-Bakerasked the Prime Minister whether he has received any reports concerning the nationality of the aircraft which bombed British ships in Barcelona harbour last week; whether those reports indicate whether the attack was deliberately directed against the British ships; and what is the extent of the damage inflicted upon the ships?
    Mr. Butler: As regards the air raid on Valencia on 25th April, I would refer the hon. Member to the reply which I gave to similar questions on 2nd May by the hon. Members for Barnstaple (Mr. Acland) and Birkenhead, East (Mr. White). During this raid one British ship, the "Stanland," was narrowly missed by a bomb and suffered considerable damage, and four other British ships are reported to have been slightly damaged. As regards the air raids on Barcelona on 30th April and 1st May, no British ships were damaged. On all three occasions the aircraft were flying at a great height, and it was not possible to identify their nationality. All the air raids in question appear to have been directed against the ports, and His Majesty's Government do not consider that there is any evidence to show that attacks were deliberately aimed against British vessels. In these circumstances, they do not consider that any special action is called for.
    Mr. Roberts: Is it not a fact that the captains of the ships concerned have definitely identified the aeroplanes as Italian?
    Mr. Butler: As I said in my answer it was not possible, owing to the great height, for us to identify their nationality.
    Mr. A. V. Alexander: If these planes were flying at such a great height, can it be argued that they were aiming at military objectives? Were they not just dropping bombs from a great height indiscriminately on civilians?
    Mr. Butler: The effect of the raid seems to have been concentrated on a district in which there were military objectives.
    Mr. Noel-Baker: Is it the view of the Government that it is legitimate to drop bombs on ports where there is neutral shipping, although the ports may be remote from the firing line?
    Mr. Butler: I do not think we like air raids in any circumstances at all, but it

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    is less easy to make a protest when there are military objectives in view from the air.
    Vice-Admiral Taylor: Was the British ship not alongside the jetty and within the area of a perfectly legitimate objective?
    Mr. W. Robertsasked the Prime Minister whether the British Government will now claim damages from the insurgent authorities in Spain for damage done to the steamship "Stanwell," which was the object of deliberate bombardment by aircraft?
    Mr. Butler: As I informed the hon. Member for Birkenhead, East (Mr. White) on 30th March, the British Agent has been instructed to inform the Burgos authorities that His Majesty's Government reserve the right to claim in due course compensation for the damage to persons and property resulting from the attack on the steamship "Stanwell."
    Mr. Roberts: Why should a different procedure be followed in this case from that which was followed when the British Ambassador was deliberately attacked by Japanese planes? Is there a different valuation on the lives of seamen and of Ambassadors?
    Mr. Butler: I have already outlined in a previous answer what the procedure is with regard to compensation. Of course, there is a difference between an Ambassador and a ship.
    Mr. George Griffiths: The men on the ship do not count then, do they?
    Mr. Mander: Will any compensation be asked for before or after the settlement?
    Mr. Butler: Does the hon. Member mean the settlement of hostilities?
    Mr. Mander: Yes, Sir.
    Mr. Butler: It is probable that a claim will be put in after the cessation of hostilities. That is the general policy. But it is now necessary to assess the damage to property resulting from the attack.
    Mr. Creech Jonesasked the Prime Minister whether the British Consulate at Barcelona has been closed; and, if so, what arrangements have been made to give help and protection to non-combatant British nationals who remain in the city?
    Mr. Butler: No, Sir. There is a branch of the office in Barcelona, through which touch is maintained with British subjects in the town.
    Mr. Creech Jones: Do I gather that the consuls of other nations are already in Barcelona and that the British Consul has been withdrawn?
    Mr. Butler: No, Sir, there is an office in Barcelona, though it is true that the British Consul lives outside.
    Captain Ramsayasked the Prime Minister (1) whether his attention has been drawn to the fact that 466 trucks with a loading capacity of 850 tons and carrying that weight of heavy and light artillery guns, anti-tank guns, machine guns and munitions, armoured cars, automatic rifles and tanks passed over the Franco-Catalan frontier in the week ending 22nd March; and will he bring these facts to the attention of the Non-Intervention Committee;
    (2) whether he is aware that 300 aeroplanes crossed Rumania from Soviet Russia on 25th April en route for Spain; and whether he will bring this fact to the notice of the Non-Intervention Committee?
    Mr. Butler: I would refer my hon. and gallant Friend to the reply which I returned on 2nd May to a similar question put by my hon. and gallant Friend the Member for Bournemouth (Sir H. Croft).
    Captain Ramsay: May I ask my hon. Friend whether, in view of the importance of Question No. 21, if I put the question down later on, he will let me have a separate reply on the matter?
    Mr. Butler: That question has already been covered by the answer I have given.
    Mr. Gallacher: Is the Minister aware that the hon. and gallant Gentleman who asked this question saw the Russians pass through Scotland during the War?
    Mr. Rileyasked the Prime Minister whether the German Government is still a member of the Non-Intervention Committee; and if they have accepted the British formula for the withdrawal of foreign volunteers from Spain?
    Mr. Butler: The answer to both parts of the question is in the affirmative.
    Mr. Rileyasked the Prime Minister whether the application of the British formula for the withdrawal of foreign volunteers will also cover the withdrawal of foreign military aeroplanes, guns and munitions?
    Mr. Butler: No, Sir. In this connection I would refer the hon. Gentleman to the reply given on 30th March to a question by the hon. Member for Kings-win-ford (Mr. A. Henderson).

    ANGLO-POLISH NAVAL AGREEMENT.
    Mr. Thorneasked the Prime Minister the text of the Anglo-Polish Naval Agreement; whether the agreement has been reported to the League of Nations; and whether it is on lines parallel with those entered into with Germany and Russia?
    Mr. Butler: Arrangements are being made to publish the documents comprising the Anglo-Polish Naval Agreement in a White Paper as soon as possible. The answer to the second part of the question is in the affirmative. This agreement follows the lines of the London Naval Treaty, 1936.
    Mr. Thorne: How is it that the Government can get these agreements with Poland and other European countries on many questions, and cannot get a political agreement with some of these people and avoid war altogether?
    Mr. Butler: The hon. Gentleman has no doubt seen the instance of a political agreement recently made, and I only wish that he would support the Government in these agreements.
    Mr. Thorne: I will do that when it is a genuine one.

    AUSTRIA (BRITISH AND AMERICAN NATIONALS).
    Sir Percy Harrisasked the Prime Minister whether his attention has been called to the report of the American Consul-General in Vienna to the State Department in Washington that on 50 occasions he had protested to the authorities in Vienna against the ill-treatment of American-born Jews or Jews possessing American citizenship, and that two British
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    subjects had also been subjected to similar treatment; and whether the British Government are making similar representations on behalf of their nationals?
    Mr. Butler: I have no official knowledge of the report to which the hon. Baronet refers. His Majesty's Government have taken action in all cases in which they considered it practicable to do so.

    ABYSSINIA.
    Miss Rathboneasked the Prime Minister how many British consular or other representatives remain in Ethiopia, and in what towns they are stationed?
    Mr. Butler: There are five British consular officers at Addis Ababa and two at Harar.
    Miss Rathbone: As there are only consular officers in two towns in Ethiopia, upon what is the information based that Italian control of Ethiopia is practically complete?
    Mr. Butler: I have said that there are seven consular officers and that they are in those two places, and they send us reliable information.
    Miss Rathbone: Can that reliable information refer to anything but to the towns in the neighbourhood?
    Mr. Butler: The hon. Lady underrates the abilities of our consular officers.
    Miss Rathboneasked the Prime Minister how many British firms or banks still have representatives in Ethiopia, and in what cities?
    Mr. Butler: My latest information is that in October last there were some 35 British companies registered with His Majesty's Consular Officers in Ethiopia. In most of these the predominating interest was Indian and they were situated in Addis Ababa, though a few operated in outlying places. There are no British banks in Ethiopia.
    Miss Rathbone: Do I understand that the Indian or British representatives of those firms are still in Addis Ababa?
    Mr. Butler: So I understand.
    Mr. Noel-Bakerasked the Prime Minister whether he can now say if His Majesty's Government will lay a motion

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    before the Council of the League of Nations concerning the recognition of Italian sovereignty in Abyssinia; if so, what are the terms of that motion; and, if not, what procedure it is intended to adopt with regard to this item of the Council's agenda?
    The Prime Minister: The position of His Majesty's Government with regard to the recognition of Italian sovereignty over Ethiopia was explained in the course of the Debate on 2nd May. It is for the Council to decide upon the procedure to be followed in considering the question which His Majesty's Government have placed upon the agenda, and I cannot make any forecast on the subject.
    Mr. Noel-Baker: Can the Prime Minister tell the House whether His Majesty's Government intend to propose any definite course of action with regard to the recognition of Italian authority in Ethiopia?
    The Prime Minister: No, Sir, I cannot say that at present.
    Mr. Noel-Baker: If that is so, why has the right hon. Gentleman said in a note to Signor Mussolini that we were desirous that the obstacles to recognition should be removed by members of the League?
    The Prime Minister: Because that represented the fact.
    Several Hon. Members rose—
    Mr. Speaker rose—
    Mr. A. V. Alexander: Are we not entitled to question the right hon. Gentleman?

    CZECHOSLOVAKIA.
    Mr. Vyvyan Adamsasked the Prime Minister whether he will make representations to the Council of the League of Nations, in accordance with Article 11 of the Covenant, to the effect that the recent German interference with the domestic affairs of the Republic of Czechoslovakia constitute a threat to the peace of Europe, to which His Majesty's Government cannot undertake to remain indifferent?
    The Prime Minister: I do not think that the course which my hon. Friend suggests would lead to any useful result.
    Mr. Adams: Is the Prime Minister aware that, if the Henlein demands were
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    granted, the independence of Czechoslovakia would be effectively destroyed?
    The Prime Minister: That may or may not be the case, but it does not affect my answer.
    Mr. Adams: Is my right hon. Friend satisfied that Berlin really desires a peaceful and reasonable settlement of the Sudeten Deutsch question?

    ANGLO-FRENCH CONVERSATIONS.
    Mr. Simmondsasked the Prime Minister whether he can make any statement on the proposed closer co-operation between the French Air Force and the Royal Air Force?
    The Prime Minister: I would refer my hon. Friend to the statement in the communiqué issued on 29th April at the close of the Anglo-French conversations to the effect that
    " the two Governments decided to continue as might be necessary the contacts between their General Staffs established tinder the arrangement reached in London on 19th March, 1936."
    To this statement I have nothing to add.
    Mr. Simmonds: Can the Prime Minister say whether it is proposed to begin technical discussions in regard to the air programme with the French Government?
    The Prime Minister: I imagine that the discussions which take place between the air attaches are of a different character.
    Mr. Mander: Is it intended to bring other friendly Governments into the discussions?
    The Prime Minister: No, Sir.
    Mr. Alexander: May we take it that the only position we have reached is a military alliance with France, and that we are preparing for war against other countries?
    The Prime Minister: No, Sir. That is not a fair interpretation of the position.

  ROYAL NAVY.

    MARRIAGE AND LODGING ALLOWANCES.
    Vice-Admiral Taylorasked the First Lord of the Admiralty how much more a married officer with wife and one

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    child, taking up a shore appointment where no official quarters are provided, will receive per annum than a married officer with a wife and no children?
    The First Lord of the Admiralty (Mr. Duff Cooper): As a result of the arrangement which I communicated to my hon. and gallant Friend in reply to his question of 6th April, a married but childless commissioned officer will receive the same total emoluments as he would if he had one child. A married warrant officer with one child will receive 1s. per day more than he would if he were childless.
    Vice-Admiral Taylor: Am I to understand that a married officer with one child receives no more than a married officer who has no children? If that is so, will the First Lord go into the matter and see that the officer gets the 2s, which under the scheme is allotted for the first child?
    Mr. Cooper: My hon. and gallant Friend is aware that under the scheme as originally propounded it was found that a married officer with no child will be slightly worse off than he was before, owing to the forfeit of his lodging allowance. Therefore, a change was made in order to ensure that nobody should suffer under the new scheme, and it works out that he will receive as much as an officer with one child.
    Vice-Admiral Taylor rose—
    Mr. Speaker: There are 102 questions on the Order Paper.
    Vice-Admiral Taylor: On a point of Order. This is a very important subject to the naval officers, and supplementary questions are being asked on other matters.
    Mr. Speaker: The First Lord has answered the question.
    Vice-Admiral Taylorasked the First Lord of the Admiralty what payments will be made to a lieutenant-commander or commander with a wife and one child removing his family from England to Hong Kong on account of the tickets for his wife and child; and what will he receive after arrival on account of lodging allowance and marriage allowance, respectively?
    Mr. Cooper: The original scheme has been modified and orders have recently
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    been issued by which the families of officers employed on shore abroad will be given free passages to and from the officer's place of appointment. On arrival abroad the officer will be entitled to the same allowances as if he were appointed on shore at home. Alternatively, an officer appointed on shore abroad who certifies that he is maintaining a home in this country for his family, will receive marriage and chilldren's allowances in addition to any allowances, for example, lodging allowance, to which he is himself entitled.
    Vice-Admiral Taylor: I have not followed exactly what the allowance is. I do not mean that in any derogatory sense. Can the right hon. Gentleman say whether, under the amended regulations, when a naval officer with his family goes abroad, he will receive his travelling allowance and that in addition, when he arrives to take up his appointment abroad he will receive his marriage allowance?
    Mr. Cooper: Yes. He will receive marriage allowance when he is abroad and he will also receive travelling allowance.
    Vice-Admiral Taylor: Thank you.
    Vice-Admiral Taylorasked the First Lord of the Admiralty whether under the marriage allowance scheme a married officer with no children, on taking up a shore appointment where no official quarters are provided, will be better off financially than he was before the scheme was introduced?
    Mr. Cooper: After allowing for the cut in pay, the officer in question will be in approximately the same position financially as hitherto.
    Vice-Admiral Taylor: Am I to understand that the married officer receives no more than the unmarried officer, although he has greater expense, owing to the fact that he is married? May I have an answer? Will the First Lord say when a White Paper will be issued giving the particulars?
    Mr. Parkerasked the First Lord of the Admiralty whether the marriage allowance for commissioned officers from warrant rank is 4s. 6d. per day or 3s.; and whether he will state the separate emoluments and the total of commissioned officers from warrant rank above

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    nine years' seniority in the mechanical and non-mechanical branches, respectively, under the old system, if receiving lodging and provision and any other shore allowance, and, if married with no children, under the new system with marriage allowance, but with his pay cut and allowances abolished?
    Mr. Cooper: The normal marriage allowance for a commissioned officer from warrant rank is 3s. a day, but married and childless commissioned officers from warrant rank employed on shore and not provided with married quarters receive 4s. 6d. a day. As regards the remainder of the question, I would refer the hon. Member to the reply I gave to him on 13th April.

    EQUIPMENT (MERCANTILE MARINE).
    Sir Robert Rankinasked the First Lord of the Admiralty what steps have been taken during the current year to accumulate stocks of anti-aircraft and anti-submarine equipment for the merchant navy; and what proportion of the mercantile marine could now be fitted out with such equipment at short notice?
    Mr. Cooper: As regards the first part of the question, sufficient stocks of antisubmarine guns for arming ships of the merchant navy had already been accumulated before the current year. Provision is also being made for the necessary stocks of anti-aircraft equipment. As regards the second part of the question, it would not be in the public interest to divulge the precise figures of our preparations in these respects.

  TRADE AND COMMERCE.

    WEST INDIES AND MALAY STATES (JAPANESE COTTON GOODS).
    Mr. Roland Robinsonasked the Secretary of State for the Colonies whether he is aware that Japanese firms are importing into the West Indies large quantities of four-yard lengths of printed spun-viscose rayon fabric made up as bedspreads, to which the quota does not apply, and that after importation these bedspreads are unpicked and the resulting cloth-lengths are made up into dress goods; and what steps does he propose to take to prevent the evasion of the general quota restrictions upon Japanese cloth imports into the West Indies, which
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    is having an adverse effect on the Lancashire cotton industry?
    Major Procterasked the Secretary of State for the Colonies whether his attention has been called to imports into the West Indies of large quantities of printed four-yard lengths of spun-viscose rayon fabric made up as bedspreads, which are then unpicked and the resulting cloth lengths made up into dress goods, and that this type of importation is nullifying the quota restrictions upon Japanese cloth imports into the West Indies and so competing with British cotton prints to the detriment of the cotton industry; and what action he proposes to take?
    The Secretary of State for the Colonies (Mr. Ormsby-Gore): I have recently received representations from the Cotton Spinners' and Manufacturers' Association on this subject and I am making inquiries.
    Mr. Robinson: Will the right hon. Gentleman promise to take firm action to prevent any evasions of the quota restrictions which may be brought to his notice?
    Mr. Ormsby-Gore: I must have the facts first.
    Major Procterasked the Secretary of State for the Colonies whether he is aware that, in order to circumvent the quota restriction on cotton piece goods imported into the Malay States, Japanese exporters are sending in cotton shirts with tails several yards long so that, although the shirts are defined as one garment, the tails can be cut off and used as piece goods; and whether steps have now been taken to deal with this evasion of the quota restrictions?
    Mr. Ormsby-Gore: I have seen some reports to this effect, and I understand that the local authorities have taken steps to deal with the matter.
    Major Procter: Will the right hon. Gentleman make representations to the appropriate department of the Japanese Government in order to prevent a recurrence of this sharp practice?

    MALAYA (POWER SPIRIT PRODUCTION).
    Mr. Morganasked the Secretary of State for the Colonies whether his attention has been called to the closing down of the Nipah estate in Malaya, which was the only concern producing power spirit in the country; and whether, in the in-

    863
    terests of the community as well as of the Empire, some assistance will be given by the Government to this industry, especially in view of the creation of the Singapore dock?
    Mr. Ormsby-Gore: I have received no information on the subject, but I am asking the High Commissioner for the Malay States for a report.

    RUBBER INDUSTRY.
    Mr. Dayasked the Secretary of State for the Colonies particulars of the present arrangements between the British and Dutch Governments for the production of and/or shipment of rubber from the possessions of either Government?
    Mr. Ormsby-Gore: The production of rubber in both the Netherlands East Indies and the main British producing territories is governed by the International Rubber Regulation Agreement, signed in 1934.
    Mr. Day: Can the right hon. Gentleman say whether the reports still show that there is considerable distress in the rubber industry in British Possessions?
    Mr. Ormsby-Gore: I think that on the whole the International Agreement is working well.

    GOLD COAST (COCOA INDUSTRY).
    Mr. Alexanderasked the Secretary of State for the Colonies (1) whether an agreement has been entered into with the approval of the Government of the Gold Coast controlling the export of cocoa for a period up to Octber, 1938; who are the parties to the agreement; and who was consulted before the agreement was approved;
    (2) whether he is aware that many Gold Coast traders consider that the quotas fixed for cocoa exports from West Africa up to October, 1938, are calculated to protect the firms who have been parties to the buying pool and are detrimental to both native producers and independent buyers; and what steps he is taking to prevent this?
    Mr. Creech Jonesasked the Secretary of State for the Colonies whether he can make a statement as to the position of the dispute in the cocoa trade in South Africa?
    Mr. Ormsby-Gore: I apologise for the length of the reply. As the hon. Members will be aware, the greater part of the present season's Gold Coast cocoa crop has not so far come upon the market. At the beginning of the season the majority of firms buying cocoa on the Coast entered into an agreement regarding the terms of their operations. As the growers in the Gold Coast considered that the existence of such an agreement was detrimental to their interests, they for several months refused to sell their cocoa and this hold-up applied not only to the agreement firms but also to other firms who were not parties to the agreement. In order to facilitate the solution of this deadlock and to prevent the large accumulated stocks of cocoa from being placed suddenly upon the market at a rate beyond its capacity to absorb them, the Government of the Gold Coast have recently passed legislation to control the export of this year's crop. The legislation is purely temporary and will remain in force only until October.
    I am happy to say that, partly as a result of this legislation, the parties to the agreement have now suspended it and the hold-up of cocoa by the growers has been brought to an end. During the negotiations which have led to this result the terms of the legislation which has been passed were naturally discussed with both parties, that is to say, with the agreement firms on the one hand and with the representatives of the growers on the other hand. Under this legislation the greater part of the licences to export cocoa up till 1st October will be allotted to each firm engaged in the trade in proportion to its share of the trade in each of the last two crop years. Each firm will thus be able to enjoy the same share of the trade that it has had in the past. The remaining licences representing 6 per cent. of the total exports or a minimum of 2,000 tons a month will be retained by the Governor for allocation at his discretion, and it is the intention that this discretion should be exercised particularly in favour of African shippers. This amount is much larger than that ever exported by African shippers in the past.
    I cannot accept the suggestion that the quota legislation is detrimental to the African producer. I am sorry that it should be considered unfair to any other

    865
    interest, but the great difficulty will be appreciated of discovering any basis for the allocation of licences in the existing difficult situation which is not open to some criticism, and I am satisfied that on no other basis consonant with due regard to the interests of all parties would it have been possible to secure both the termination of the hold-up by the producers and the suspension of the Agreement by the firms concerned. This was the primary objective, and it is clear that its attainment will benefit all firms trading in the Gold Coast whether they have been parties to the Agreement or not. Before next season's crop I hope to have received the report and recommendations of the Special Commission now in West Africa on any future arrangements regarding the sale of cocoa.
    Mr. Alexander: Is the Secretary of State aware that all the independent firms who had refused to join the buying pool agreement which depressed the native growers' prices have been left out of consultation in making this quota agreement with the pool, and that in consequence many of them will not get their requirements for the current season without going to the pool and paying enhanced prices to the pool?
    Mr. Ormsby-Gore: I could not answer that. That is a strictly business matter; hut the great thing is that all the firms trading in the Gold Coast will get quotas in proportion to their trade in the past two years. That is the only fair way of dealing with the emergency.
    Mr. Burke: Can the right hon. Gentleman tell us whether the prices offered to the growers will be increased, and, if so, to what extent?
    Mr. Ormsby-Gore: I cannot possibly tell that, because it depends upon world prices. We cannot control world prices.
    Mr. Burke: Is the right hon. Gentler-an aware of the fact that as a result of the depression of prices, due to the activities of the pool, trade temporarily stopped, and that if prices do not increase, the same detrimental effect will occur again?
    Mr. Ormsby-Gore: The hon. Gentleman uses the word "pool." Of course, the firms participating in the agreement deny
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    that there is a pool. [HON. MEMBERS: "Oh! "] I do not say whether it is right or wrong. Surely, it does not depend on any firms in the Gold Coast as to what the price of cocoa is, because that is fixed by the price on the New York market.

    BRITISH GUIANA BUILDING SOCIETY.
    Mr. Lunnasked the Secretary of State for the Colonies whether, in view of the present unsatisfactory position of the British Guiana Building Society, he will recommend the appointment of a committee representative of the Colonial government, the Georgetown Town Council, and the subscribing members of the building society to investigate the question of reconstruction with a view to obviating loss on the part of those least able to bear it?
    Mr. Ormsby-Gore: I understand that proposals have been prepared by the solicitors representing a large body of shareholders and contributors to the British Guiana Building Society, most of whom are members of the poorer and lower middle classes, for the incorporation of a new society and transfer of the assets of the present society to it. I further understand that these proposals will shortly he considered by the liquidator and the members of the society. In the circumstances, I do not consider that the appointment of a committee would serve any useful purpose.
    Mr. Lunn: If I put a question later, will the right hon. Gentleman give me the information regarding the position?
    Mr. Ormsby-Gore: Certainly, if the hon. Member will give me time. I understand that the official receiver is acting for the liquidator and that negotiations are going on.

    BRITISH BROADCAST NEWS (EMPIRE).
    Mr. Morganasked the Secretary of State for the Colonies whether there are any parts of the British Empire, and, if so, which, where no official British broadcast news is now received and distributed to the public; and what is the position in this respect in the different West Indian Colonies?
    Mr. Ormsby-Gore: I must confine my reply to those parts of the British Empire which fall within the sphere of the Colonial Office. I have recently addressed inquiries to the Governments of all these territories with regard to the reception and distribution of the British Offical Wireless News Service. So far as concerns Barbados, the Leeward Islands, the Windward Islands, Malta, Seychelles and the Western Pacific High Commission territories, my information is not yet complete. I understand that in all the other dependencies, with the exception of Northern Rhodesia, Somaliland and St. Helena, the service is duly received and made available to the public. I might add, with reference to the latter part of the question, that Cable and Wireless, Limited, are under an obligation to supply a news service of British news to the West Indies (excluding Jamaica) and to British Guiana.

    SPREAD-OVER HOLIDAYS (PARLIA MENTARY BUSINESS).
    Captain Peter Macdonaldasked the Prime Minister whether, in view of the agreement in the House as to the desirability of spreading holidays over a wider period of the summer and the desirability of Parliament setting an example in this matter, he will set up an inquiry into the possibility of advancing the financial business of Parliament either by ending the financial year earlier than 31st March, or by other means, so as to make possible the commencement of the Summer Recess earlier than the beginning of August?
    The Prime Minister: As explained by my right hon. Friend the Chancellor of the Exchequer on 28th April, in reply to a question by my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir N. Grattan-Doyle), any alteration in the present dates of the financial year would cause serious disturbance both to this House and to the business community. In the circumstances, I do not think that any change is practicable in the arrangements of the House relating to financial business which would enable an appreciable advancement to be made in the date of the Summer Recess. It does not appear, therefore, that any useful purpose would be served by instituting a special inquiry into the matter.
    Mr. Paling: Is there no time from the beginning of April, when the Budget is taken, to the end of June, to deal with the financial business, which takes only three weeks of Parliamentary time and there are three months in which to do it? Cannot the Prime Minister look at the matter from that angle and fall in with the general thoughts in the country on the holiday business?
    The Prime Minister: I am sure that the House, without dislocating its business and without causing great inconvenience to the business community, would desire to do anything to assist in the spacing out of holidays, but if the hon. Member will look at the answer given by my right hon. Friend he will see the difficulties in the way.
    Mr. Paling: I have done my best, and I do not deny that there are difficulties in the way.

    FEEDING STUFFS (HOME PRODUCTION).
    Mr. De la Béreasked the Prime Minister whether he can now find time to consider the Motion standing in the name of the hon. Member for Evesham relating to the home production of feeding stuffs?
    [That, in view of the vulnerable position occupied during war by agriculture in respect of the importation of feeding stuffs, this House urges on the Government the need for developing at home supplies of suitable commodities by permitting the cultivation of additional acreage of potatoes which are not suitable for human consumption but which can be fed to pigs, by using surplus fish for the production of fish-meal for poultry feeding, and by establishing national factories for the supply of these two feeding stuffs to the rearers of pigs and poultry.]
    The Prime Minister: I regret that I can hold out no hope of time being found for the discussion of this Motion.
    Mr. De la Bére: May I ask my right hon. Friend the Prime Minister whether he is aware that it is not only a lack of time, but that there is in some quarters a lack of courage and imagination? Is he not further aware that half measures are insufficient?
    The Prime Minister: I do not think it is true to say that there is a lack of appreciation of the importance of the matter.

    CABLE AND WIRELESS AGREEMENT.
    Mr. David Adamsasked the Prime Minister when the cable and wireless agreement will be submitted to Parliament for approval?
    The Prime Minister: I expect that the Bill required to implement the cable and wireless agreement will be presented within the next two or three weeks.

  DEFENCE.

    ENGINEERING AND SHIPBUILDING INDUSTRIES.
    Mr. David Adamsasked the Minister for the Co-ordination of Defence whether he will make a statement arising out of his recent conferences with representatives of the engineering and shipbuilding industries?
    Sir A. Knoxasked the Minister for the Co-ordination of Defence whether, in accordance with his suggestion, the Engineering and Allied Employers National Federation have invited the Amalgamated Engineering Union and the Confederation of Shipbuilding and Engineering Unions to meet to discuss the speeding-up of the armament programme; whether these bodies have yet met and, if not, why?
    The Minister for the Co-ordination of Defence (Sir Thomas Inskip): I understand that the Engineering Employers' Federation wrote to the Amalgamated Engineering Union and the Confederation of Shipbuilding and Engineering Unions on 5th April inviting them to a meeting. The Confederation have accepted the invitation. No reply has yet been received from the Amalgamated Engineering Union, but I am informed the Executive Council are meeting to-day to consider the invitation.
    Sir A. Knox: Can the right hon. Gentleman say what is the reason for this enormous delay? Was not the invitation issued by the Employers' Federation on 5th April? Why has a whole month's delay occurred before this important matter is inquired into?
    Mr. Kirkwood: Is the Minister for the Co-ordination of Defence not aware that the officials of the Amalgamated Society of Engineers view the Minister with suspicion, the reason being that they know he is asking for sacrifices from the engineers, these sacrifices being their trade rights, for which they have fought for 50 years? They have no right to surrender these rights, but to defend these rights. When he is approached by them will he treat them with justice?
    Sir T. Inskip: The hon. Member is under a misapprehension. I have not asked the Amalgamated Society of Engineers or the Federation of Shipbuilding Workers to make sacrifices. I have asked them to meet the representatives of the Engineering and Allied Employers National Federation in order to discuss how they can provide the necessary skilled labour in this emergency.
    Mr. Kirkwood: Is it not the case that the right hon. Gentleman has stated by his public pronouncements that the engineers will be called upon to make sacrifices? They are not going to do it.
    Mr. David Adams: In view of the fact that such meetings are to take place and we understand that one is to take place this afternoon, will information relating to them be placed at the disposal of the House?
    Mr. Thurtle: Is the right hon. Gentleman aware that it is stated on the "tape" that the Executive Committee of the Amalgamated Society of Engineers have decided to attend the conference?
    Sir T. Inskip: I have not received that information previously. With regard to the other question I shall always be happy to give such information to the House with regard to these proceedings as it is in my power to give.
    Sir A. Knox: Will the right hon. Gentleman answer my question and say what is the reason for the delay?
    Sir T. Inskip: I am not able to answer the question of the hon. and gallant Member. I desire, as he does, as much expedition as is possible.
    Sir A. Knox: Should it not be made public who really is to blame for the delay?

    REARMAMENT SCHEME (CONTRACTS).
    Mr. W. Joseph Stewartasked the Minister for the Co-ordination of Defence the value of contracts for rearmament materials being executed by manufacturers in the administrative county of Durham and the county boroughs of South Shields and Sunderland?
    Sir T. Inskip: I regret that it is not possible, without an undue amount of labour, to ascertain the value of orders placed under the rearmament scheme in any county or any Special Area.
    Mr. Stewart: Is it the policy of the Government in placing contracts to give special attention to the Special Areas and other areas where the percentage of employment is exceptionally high?
    Sir T. Inskip: I have repeatedly stated in the House and elsewhere that the policy of the Government is to give consideration to the Special Areas, other things being equal.

    FOOD STORAGE.
    Mr. J. Griffithsasked the Minister for the Co-ordination of Defence whether, in the steps that are being taken to store food for a national emergency, full consideration has been given to the advantages of canned foods for storage purposes; whether the possibilities of a rapid expansion of the food-canning industry have been explored; and whether he can indicate what steps are being taken in the matter?
    Sir T. Inskip: The answer to the first two parts of the hon. Member's question is in the affirmative. I lately received a deputation from the Food Manufacturers' Federation when the question of food canning in relation to the Government's storage programme was fully discussed. As to the last part of the question, I am not in a position to make any statement.

    CALCIUM CARBIDE.
    Mr. Louis Smithasked the Minister for the Co-ordination of Defence whether it has now been definitely decided to establish a calcium carbide factory in Norway instead of in Scotland or in Wales; and whether he has had any communication on the subject with the company which sponsored the Scottish scheme?
    Sir T. Inskip: If my hon. Friend has in mind a factory to be set up, or on
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    behalf of, the Government in Norway, I am not aware of any such proposal.
    Mr. Smith: Is my right hon. Friend aware that a strong feeling exists in England as well as in Scotland that calcium carbide should be manufactured at home, and will he use his best endeavours with that end in view?
    Sir T. Inskip: I used my best endeavours on a recent occasion.

    MILITARY AIRCRAFT (EXPORT).
    Mr. Hall-Caineasked the Minister for the Co-ordination of Defence whether, in view of the decision to import military aircraft from abroad in order to make good the deficiencies of aircraft supply in this country, it is proposed to take any steps to limit in future the export of British military aircraft; and what is the total number of military aircraft exported since 1st January this year?
    Sir T. Inskip: I would refer my hon. Friend to the answer which I gave to my Noble Friend the Member for Peterborough (Lord Burghley) on 14th April which stated the procedure followed in dealing with applications for sale abroad and explained the various considerations of which account is taken in dealing with these applications. For the reasons indicated in that reply, the Government do not consider it desirable to impose a complete ban on the export of military aircraft from this country, but all applications are rigidly scrutinised in the light of Royal Air Force requirements by the committee which has been set up for this purpose. The total number of aircraft of military types exported by aircraft firms with Air Ministry permission during the period from 1st January to 30th April, 1938, was 106, of which only 13 were of the later types.

    JAMAICA.
    Mr. Sorensenasked the Secretary of State for the Colonies whether he is aware of serious unrest in Jamaica and that many children are suffering from lack of food; whether the threat of a hunger march has been averted by the police; and whether he intends to take action to meet the situation?
    Mr. Ormsby-Gore: I assume that the hon. Member's question is based on a recent Press report containing information

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    which, I am informed by the Governor, is out of date and grossly exaggerated. I have no information that children in Jamaica are suffering from lack of food. The reference to a hunger march appears to relate to a demonstration by ex-British West Indies Regiment Association members which took place on the Kingston racecourse on 14th August, 1937. The association subsequently apologised to the Governor for the disturbances, and its grievances were later discussed in full and steps were taken where possible to meet them. As regards the last part of the question, I would refer to the reply given to the hon. Member for Consett (Mr. David Adams) on 27th April.
    Mr. Sorensen: Is the right hon. Gentleman aware that, in fact, serious disturbances have broken out? Has he been acquainted of these disturbances, and if not, will he take steps to get all the information necessary and publish a report at an early date?
    Mr. Ormsby-Gore: The next question that I shall answer deals with disturbances, but I wish to make it clear that I have no information of any disturbances at Kingston. The disturbances have been a long way from Kingston.
    Mr. Riley: Is the right hon. Gentleman aware that as recently as August, 1937, a petition was presented to the Governor of Jamaica asking him to have an inquiry into labour conditions in the island, and what action did the Government take?
    Mr. Ormsby-Gore: The petition was received, it was accepted, and the commission is now at work.
    Mr. Sorensen: Is the right hon. Gentleman aware that I did not mention Kingston in my question?
    Mr. R. Robinsonasked the Secretary of State for the Colonies whether his attention has been called to disturbances on the West Indies sugar estates near Savana-la-Mar, Jamaica, on Sunday, 1st May; what action was taken to quell the disturbances; and whether these disturbances have now ceased?
    Mr. Ormsby-Gore: I have received a telegraphic report on these disturbances from the Governor. It appears that a slight disturbance occurred on Friday, 29th April, on the West Indies Sugar Company's Frome Estate in the Parish
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    of Westmorland, where a new factory is now being erected, during the payment of weekly wages. Some windows were broken, but there were no casualties, and one hour later the police inspector found that all was quiet. On the following day, between 400 and 500 labourers employed on the new factory struck for higher wages, but the situation remained quiet and no disturbance occurred through the week-end. Ninety extra police were drafted to the area. It appears, however, that on Monday, 2nd May, a crowd of about 3,000 strikers demolished the company's office at Old Frome, attacking the staff and police with stones, sticks and iron bars, necessitating immediate firing by the police. Motor traffic was attacked on the road nearby, and some 80 acres of cane near the factory were fired. Four persons were killed and nine wounded, and 93 arrests were made. The disturbances appear to have been entirely local in character and due to trouble on the particular estate. The latest report indicates that the situation is now quiet.
    Mr. Robinson: Will my right hon. Friend take strong action to maintain law and order in the West Indies, and at the same time make it clear throughout the British Empire that just grievances can always be remedied by constitutional action?
    Mr. Lunn: May I ask the right hon. Gentleman again whether he will send out a commission to inquire into the horrible conditions that exist not only in Jamaica but in the West Indies, so as to settle what is the cause of these disturbances?
    Mr. Ormsby-Gore: We have just had a Commission on Trinidad and, as I informed the House, the new labour adviser to the Colonial Office is going out to the West Indies; a special inquiry is now sitting in Jamaica, and we have had one in Barbados. When an incident takes place such as this one, of course, there must be a special inquiry, but as to the character of that special inquiry, naturally I must consult the Governor before taking any steps.
    Mr. Kirkwood: Is the right hon. Gentleman aware of the fact that they are not allowed to form a trade union in Jamaica, and that therefore they cannot follow the usual constitutional method?
    Mr. Ormsby-Gore: I assure the hon. Gentleman that that is not so. We now have trade union machinery fully working in the West Indies.

  ROYAL AIR FORCE.

    AIRCRAFT SUPPLY (UNITED STATES AND CANADA).
    Mr. Manderasked the Chancellor of the Duchy of Lancaster whether the Air Ministry mission to America has made any arrangements for the purchase of Boeing machines; and whether the result of its inquiries will be placed at the disposal of the French or other friendly governments?
    The Chancellor of the Duchy of Lancaster (Earl Winterton): I am not at present in a position to add anything to the full reply which I gave last week to the hon. Member for West Islington (Mr. Montague) with regard to the scope and objects of the investigations now in hand by the party of experts which is visiting the United States and Canada.
    Mr. Mander: Is it impossible to give any information in reply to the second part of the question as to the handing over of information to the French Government and other governments?
    Earl Winterton: The information could not be imparted to a third party without the permission of the firms concerned. Presumably the French Government have their own methods of obtaining it.

    AIRCRAFT PRODUCTION.
    Sir Walter Smilesasked the Chancellor of the Duchy of Lancaster whether he can give an approximate date when the first aeroplanes will be available from factories in this country which use mass-production methods?
    Earl Winterton: Considerable deliveries have already been made of aeroplanes in the construction of which methods appropriate to large scale production have been applied so far as is practicable and consistent with the high standards imposed by considerations of efficiency and of the safety of flying personnel.
    Sir W. Smiles: Are the mass-production methods in this country as efficient as those in Germany and the United States of America?
    Earl Winterton: There is no mass production of aeroplanes in either country. I will deal more fully with this matter on the course of the speech which I shall make next week, as it would take too long to do so in answer to a question.
    Mr. Kirkwood: Is the Noble Lord aware of the fact that mass production along those lines has been going on in this country for the last 20 years in a most efficient manner?
    Earl Winterton: Yes, but the resemblance between that and the aircraft industry is not very close.

    METALCLAD, LIMITED, WORKS, NEATH.
    Sir William Jenkinsasked the Chancellor of the Duchy of Lancaster whether he is aware that the Metalclad, Limited, works at Neath have been closed since 13th December last, involving 187 men; that this company were producing machinery and assembling bodies manufactured for the Air Ministry; and will he consider the re-opening of these works, as the people employed are in a distressed area?
    Earl Winterton: The firm referred to carried out machining work on bombs some months ago on a sub-contract for a main Air Ministry contractor. If and when further supplies of the same article are required, the main contractor will again be invited to tender, and both firms are being borne in mind for any work for which they may be suitable.
    Sir W. Jenkins: Is the Noble Lord aware that since the closing down of this industry, nearly 4,000 men have been thrown out of employment in the steel trade?
    Earl Winterton: Yes, Sir, I was aware of that, and I was very sorry to hear it. I must point out, however, that these men were not employed on aircraft, but on certain portions of bomb making, and they were employed by a sub-contractor. The chances of their getting work in future will depend upon the work which they get to do in connection with subcontracts.

    AERODROMES.
    Mr. Dayasked the Chancellor of the Duchy of Lancaster the number of licensed civil aerodromes of all kinds and

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    the number of Royal Air Force aerodromes that were completed and ready for use as at the last convenient date?
    Earl Winterton: The numbers at the present time are 100 and 89 respectively.
    Mr. Day: In view of the development of civil aviation, will the Noble Lord impress upon local authorities the advisability of having more landing grounds?

    SHADOW FACTORIES (CONTRACT ARRANGEMENTS).
    Mr. Garro Jonesasked the Chancellor of the Duchy of Lancaster whether the agents for the shadow factories are to receive as management fees the sum of £220 to £225 per air frame and £75 per engine, irrespective of the type of air frame of engine and with no penalty clause for delays?
    Earl Winterton: The management fees for each air frame produced is fixed at £200 or, alternatively, £225 according to the type of air frame. For aero engines it is fixed at £75 irrespective of the type of engine. There is no specific penalty clause for delay, but agreements are terminable on due notice on failure of the agents to carry out their obligations.
    Mr. Garro Jones: Is the same price fixed for an engine which costs £1,000 as for one which costs £3,000?
    Earl Winterton: This matter is very fully explained in the report of the Comptroller and Auditor-General on the Air Appropriation Account.
    Mr. Garro Jones: Is the Noble Lord aware that the report does not state explicitly whether the same price is being paid for an engine which costs £1,000 as for one which costs £3,000?
    Earl Winterton: I shall be very glad to deal with this question in extensor in the course of my speech next week.
    Mr. Garro Jonesasked the Chancellor of the Duchy of Lancaster, what is the fixed management fee paid or to be paid in addition and prior to the £220 to £225 per annum for each airframe and £75 per engine to each of the agents for the shadow factories during the period before production begins; and whether this is an annual or total payment?
    Earl Winterton: I would refer the hon. Member to the figures which were supplied in an answer given to him by my right hon. Friend the Minister for Coordination of Defence on 17th February, 1937. For the first year management fees of the amounts therein stated are payable to the firms concerned for their services in respect of erection and equipment of the shadow factories and of the planning of them for production. In subsequent years the managing firms are re-munerated by the fees earned for the production of airframes and engines.
    Mr. Garro Jones: Are these fixed payments made only when production commences, or are they paid annually, irrespective of how long it takes to come into production?
    Earl Winterton: The whole of the first year is necessarily absorbed in the work of the erection, installation and equipment of the shadow factories.
    Mr. Garro Jones: Can I have an answer to the point which I put to the Noble Lord? Is the sum fixed irrespective of when they come into production? If they take 10 years to come into production, do they receive an annual payment of this amount?
    Earl Winterton: I am sorry that I have not made it clear. The answer is, "No, Sir."
    Mr. Attlee: Is there any check as to the amount of actual attention given to the management of these shadow factories by the firms themselves?
    Earl Winterton: Yes, Sir, there is a most complete check.

    DIRECTION-FINDING APPARATUS.
    Mr. V. Adamsasked the Chancellor of the Duchy of Lancaster, how many first-line machines in the Royal Air Force are equipped with an efficient direction-finding or homing device; and whether our development in this respect is comparable with the standards achieved in the air forces of other great Powers?
    Earl Winterton: All first-line aircraft in the Royal Air Force are equipped with facilities for obtaining efficient direction-finding and homing services. The answer to the second part of the question is in the affirmative.
    Mr. Adams: Does that mean the retractable loop design?
    Earl Winterton: There is about to come into production an even more efficient instrument than the present one, but I prefer, for reasons of public interest, not to go into details about it.
    Mr. Kirkwood: May I be permitted to put this point? It has been put to us this morning that the shadow factories and other factories are going on with work that is two years out of date?
    Earl Winterton: I think the hon. Gentleman is referring to the previous question. This question deals with direction-finding and homing.
    Mr. V. Adams: Is it not a matter of very serious public interest that gallant and precious lives should be exposed to great danger owing to lack of efficient instruments?
    Earl Winterton: I cannot accept that suggestion. This is a serious matter and I said in reply to the question that all first-line aircraft were equipped with facilities for obtaining direction-finding and homing services.

    BRITISH AIRCRAFT INDUSTRY.
    Mr. Sandysasked the Chancellor of the Duchy of Lancaster how it is that in spite of the Government's aircraft expansion programme British aircraft manufacturing companies are short of orders, and that many aeronautical engineering works are discharging employés?
    Mr. Simmondsasked the Chancellor of the Duchy of Lancaster in what directions it is hoped that the Air Ministry Committee of Supply will improve the preceding organisation?
    Earl Winterton: I hope to be in a position to make a comprehensive statement in the near future which will deal among other matters with the points raised by my hon. Friends, but I cannot accept the assumption in the question of my hon. Friend the Member for Norwood (Mr. Sandys). The numbers employed in the aircraft industry have largely and progressively increased.
    Mr. Sandys: Is the Noble Lord aware that since I put down this question I have received letters and telegrams from
    880
    aircraft firms all over the country confirming these facts?
    Earl Winterton: I am very surprised to hear that as I am myself in touch with the principal aircraft production firms, and I understand that they have full programmes of work. If the hon. Member will be good enough to let me have the letters and telegrams to which he refers, I will look into them.
    Mr. Gallacher: Will the Minister, pending his speech, make the necessary inquiries and do something in order to get back into the trade the skilled workers who have been driven out because of low wages?
    Earl Winterton: That is more a matter for the firms themselves. But in any event I cannot accept the assumption in the question.

    AIR MINISTRY COMMITTEE OF SUPPLY.
    Mr. Simmondsasked the Chancellor of the Duchy of Lancaster whether any member of the recently formed Air Ministry Committee of Supply has wide practical experience in large-scale engineering production and supply?
    Earl Winterton: The committee, whose functions are administrative, has the valued assistance of Sir Charles Bruce-Gardner, the Chairman of the Society of British Aircraft Constructors, who is a full time member. The committee, as a result, not only have the benefit of Sir Charles Bruce-Gardner's own wide experience but can also draw through him on the individual and collective experience of the aircraft industry.
    Mr. Simmonds: Is my right hon. Friend not aware that Sir Charles Bruce-Gardner is an administrator and not an engineer; and is he not aware that the failure on the supply side of the Air Ministry is due to the fact that they have not competent engineers and production managers in their employ?
    Earl Winterton: I could not possibly agree with my hon. Friend. I could supply him privately—there would not be time to do so in reply to a question—with the directorships which have been held by, and the administrative work of, Sir Charles Bruce-Gardner, who is thoroughly competent in all branches of engineering.
    Mr. Simmonds: Even if that be the case, surely one in this Committee is not

    881
    adequate to decide questions of supply concerning the Royal Air Force?
    Earl Winterton: I never said so, but the Committee over which I have the honour to preside happens to be a very competent one.
    Mr. De la Bére: Is not the whole matter thoroughly unsatisfactory?

BUSINESS OF THE HOUSE.
Motion made, and Question put,
" That the Proceedings in Committee on Bacon Industry [Money] be exempted, at this day's Sitting, from the provisions of the Standing Order (Sittings of the House)."— [The Prime Minister.]
The House divided: Ayes, 231; Noes, 107.

Division No. 195.]

AYES.

[3.47 p.m.

Acland-Troyte, Lt.-Col. G. J.

Emrys-Evans, P. V.

Marsden, Commander A.

Adams, S. V. T. (Leeds, W.)

Entwistle, Sir C. F.

Mayhew, Lt.-Col. J.

Albery, Sir Irving

Erskine-Hill, A. G.

Mellor, Sir J. S. P. (Tamworth)

Anderson, Rt. Hn. Sir J. (Sc'h Univ's)

Evans, Capt. A. (Cardiff, S.)

Mills, Sir F. (Leyton, E.)

Anstruther-Gray, W. J.

Fildes, Sir H.

Mitchell, Sir W. Lane (Streatham)

Aske, Sir R. W.

Findlay, Sir E.

Moreing, A. C.

Assheton, R.

Flaming, E. L.

Morgan, R. H.

Astor, Viscountess (Plymouth, Sutton)

Furness, S. N.

Morris-Jones, Sir Henry

Astor, Hon. W. W. (Fulham, E.)

Goldie, N. B.

Morrison, Rt. Hon. W. S. (Cirencester)

Barclay-Harvey, Sir C. M.

Graham, Captain A. C. (Wirral)

Muirhaad, Lt.-Col. A. J.

Beamish, Roar-Admiral T. P. H.

Grant-Ferris, R.

Munro, P.

Beauchamp, Sir B. C.

Grattan-Doyle, Sir N.

Naven-Spence, Major B. H. H.

Beaumont, Hon. R. E. B. (Portsm'h)

Greene, W. P. C. (Worcester)

Nicolson, Hon. H. G.

Bennett, Sir E. N.

Gratton, Col Rt. Hon. J.

O'Connor, Sir Terence J.

Birchall, Sir J. D.

Gridley, Sir A. B.

O'Neill, Rt. Hon. Sir Hugh

Bird, Sir R. B.

Guest, Lieut.-Colonel H. (Drake)

Ormsby-Gore, Rt. Hon. W. G. A.

Blair, Sir R.

Guest, Hon. I. (Bracon and Radnor)

Patrick, C. M.

Bossom, A. C.

Guinness, T. L. E. B.

Peake, O.

Boulton, W. W.

Hambro, A. V.

Perkins, W. R. D.

Bower, Comdr. R. T.

Hannah, I. C.

Peters, Dr. S. J.

Braithwaite, Major A. N.

Hannon, Sir P. J. H.

Pickthorn, K. W. M.

Brocklebank, Sir Edmund

Harbord, A.

Pilkington, R.

Brown, Col. D. C. (Hexham)

Harvey, Sir G.

Plugge, Capt. L. F.

Brown, Brig.-Gen. H. C. (Newbury)

Harvey, T. E. (Eng. Univ's.)

Porritt, R. W.

Browne, A. C. (Belfast, W.)

Haslam, H. C. (Horncastle)

Procter, Major H. A.

Bull, B. B.

Heilgers, Captain F. F. A.

Radford. E. A.

Bullock, Capt. M.

Hely-Hutchinson, M. R.

Raikes, H. V. A. M.

Burgin, Rt. Hon. E. L.

Herbert, Major J. A. (Monmouth)

Ramsay, Captain A. H. M.

Caine, G. R. Hall-

Higgs, W. F.

Rathbone, Eleanor (English Univ's.)

Campbell, Sir E. T.

Hoare, Rt. Hon. Sir S.

Rathbone, J. R. (Bodmin)

Carver, Major W. H.

Holmes, J. S.

Rayner, Major R. H.

Cary, R. A.

Hope, Captain Hon. A. O. J.

Reed, A. C. (Exeter)

Cayzer, Sir C. W. (City of Chester)

Hore-Belisha, Rt. Hon. L.

Reid, W. Allan (Derby)

Cayzer, sir H. R. (Portsmouth, S.)

Howitt, Dr. A. B.

Rickards, G. W. (Skipton)

Cazalet, Thelma (Islington, E.)

Hudson, Rt. Hon. R. S. (Southport)

Robinson, J. R. (Blackpool)

Chamberlain, Rt. Hn. N. (Edgb't'n)

Hulbert, N. J.

Ropner, Colonel L.

Channon, H.

James, Wing-Commander A. W. H.

Ross Taylor, W. (Woodbridge)

Chapman, Sir S. (Edinburgh, S.)

Jarvis, Sir J. J.

Royds, Admiral Sir P. M. R.

Chorlton, A. E. L.

Joel, D. J. B.

Ruggles-Brise, Colonel Sir E. A.

Clarry, Sir Reginald

Jones, L. (Swansea W.)

Russell, Sir Alexander

Cobb, Captain E. C. (Preston)

Kerr, Colonel C. I. (Montrose)

Russell, S. H. M. (Darwen)

Colville, Lt.-Col. Rt. Hon. D. J.

Kerr, H. W. (Oldham)

Salter, Sir J. Arthur (Oxford U.)

Conant, Captain R. J. E.

Keyes, Admiral of the Fleet Sir R.

Samuel, M. R. A.

Cook, Sir T. R. A. M. (Norfolk, N.)

Knox, Major-General Sir A. W. F.

Sanderson, Sir F. B.

Cooke, J. D. (Hammersmith, S.)

Law, Sir A. J. (High Peak)

Sandys, E. D.

Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs)

Leech, Sir J. W.

Scott, Lord William

Cooper, Rt. Hn. T. M. (E'nburgh, W.)

Leigh, Sir J.

Sellay, H. R.

Courtauld, Major J. S.

Leighton, Major B. E. P.

Shakespeare, G. H.

Courthope, Col, Rt. Hon. Sir G. L.

Lennox-Boyd, A. T. L.

Shaw, Major P. S. (Wavertree)

Cox, H. B. Trevor

Lewis, O.

Shepperson, Sir E. W.

Crooke, Sir J. S.

Liddall, W. S.

Shute, Colonel Sir J. J.

Crookshank, Capt. H. F. C.

Lipson, D. L.

Simmonds, O. E.

Cross, R. H.

Llewellin, Colonel J. J.

Simon, Rt. Hon. Sir J. A.

Crossley, A. C.

Lloyd, G. W.

Sinclair, Col. T. (Queen's U. B'lf'st)

Crowder, J. F. E.

Locker-Lampson, Comdr. O. S

Smiles, Lieut.-Colonel Sir W. D.

Cruddas, Col. B.

Lyont, A. M.

Smith, L. W. (Hallam)

Culverwell, C. T.

Mabane, W. (Huddersfield)

Smith, Sir R. W. (Aberdeen)

Davidson, Vitcountess

M'Connell, Sir J.

Smithers, Sir W.

De la Bére, R.

MacDonald, Rt. Hon. M. (Ross)

Somerset, T.

Denman, Hon. R. D.

Macdonald, Capt. P. (Isle of Wight)

Somervell, Sir D. B. (Crawe)

Danville, Alfred

McEwen, Capt. J. H. F.

Spears, Brigadier-General E. L.

Dower, Major A. V. G.

McKie, J. H.

Stewart, William J. (Belfast, S.)

Duggan, H. J.

Macnamara, Major J. R. J.

Strauss, E. A. (Southwark, N.)

Dunglass, Lord

Macquisten, F, A.

Strauss, H. G. (Norwich)

Elliston, Capt. G. S.

Maitland, A.

Stuart, Hon. J. (Moray and Nairn)

Elmley, Viscount

Makins, Brig.-Gen. E.

Sueter, Rear-Admiral Sir M. F.

Emery, J. F.

Manningham-Buller, Sir M.

Tasker. Sir R. I.

Emmott, C. E. G. C.

Margesson, Capt. Rt. Hon. H. D. R.

Tate, Mavis C.

Taylor, Vice-Adm. E. A. (Padd., S.)

Wallace, Capt. Rt. Hon. Euan

Williams, H. G. (Croydon, S.)

Thomas, J. P. L.

Ward, Lieut-Col. Sir A. L. (Hull)

Willoughby de Eresby, Lord

Thomson, Sir J. D. W.

Ward, Irene M. B. (Wallsend)

Windsor-Clive, Lieut-Colonel G.

Titchfield, Marquess of

Wardlaw-Mllne, Sir J. S.

Wintertan, Rt. Hon. Earl

Touche, C. C.

Warrender, Sir V.

Withers, Sir J. J.

Tree, A. R. L. F.

Waterhouse, Captain C.

Wood, Hon. C. I. C.

Tryon, Major Rt. Hon. G. C.

Watt, Major G. S. Harvie

Wragg, H.

Tufnell, Lieut.-Commander R. L.

Wedderburn, H. J. S.

Turton, R. H.

Whiteley, Major J. P. (Buckingham)

TELLERS FOR THE AYES.—

Wakefield, W. W.

Wickham, Lt.-Col. E. T. R.

Captain Dugdale and Mr.

Grimston.

NOES.

Acland, R. T. D. (Barnstaple)

Hardie, Agnes

Pearson, A.

Adams, D (Consott)

Harris, Sir P. A,

Pathick-Lawrence, Rt. Han. F. W.

Alexander, Rt. Hon. A. V. (H'lsbr.)

Hayday, A.

Quibell, D. J. K.

Anderson, F. (Whitehaven)

Henderson, A. (Kingswinford)

Richards, R. (Wrexham)

Attlee, Rt. Hon. C. R.

Henderson, J. (Ardwick)

Riley, B.

Banfield, J. W.

Henderson, T. (Tradeston)

Ritson, J.

Barnes, A. J.

Hills, A. (Pontefract)

Roberts, W. (Cumberland, N.)

Batey, J.

Hopkin, D.

Robinson, W. A. (St. Helens)

Bellenger, F. J.

Jenkins, Sir W. (Neath)

Rothschild, J. A. de

Benn, Rt. Hon. W, W.

Jones, A. C. (Shipley)

Salter, Dr. A. (Bermondsey)

Benson G.

Jones, Sir H. Haydn (Merioneth)

Seely, Sir H. M.

Buchanan, G.

Jonas, Morgan (Caerphilly)

Sexton. T. M.

Burke, W. A.

Kelly, W. T.

Shinwell, E.

Chatar, D.

Kennedy, Rt. Hon. T.

Silverman, S. S.

Cluse, W. S.

Kirby, B. V.

Simpson, F. B.

Clynes, Rt. Hon. J. R.

Kirkwood, D.

Smith, Ben (Rotherhithe)

Cove, W. G.

Lathan, G.

Smith, E. (Stoke)

Daggar, G.

Leach, W.

Smith, Rt. Hon. H. B. Lees (K'ly)

Davidson, J. J. (Maryhill)

Lea, F.

Smith, T. (Normanton)

Davies, R. J. (Westhoughton)

Leonard, W.

Sorensen, R. W.

Davias, S. O. (Marthyr)

Leslie, J. R.

Stephen, C.

Day, H.

Lunn, W.

Stewart, W. J. (H'ght'n-le-Sp'ng)

Dunn, E. (Rother Valley)

Macdonald, C. (Ince)

Strauss, G. R. (Lambeth, N.)

Ede, J. C.

McEntee, V. La T.

Taylor, R. J. (Morpeth)

Edwards, A. (Middlesbrough E.)

McGhee, H. G.

Thorne, W.

Edwards, Sir C. (Bedwellty)

MeGovern, J.

Thurtle, E.

Evans, D. O. (Cardigan)

MacLaren, A.

Tinker, J. J.

Gallacher, W.

Mander, G. le M.

Viant, S. P.

Gardner, B. W.

Maxton, J.

Walkden, A. G.

Garro Jones, G. M.

Montague, F.

White, H. Graham

Green, W. H. (Deptford)

Morrison, R. C. (Tottenham, N.)

Whiteley, W. (Blaydon)

Greenwood, Rt. Hon. A.

Muff, G.

Wilson, C. H. (Attercliffe)

Griffiths, G. A. (Hemsworth)

Noel-Baker, P. J.

Woods, G. S. (Finsbury)

Griffiths, J. (Llanelly)

Owen, Major G.

Guest, Dr. L. H. (Islington, N.)

Paling, W.

TELLERS FOR THE NOES.—

Hall, G. H. (Aberdare)

Parker, J.

Mr. Groves and Mr. Charleton.

Hall, J. H. (Whltashapel)

Parkinson, J. A.

Resolution agreed to.

LONDON PASSENGER TRANSPORT BOARD BILL.
Reported, with Amendments, from the Committee on Group F of Private Bills (with Report on the Bill).
Bill, as amended, and Report to lie upon the Table; Report to be printed.

ORDERS OF THE DAY.
  WAYS AND MEANS.

    REPORT [26th APRIL].
    Fifth and subsequent Resolutions considered.
    INCOME TAX.
    CHARGE OK TAX.
    5. "That—
    (1) Income Tax for the year 1938–39 shall be charged at the standard rate of five shillings and sixpence in the pound, and, in the case of an individual whose total income exceeds two thousand pounds, at such higher rates in respect of the excess over two thousand pounds as Parliament may hereafter determine;
    (2) all such enactments as had effect with respect to the Income Tax charged for the year 1937–38 shall have effect with respect to the Income Tax charged for the year 1938–39.
    And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
    HIGHER RATES OF INCOME TAX FOR 1937–38.
    6. "That Income Tax for the year 1937–38 in respect of the excess of the total income of an individual over two thousand pounds shall be charged at rates in the pound which respectively exceed the standard rate by amounts equal to the amounts by which the rates at which Income Tax was charged in respect of the said excess for the year 1936–37 respectively exceeded the standard rate for that year.
    And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
    AMENDMENT AS TO RELIEF IN RESPECT OF LIFE INSURANCE PERMIUMS.
    7. "That, in cases where the allowance to be given in respect of life insurance premiums and other payments under Section thirty-two of the Income Tax Act, 1918, is restricted by paragraph (f) of Subsection (3) of that Section as amended by Section twenty-three of the Finance Act, 1935, the rate of tax by reference to which the allowance is so restricted shall be ten thirty-thirds of the standard rate instead of one-third of the standard rate.
    And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
    AMENDMENT OF SCHEDULE C AND CONSEQUN-TIAL AMENDMENT OF SCHEDULE D.
    8. "That—
    (1) for all the purposes of Income Tax under Schedule C and Rule 1 of the rules
    906
    applicable to Case 111 of Schedule D, the expression ' public revenue ' shall, except where the context otherwise requires, include the public revenue of any Government whatsoever and the revenue of any public authority or institution in any country outside the United Kingdom;
    (2) where a banker or any other person in the United Kingdom, by means of coupons received from any other person or otherwise on his behalf, obtains payment of any foreign dividends elsewhere than in the United Kingdom, the tax under Schedule C shall extend to the dividends and the person obtaining payment shall be treated for the purpose of the paying agents rules as if he were intrusted with the payment thereof;
    (3) where a banker in the United Kingdom sells or otherwise realises coupons for any dividends, being foreign dividends, and pays over the proceeds to any person or carries them to his account, or where a dealer in coupons in the United Kingdom purchases any such coupons as aforesaid otherwise than from a banker or another dealer in coupons, the tax under Schedule C shall extend to the proceeds of the sale or other realisation, and the paying agents rules shall apply to those proceeds as if they were dividends, and shall apply to the banker or dealer as if he had been intrusted with the payment thereof;
    (4) the provisions of the last two foregoing paragraphs shall apply for the purpose of Rule 7 of the miscellaneous rules applicable to Schedule D (which relates to interest, etc., from colonial and foreign companies) subject to any necessary modifications;
    (5) for the purpose of this Resolution—

    (a) the expression ' banker ' includes a person acting as a banker and, notwithstanding anything in the paying agents rules, includes the Bank of England and the Bank of Ireland;

    (b) the expressions ' dividends,' coupons' and 'coupons for any dividends' have the same meanings as in the paying agents rules and the expression ' foreign dividends ' means dividends payable elsewhere than in the United Kingdom, whether they are also payable in the United Kingdom or not;

    (c) the expression ' paying agents rules ' means the rules applicable to Schedule C as to interest, etc., with the payment of which persons other than the Bank of England, the Bank of Ireland and the National Debt Commissioners are intrusted;

    (6) the provisions of Schedule C and Schedule D shall be deemed always to have had effect subject to the foregoing provisions of this Resolution:
    Provided that, where at any time after the twenty-ninth day of July, nineteen hundred and thirty-seven, and before the twenty-seventh day of April, nineteen hundred and thirty-eight, tax could have been charged on or deducted from any profits under Schedule C of the said Rule 7 if the provisions of this Resolution had been

    907
    enacted at that time, but has not been so charged or deducted, those profits shall be chargeable under Case VI of Schedule D for the year of assessment in which the profits arose.
    And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
    TRANSFERS OF INCOME ARISING FROM SECURITIES.
    9. "That—
    (1) where, in any year of assessment, the owner of any securities (in this Resolution referred to as ' the owner ') has sold or transferred or hereafter sells or transfers the right to receive any interest payable, whether before or after the sale or transfer, in respect of the securities without selling or transferring the securities, the following provisions shall have effect and shall be deemed always to have had effect:

    (a) that interest, whether it would or would not be chargeable to tax apart from the provisions of this Resolution, shall, for all the purposes of the Income Tax Acts, be deemed to he the income of the owner or, where a beneficiary is entitled to the income arising from the securities, the income of the beneficiary, and not the income of any other person, and be deemed to be income for that year;

    (b) in the case of a sale or other realisation the proceeds whereof are chargeable to tax under Schedule C or Rule 7 of the miscellaneous rules applicable to Schedule D, the amount of the interest deemed to be the income of the owner or beneficiary shall be an amount equal to those proceeds;

    (c) in any other case, tax at the standard rate in respect of the interest shall be chargeable on the owner or beneficiary under Schedule D;

    (2) nothing in the foregoing provisions shall affect any provision of the Income Tax Acts authorising or requiring the deduction of tax from the interest, or from the proceeds of any subsequent sale or realisation of the right to receive the interest;
    (3) for the purpose of this Resolution, the expression interest ' includes dividends, annuities and shares of annuities, and the expression ' securities ' includes stocks and shares."
    FUNDING BONDS ISSUED IN RESPECT OF INTEREST ON CERTAIN DEBTS.
    10." That—
    (1) where any funding bonds are issued to a creditor in respect of any liability to pay interest on any debt to which this Resolution applies, the issue of the bonds shall be treated for all the purposes of the Income Tax Acts as if it were the payment of an amount of that interest equal to the value of the bonds at the time of the issue thereof;
    (2) where any person by or through whom any such bonds are issued in any year of assessment would be required under the said Acts to deduct tax from the said amount of interest if it had been actually paid by or through him, he shall retain bonds the value whereof at the time of issue is equal to tax at the standard rate for that year on the said amount of interest, and shall be acquitted in respect of the retention in like manner as if he had deducted such tax from the interest, and shall be chargeable with such tax accordingly:
    Provided that the Commissioners of Inland Revenue, if satisfied that it is impracticable to retain bonds as aforesaid, may relieve any such person from the foregoing provisions of this paragraph on such conditions as they think fit, and thereupon tax in respect of the amount of interest treated as having been paid by the issue of the bonds shall be chargeable for that year under Case VI of Schedule D on the persons receiving or entitled to the bonds;
    (3) the debts to which this Resolution applies are any debts incurred, whether in respect of moneys borrowed or otherwise, by any Government, public authority or public institution whatsoever, or by any body corporate whatsoever, and for the purpose of this Resolution the expression ' funding bonds ' includes any bonds, stocks, shares, securities or certificates of indebtedness;
    (4) the foregoing provisions of this Resolution shall be deemed always to have had effect:
    Provided that, where at any time after the twenty-ninth day of July, nineteen hundred and thirty-seven, and before the twenty-seventh day of April, nineteen hundred and thirty-eight, any bonds could have been retained under this Resolution if its provisions had been enacted at that time but have not been so retained, an amount equal to the value of the bonds at the time of the issue thereof shall be chargeable under Case VI of Schedule D for the year of assessment in which the bonds were issued.
    And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
    PROVISIONS AS RESPECTS SETTLEMENTS.
    11. "That—
    (1) there may be included in any Act of the present Session relating to finance such provisions as to Income Tax as Parliament may determine in relation to—

    (a) settlements which are wholly or partly revocable or otherwise determinable in any circumstances whatsoever (including settlements whereunder the settlor's liability might cease on payment of a penalty);

    (b) settlements whereunder any income or property of any description is, or will or may become, payable to or applicable for the benefit of the settlor in any circumstances whatsoever;

    909

    (c) the disallowance, in computing total income for purposes of Surtax, of the deduction of sums paid by a settlor to the trustees of the settlement or persons connected with the settlement;

    (d) sums paid directly or indirectly, whether by way of loan or repayment of loan or otherwise, by the trustees of a settlement or persons connected with a settlement to the settlor;

    (2) subject to such qualifications and exceptions as Parliament may determine, the said provisions shall apply to any settlement wherever or whenever made or entered into, and shall apply for the purposes of assessment to Income Tax for the year 1937–38 and subsequent years;
    (3) for the purpose of this Resolution the expression ' settlement ' includes any disposition, trust, covenant, agreement or arrangement, and the expression ' settlor ' includes any person by whom a settlement was made or entered into directly or indirectly and, in particular, includes any person who has provided or undertaken to provide funds directly or indirectly for the purpose of a settlement, or has made with any other person a reciprocal arrangement for that other person to make or enter into a settlement; and references to a settlor include references to the wife or husband of a settlor."
    AMENDMENTS AS TO AVOIDANCE OF INCOME TAX BY TRANSFER OF INCOME ABROAD.
    12. "That there may be included in any Act of the present Session relating to finance such amendments of Section eighteen of the Finance Act, 1936 (which contains provisions for preventing avoidance of Income Tax by transactions resulting in the transfer of income to persons abroad), as Parliament may determine, and any such Act may provide that the said amendments shall have effect for the purpose of assessment to Income Tax for the year 1937–38 and subsequent years, and shall apply in relation to transfers of assets and associated operations whether carried out before or after the date of this Resolution."
    ADMINISTRATION OF ESTATES.
    13. "That—
    (1) there may be included in any Act of the present Session relating to finance such provisions as to Income Tax as Parliament may determine in relation to the estate of a deceased person and the income arising therefrom before the completion of the administration of the estate, in relation to persons having an interest in the residue of an estate before, on and after the ascertainment thereof and persons to whom legacies are bequeathed by a will, and otherwise in relation to the administration of estates;
    (2) any such Act may provide that the said provisions shall have effect for the purpose of assessment to Income Tax for the year 1937–38 and subsequent years and shall apply in relation to the estate of a deceased person whether he died before or after the commencement of that year."
    VALUATION OF TRADING STOCK ON DISCONTINUANCE OF TRADES.
    14. "That—
    (1) when any trade is discontinued or treated for the purposes of Income Tax as if it had been discontinued, any trading stock then belonging to the trade shall be valued, in computing for the purposes of Income Tax the profits or gains of the trade, as follows:

    (a) in the case of any such trading stock which is sold or transferred for valuable consideration to a person who carries on or intends to carry on a trade in the United Kingdom and may deduct the cost of the trading stock as an expense in computing the profits or gains of that trade, the value thereof shall be taken to be the amount realised on the sale or the value of the consideration given for the transfer;

    (b) in the case of any other such trading stock, the value thereof shall be taken to be the price which it would have realised if sold in the open market at the discontinuance;

    (2) provision shall be made for determining any questions arising under sub-paragraph (a) of the last foregoing paragraph for the purpose of computing the profits or gains of both the trades concerned;
    (3) for the purpose of this Resolution, the expression ' trading stock ' includes property of any description, whether real or personal."
    LOSSES OF CAPITAL REDEMPTION BUSINESS.
    15. "That—
    (1) where any person carries on capital redemption business—

    (a) the capital redemption business, if carried on in conjunction with business of any other class, shall be treated for the purposes of Income Tax as a separate business; and

    (b) in ascertaining whether and to what extent he has sustained a loss in the carrying on of the capital redemption business for the purpose of setting off or giving relief in respect of the loss, any of his income derived from investments held in connection with the capital re-demptan business shall be treated as part of the profits arising from that business:

    (2) in this Resolution the expression ' capital redemption business ' means the business (not being life assurance business or industrial assurance business) of effecting and carrying out contracts of insurance, whether effected by the issue of policies, bonds or endowment certificates or otherwise, whereby in return for one or more premiums paid to the insurer a sum or series of sums will become payable to the insured in the future."
    ESTATE DUTY.
    ESTATE DUTY IN RESPECT OF RESIDUARY ESTATES.
    16. "That—
    (1) there may be included in any Act of the present Session relating to finance such provisions as to Estate Duty as Parliament may determine in relation to the residue of the estate of a deceased person and to the inclusion of property representing such residue in the property that passes or is deemed to pass on the death of a person dying before the completion of the administration of the estate;
    (2) any such Act may provide that the said provisions shall have effect and be deemed always to have had effect in relation to a person so dying whether before or after the commencement of the said Act."
    ESTATE DUTY IN RESPECT OF PROPERTY TRANSFERRED TO, AND SHARES IN, CERTAIN COMPANIES.
    17. "That—
    (1) for the purpose of determining the rate of Estate Duty, property which is deemed to pass on the death of any person by virtue of Section thirty-four or Section thirty-five of the Finance Act, 1930, shall not be an estate by itself but shall he aggregated with other property passing on the death;
    (2) for the purpose of the definition of ' the value of the total assets of the company ' contained in Section thirty-eight of the said Act, the deduction to be made under paragraph (i) in respect of any debentures, debenture stock or preference shares of the company shall, instead of being the par or redemption value thereof, whichever is the greater, be the principal value thereof."
    ESTATE DUTY IN RESPECT OF SETTLED PROPERTY.
    18. "That the exemption conferred by Subsection (3) of Section five of the Finance Act, 1894, in the case of settled property where the interest of any person under the settlement fails or determines by reason of his death before it becomes an interest in possession and subsequent limitations under the settlement continue to subsist, shall cease in cases where the property would, if that Sub-section had not been enacted, have been deemed to pass on the death otherwise than by reason of the failure or determination of the interest."
    MISCELLANEOUS.
    NATIONAL DEFENCE CONTRIBUTION.
    19. "That Part III of the Finance Act, 1937 (which relates to the National Defence Contribution), shall be amended—

    (a) so as to re-define the circumstances in which a body corporate is to be deemed to be a subsidiary of another body corporate for the purpose of Section twenty-two of the said Act (which provides for the amalgamation of the profits and losses of subsidiary and principal companies) and of any provision made in pursuance of this Resolution;

    912

    (b) so as to alter the provisions of the said Section twenty-two relating to the giving of notice thereunder by a principal company as respects a subsidiary;

    (c) so as to disallow, in computing profits, any deduction in respect of any interest, annuity or other annual payment, or any royalty or rent, paid by one body corporate to another, where one of them is a subsidiary of the other or both are subsidiaries of a third;

    (d) so as to disallow the carrying forward of any loss under sub-paragraph (2) of paragraph (2) of the Fourth Schedule to the said Act, if and to the extent that the loss has been deducted from or set off against the profits arising from a trade or business, whether under the said Section twenty-two or otherwise;

    and that the said amendments shall be deemed to have had effect as from the date on which the said Part III came into operation."
    RESTRICTION OF RELIEF FROM TRANSFER STAMP DUTY ON CERTAIN INSTRUMENTS.
    20. "That any Act of the present Session relating to finance may restrict, in such manner as Parliament may determine, the relief from Stamp Duty given by Section forty-two of the Finance Act, 1930 (which relates to instruments the effect whereof is to convey or transfer a beneficial interest in property from one associated company to another)."
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    Mr. Pethick-Lawrence: Will the Government explain this Resolution?
    3.56 p.m.
    The Chancellor of the Exchequer (Sir John Simon): This Resolution is merely consequential upon the Resolution which has just preceded it. If we did not adopt this Resolution for the reduction of the modified life insurance allowance, cases would arise where the rate of life insurance deduction would be a higher rate than the rate of Income Tax which would be applicable to the individual. As long as we had the strict rule that within the reduced zone the rate of tax was one-third of the standard rate, that is to say, 1s. 8d. out of the 5s., 1s. 8d. might be the legitimate deduction, but the Statute as it is framed changes it into 1s. 10d., although, as the House will know, we are providing that only 1s. 8d. shall continue to be the reduced rate of Income Tax.

    913
    Therefore this is a purely consequential adjustment and goes with the Resolution preceding it.
    Motion made, and Question proposed, "That this House doth agreed with the Committee in the said Resolution."
    3.59 P.m.
    Mr. Hely-Hutchinson: I should like to ask a question in regard to Sub-section (Ell, which deals with the retroactive provisions that will become necessary in connection with this Amendment. As my right hon. Friend is aware, a proposal to make any taxation retroactive gives rise to considerable uncertainty in business, and I am only asking for some sort of assurance that it is not proposed to upset the results of litigation which has already been decided and cases which may fall in the same category.
    4.0 p.m.
    The Attorney-General (Sir Donald Somervell): I can give the assurance for which my hon. Friend has asked; it is not intended to interfere with the results of cases already decided. I think that is the only question my hon. Friend asked.
    Mr. Pethick-Lawrence: Would the Attorney-General explain the whole matter?
    The Attorney-General: This and the following Resolution deal with interest on coupons, those little tickets attached to bonds which are detached year by year and presented at some place or other, and in return for them the interest is paid. It has been assumed by everyone concerned, those who cash coupons through bankers or coupon dealers, that until a recent case in the Court of Appeal this House by certain provisions in the Income Tax Acts had carried out what the intention of Parliament was, in particular in the case of coupons of bonds which cannot be presented to anyone in this country for direct cashing but are payable outside this country, being bonds of foreign Governments or concerns. Originally coupons of that kind were outside the provisions of the Income Tax Acts which provided for the deduction of tax at the source. In the case of an ordinary coupon payable in this country, a coupon which is presented to the issuing Government or country, of course tax is deducted at the
    914
    source. Coupons of that kind have been for many years dealt with by holders or by bankers acting on their behalf by being sold to persons called coupon dealers, who in normal cases get a small profit for themselves for undertaking to deal with the coupons by presenting them at whatever place, usually some place abroad, where they have to be presented. Naturally if a coupon can be cashed in this country the individual or banker presents it directly and it is not necessary to deal with a coupon dealer.
    Parliament provided a number of years ago a provision in the Income Tax which, in ordinary popular language, meant that the provisions as to deduction of tax at the source were to apply to coupon dealers who dealt with coupons in this way, and since that provision was inserted in the Act coupon dealers have been accounting to the revenue for the tax in exactly the same way as other people who deduct tax. The recent case in the Court of Appeal decided that that provision inserted in the Act did not apply to cases where the coupons were payable solely out of the United Kingdom. I cannot but think that Parliament must have intended it to apply to such cases. The Court also decided that where a man sells one of these coupons to the coupon dealer he is not getting the interest as such but is getting the purchase price of a right to interest.
    Mr. Pethick-Lawrence: Is that the decision of the Court?
    The Attorney-General: Yes, the Court decided that where someone takes one of these bits of paper to a coupon dealer and realises substantially, in normal cases the full amount he was receiving something which was not income. I think it is quite clear that Parliament must have intended the proceeds of these coupons to be income, because it did insert words stating that the coupon dealer was to deduct tax from what he paid. There was a further minor point, and that was that Schedule C of the Income Tax Schedules, which applies primarily to Government securities, has been as a matter of practice treated as applying to foreign municipalities. That is being dealt with in these two Resolutions. The Ninth Resolution deals with a case that is not very likely to arise, in which the coupon instead of being sold

    915
    to a dealer is sold to a private person. The House will not want me to go into the details at this stage.
    The Resolution does not raise any further point of principle, but it is necessary, I think, because the failure of Parliament to carry out what was clearly its intention was due to the fact that in this very complicated statutory structure we inserted special words in one part without realising that in another and earlier part of the structure more general words would require amendment. This is a case in which the decision of the Court of Appeal has shown that what everyone concerned had thought was the law and had been acting upon, was not in fact the law. It is not merely the revenue which is concerned here, but banks and coupon dealers have been making deductions of tax which on this decision ought not to have been made. Therefore, I suggest that this is one of the cases in which it is right, in everyone's interest, that the position which had been understood to be the position in law should be validated retrospectively.
    4.10 p.m.
    Mr. Pethick-Lawrence: I am sure the House is very much obliged to the Attorney-General for his lucid exposition of this particular Resolution. We did have from the Chancellor a very full account of most of these Resolutions when he was making his Budget speech, and those who followed him carefully can, I think, digest a good deal of what is in these very complicated Resolutions now. At the same time I think it is for the convenience of the House at this stage that we should know a little more than what the Chancellor gave us in his Budget statement, for these things are exceedingly complicated and we cannot carry in our minds precisely what the Chancellor said last week. Perhaps we may have on each of these Resolutions a little preliminary explanation before we discuss them. I understand that the matter with which we are dealing here is something which the Legislature quite definitely intended but which was not, in the opinion of the court, fully embodied in the Statute; and therefore the court, rightly or wrongly—I am not speaking with any disrespect—has come to the conclusion that under the law strictly the taxpayer has been entitled to relief from a tax which, from an equitable point of
    916
    view, it was the intention that he should bear. That being so, the Chancellor has very properly asked the House to re-impose the burden in words which are unmistakable. It would be quite ridiculous if it were suggested that people could escape their burden of Income Tax on what is really their income because something was not fully and implicitly stated in the legislation imposing the tax.
    With regard to the paragraph (6) of the Resolution, I am not quite clear that I understood the Attorney-General. I understand that by paragraph (6) it is intended to say that it shall not be open to all and sundry who have paid taxation appropriate to their coupons to come before the court and demand relief on the ground that this legislation was passed only this year. I understood the Attorney-General to say that in so far as the particular persons who have already been before the court and have secured relief are concerned, that relief is not to be taken away from them. I suppose we can hardly ask that it should be otherwise, but it does seem a little unfair that one person who has taken a case into the court should get relief and that another person who has not taken a case cannot get relief. Probably in a matter of comparative fairness it is better to leave it in the way the Attorney-General proposes to leave it rather than take it away even from those people who have secured relief. The Attorney-General's attempt to prove that a coupon is in fact nothing but a bit of paper which has a certain value reminds me of a conundrum which was put to me by a lawyer: "Supposing a man were not to convey a property but were merely to sell the actual pieces of paper which formed the title deeds? "The Attorney-General began to explain the Ninth Resolution. I am afraid that he did not convey to me the details, and perhaps he will give a further explanation when we reach it.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    4.17 p.m.
    The Attorney-General: This Resolution deals with the case in which the coupon

    917
    is sold to someone other than a coupon dealer in this country and with that part of the decision to which I referred which laid down that the proceeds of the sale of the coupon were not income. We must deal with the case where coupons are sold otherwise than to a coupon dealer for there would, of course, be a ready means of conversion of coupons outside the provisions for deduction of tax. Also, if you are able to sell it to someone not a coupon dealer and say, "This is not my income because I have sold it instead of cashing my coupon," there would be a ready means of reducing one's Income Tax liability. Therefore, it is necessary that one should deal with sales to persons other than coupon dealers and the general effect of the Resolution is that in that case the person selling to the person other than a coupon dealer shall be assessed on interest represented by the coupon. If, in fact, he got a very much smaller sum than the coupon was really worth, it might be said it was unjust, but as far as we can see no one would sell to anyone other than a coupon dealer unless he was enabled by so doing in some way to evade tax liability. The normal way of realising coupon values is by selling to a coupon dealer or presenting the coupon through a bank for encashment. If it were provided that where you sold to someone other than a coupon dealer, you would be assessed on simply what you get from him, it could be arranged easily to sell the coupon at much less than full market price and so reduce the amount of income. That is why the Resolution deals with the matter in this way. The position will, of course, be clearer when we get the actual Clause, but that is the general effect of the Resolution.
    Sir Waldron Smithers: May I take it that a coupon dealer is registered as a banker for the purpose of making returns to the Excise for purposes of Income Tax on coupons he receives?
    The Attorney-General: I am not sure whether registering as a banker is the right term. All I can tell my hon. Friend is that a coupon dealer in this country who buys coupons takes the place, as has been done in the past, of the person who is entrusted with payment of dividends and accounts for the tax deducted, in exactly the same way as the
    918
    banker does who arranges for the encashment of coupons.
    4.21 p.m.
    Mr. Pethick-Lawrence: As I understand the Attorney-General, the position is that the Eighth Resolution stops up a gap which had become open owing to the decision of the court with regard to the intention of the Legislature, but that if the Resolution stood by itself it would be possible for a new gap to be opened up—the first person selling to a second person and the second person selling to a coupon broker. Therefore, in order to stop up the first gap it was necessary to anticipate that a second gap might arise, and therefore that gap is stopped by the Ninth Resolution. That, I presume, answers a question which would otherwise arise to our minds. If it were necessary at the end of the Eighth Resolution to put in paragraph (6) which makes the legislation retrospective, why has it not been done in this case? I take it the answer is that it is not necessary to do it in this case.
    The Attorney-General: I would refer the right hon. Gentleman to paragraph (1) of the Resolution.
    Mr. Pethick-Lawrence: I had expected to find it in the same place in this Resolution as it is in the Eighth Resolution. I take it there had been no cases along these lines and that Resolution will apply retrospectively in all cases?
    The Attorney-General: I will look into that.
    Mr. Benson: I am afraid that I cannot square paragraph (1, b) with the explanation of the Attorney-General. I understand the hon. and learned Gentleman to say that but for this Resolution there would have been a possibility of tax evasion by the sale of coupons at a lower value than their face value. Here, apparently, if the sale takes place at a lower value than the face value, the lower value shall be taken to be the interest of the owner.
    The Attorney-General: This paragraph refers to Schedule C or Rule 7 of the miscellaneous rules. It covers only cases where the payment is subject to deduction, that is to say, cases in which payment is made either by a bank or a paying agent or a coupon dealer. It is necessary for technical drafting reasons

    919
    to insert in this Resolution that it deals with cases not covered by paragraph (b), that is, cases where the tax is not deducted, where there is a sale to some one other than a person charged under Schedule D.
    Mr. Ede: Can the hon. and learned Gentleman give any indication of the amount of money it is expected to collect under this and the preceding Resolution?
    The Attorney-General: I am afraid that I cannot at the moment, but the sums involved, I think, are substantial. The effect of this Resolution is however only protective and is simply to continue this range of deductions which concern, broadly speaking, coupons and foreign bonds and securities.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    4.27 p.m.
    The Attorney-General: This Resolution also arises out of a recent decision of the court of appeal. It has long been recognised, and was not in any way disputed in that decision, that Income Tax is payable on income whether that income is received in money or in money's worth. Thus, if a company makes an arrangement with its managing director under which his remuneration or part of it is made by way of receiving shares in the company or something of that sort, he is assessable to Income Tax on the value of the money's worth which he gets in exactly the same way as if he received money. The House will appreciate that otherwise, of course, there would be the readiest means of evading Income Tax by making payments in kind of a value which when sold would realise a sum of money which it was intended to transfer. That principle was established a very long time ago and there has been no dispute about it. The application of the principle arose in connection with the case of a foreign government. There have been other cases where foreign governments, having issued bonds bearing interest, find that in a given year they have not got, or have found it more con
    920
    venient not to produce, the cash which the original bond provided for the payment of interest.
    Mr. Ede: Like our debt to America.
    The Attorney-General: I do not want to specify individual countries. Everybody knows that there have been many foreign countries which in recent years have found difficulty in meeting the interest on some of their foreign bonds. In many of these cases what they have done is to give to the bondholders what is called a funding bond. Suppose that a man has a bond for £100 and the Government in question say that is due in interest but that it is difficult to pay that £6 in cash. He is given a bond funding the interest, which may be worth £6 or, if the Government is not able to give a bond for £6, it may give a bond for £4 or £3.
    Mr. Pethick-Lawrence: Does the hon. and learned Gentleman mean that the bond has a different face value or a different market value?
    The Attorney-General: It may have a different face value or a different market value. It might have the face value of £6 but be worth, in fact, only £4 in the market; or there might be a case in which a Government said, "We cannot give you bonds to the full face value but will give you bonds for 50 per cent. of the face value." In cases in which bonds so given have a readily ascertainable market value, that is to say are marketable securities which can be realised in the ordinary way, it has been assumed that they came within what I may describe as the ordinary money's worth principle and were subject to tax, and in cases where they were paid through paying agents they were subject to deduction of tax by the paying agents. There have been large transactions through paying agents in this country in which, assuming the Income Tax was at the rate of 5s. in the £ and large quantities of these bonds were entrusted to the paying agents for paying out to a bondholder, they have handed out three-quarters of the bonds to the bondholder and handed over the other quarter to the Inland Revenue in satisfaction of the tax which, under the law, they have to deduct. Where owing to the size of the holdings or the denominations of the bonds it is impossible to split the bonds up into heaps of three-quarters

    921
    and one-quarter, other arrangements are made for realising the necessary amount to satisfy the obligation to the revenue, and the matter is settled in that way.
    In the present case the bonds were, as I fancy these bonds usually are—like the Treasury Notes which we have in our pockets—in the form of a promise to pay by the foreign Government. That I think is the usual form of a funding bond"— The (so-and-so) Government promise to pay." The Court of Appeal decided in this case that where what is,prima facie money's worth takes the form of a promise to pay by the person from whom the interest is due, it is not right under the law to treat it as money's worth because, in fact, it is merely the substitution of one promise for another. That, very briefly, is the sort of line which was taken when the decision was given. It seemed to my right hon. Friend the Chancellor that if that was so it was contrary to what had been assumed to be the case by everybody concerned with these matters in the past; that while it might be perfectly correct in law it did not accord with the intentions of this House with regard to the matter, because when you are dealing with a foreign Government bond you are undoubtedly dealing with money's worth in the ordinary sense.
    There was no intention in the past, nor is there any intention under this Resolution—in fact, it expressly provides the opposite—ever to assess anybody in respect of these bonds save upon their market value. From our point of view it is an ordinary case in which someone who is entitled to get interest has received instead of £10 in cash a Government bond worth £10 and by ordinary principles it seems that it should be subject to tax, and it has borne tax in the past and has been treated as money's worth. Therefore, it seems to my right hon. Friend to be a case in which what has been understood to be the law in the past should be validated retrospectively, and that money's worth of this kind obtained in respect of interest should be treated in exactly the same way as money's worth received in any other form.
    4.35 P.m.
    Mr. Pethick-Lawrence: I have followed as well as I could the interesting explanation given by the Attorney-General, but
    922
    I cannot claim to understand it entirely, and I confess that I see a certain difficulty. As I understand the position, a foreign Government which should pay interest in a certain year may declare that it is unable or unwilling to do so and hand out to those who are entitled to the interest pieces of paper which are, in fact, promises to pay a certain sum at some future time. The recipients of those pieces of paper can do one of two things. First, they can sell them immediately for what is their market value and then they will be to all intents and purposes receiving an income which, though it may be different from the amount of the face value of the coupon or bond, has a definite value in money. I can understand that in those cases the Inland Revenue have taken their share of the amount which the owners of the bonds received. To take the illustration given by the Attorney-General, if the owner was entitled to receive £6 the Inland Revenue took £1 10s. and the owner was left with £4 10s.
    The Attorney-General: The right hon. Gentleman was, I think, taking a case where a man gets a bond which may be worth less than the face value of £6. I did not intend to say—and if I did say so it was inaccurate—that the Inland Revenue have ever taken anything but its due proportion of the money's worth which the man received. If that bond was worth less than £6, was worth, say, only £4, then the Inland Revenue have taken only £1.
    Mr. Pethick-Lawrence: It is my fault if I did not succeed in making my meaning plain, because I did understand what the Attorney-General said. I was taking the case where the coupon or bond was actually worth its face value. In such a case, when not only its face value but its market value was £6;, the man would take £4 10s. for himself and £1 10s. would go to the Inland Revenue. But there is an alternative course of action. The man could "sit on" the bond or coupon until the foreign Government does actually redeem it. This is the point upon which I am not clear. Do I understand that in cases where a man proposes to do that it has been the practice of the Inland Revenue to come down upon him and say, "You cannot keep the whole of these bonds or coupons, you must hand over one-quarter of them to us "? Is that correct?
    The Attorney-General: As to what has been happening in the past let me take a case as an illustration. Suppose a man were entitled to receive instead of his interest £400 of bonds, and that they were issued in denominations of £100 each. There would be four bonds lying at the bank representing the gross sum of interest to which he was entitled. The bank has a statutory duty to deduct the appropriate amount of Income Tax in respect of payments made by way of interest. What has happened in the past in a case of that kind is that the holder of the original bond has gone to the bank and said, "I know that you cannot get the interest on the bonds in money but you have some bonds representing the interest." The bank would say, "Yes, you are entitled to £400 of bonds. We have to deduct tax and we give you three of these bonds of £100 each, which you can do what you like with, and we are handing over the fourth bond to the Inland Revenue in satisfaction of the tax."
    Mr. Pethick-Lawrence: That is broadly what I had understood from the very lucid explanation which the hon. and learned Gentleman has given us of what is really a difficult matter. The point I am getting at is this: The Inland Revenue would actually get the bonds, and it would then be for them to sell them in the market if they wanted the money. What is proposed, as I understand, is that the rule which has been acted upon hitherto is to be retained, but that this Resolution is necessary because some doubt has been raised—perhaps more than a doubt in view of the decision of the court—that the Legislature had not fully covered that particular case. If that be the position this seems to be a sound method of dealing with it.
    4.41 p.m.
    Lieut.-Colonel Sir A. Lambert Ward: Perhaps the hon. and learned Member will excuse me for putting a question, I hope that I shall make it intelligible, but I am not at all sure that I shall, because this is extraordinarily complicated. I should like to ask what is the position of a coupon dealer who, on receiving these funding bonds from a defaulting Government, has omitted to take a quarter of them and hand them over to the Treasury, but has handed over the whole of the bonds to the man who
    924
    handed in the coupons. I understand that this legislation has retrospective effect. What, then, would be the position of the coupon dealer? Apparently, as the courts have interpreted the law, he was correct in doing what he has done. What would his position be in the future?
    The Attorney-General: I will make inquiries as to whether there were any cases of that kind prior to this decision. We have had communications since the decision asking what should be done, but I very much doubt whether there had been any such cases in the past. Of course if this Resolution becomes the law the position would be exactly the same as if the law was what it was thought to be at the time, namely, that he would not have made a payment which he ought to have made. He would be in exactly the same position as any other people who, having an obligation to pay interest and an obligation under the Income Tax Acts to deduct the appropriate amount of tax and pay it over to the Inland Revenue, have failed to do so. My hon. and gallant Friend's hypothetical coupon dealer would be in exactly the same position as anyone else who has failed to make a payment which the law said should be made.
    Sir A. Lambert Ward: But the hon. and learned Gentleman said that the decision of the Court of Appeal was that he was not compelled to make that deduction.
    4.45 p.m.
    Mr. Ede: I wish to ask the same question that I put upon a previous Resolution. We are dealing here with the question of raising revenue. The hon. and learned Member and the Chancellor of the Exchequer must be aware that there are wide divergencies of opinion as to the amount of money that would be obtained if all the alleged leaks in the Income Tax law were stopped up. I have seen a statement in a reputable newspaper that the amount would be equivalent to a yield of 6d. in the £ on the tax. I understand that the right hon. Gentleman himself does not feel that that estimate would be reached, even though every leak were stopped up. We are dealing with some of the leaks which have been most recently created by decisions of the court in regard to those that are most obvious.

    925
    The House is entitled to know what the yield would be if all the leaks were stopped up. I understand that the present situation has been caused because the Court of Appeal has said that when a foreign Government, who have not kept a promise which they have made, make a renewed promise, this promise is worth nothing. I am glad to find that that view, which I held on Monday, has some legal weight behind it. It may be that something may be realised after a time, even in financial matters. The House is entitled to some indication from the Government of the amount which they expect to get by stopping up these leaks.
    4.46 p.m.
    Sir J. Simon: Although one may have a have a dog, a very good barking dog, I am occasionally willing to do a little barking myself.
    Mr. Ede: Your dog has exhausted his right to bark now.
    Sir J. Simon: As this is a question of revenue it is right that I should answer the hon. Gentleman's question. We shall come to the other proposals a little later on, where the question has a different application. As regards this proposal and the one which was dealt with before, the hon. Gentleman will appreciate that this is a protective provision. Quite recently there has been an unexpected interpretation put upon the existing law and unless Parliament thought fit to correct the position as it is now declared to be, the leakage would ensue. What we are actually doing is not finding a new source of revenue but merely saying that we do not think that the House would desire that the law as it is now expounded should continue to be as it is. We are inviting the House, by its own legislative act, to put the law in a position in which it has hitherto been understood to be. There is no question under this heading therefore of how much this proposal will produce or of trying to estimate, for example, to what extent foreign Governments issue funding bonds. Estimates of the value of saving devices are peculiarly difficult to make.
    I could illustrate that by an analogy of a boat. It is comparatively easy to
    926
    say how much more liquid you will get in a vessel which has not a hole if you increase the rate of flow or, in other words, enlarge the rate of charge. It is very much more difficult to answer the conundrum: Suppose this leaky condition continues, how many people would take advantage of it, or how far will the hole which now exists be enlarged and further used? We shall certainly do our best in this connection. This is really a protective provision and the hole ought to be stopped up promptly, because if we do not do so there may be a loss, and possibly an increasing loss.
    4.50 p.m.
    Sir Waldron Smithers: I wish to make only one point—to which I do not expect an answer to-day—which may make this provision more workable. The Attorney-General stated that the Income Tax payer would be assessed only on the gross value of the bond. I suggest that the Government should provide some method of assessing that value. The Attorney-General talked about £400 worth of funding bonds, but suppose that they are in Mexican dollars, pesos or lire; ought there not to be some method between the taxpayer and the revenue authorities for assessing the value? It is easy to do so if the funding bond has been sold, when you know what the taxpayer has got for it, but suppose the revenue authorities or the taxpayer are sitting on the bond; it is not easy in those circumstances. I would ask the Government to consider what provision they can make in the Finance Act, either by referee or in some other way, for deciding between the Income Tax authorities and the taxpayer what is a fair value to put upon the bond for the purposes of Income Tax.
    4.52 p.m.
    Mr. Gallacher: It appears to me that while the Government are patching up one hole and one leak they are creating a series if new leaks. Would it not be better and ensure complete security, as well as putting an end to all possible leaks, if the Chancellor of the Exchequer took all the money away from these people, over and above a certain amount?
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    4.55 p.m.
    The Solicitor-General (Sir Terence O'Connor): Hitherto the House has been dealing with Resolutions about which it was possible to speak with a great measure of precision. I am afraid that this Resolution must necessarily lack some of that precision which gave my hon. and learned Friend an opportunity to give the House so lucid a statement. This Resolution is the bare bones, the skeleton, which will have to be clothed in flesh in the Finance Bill, for the purpose of enabling an end to be put to some of the tax-avoidance schemes which were outlined by my right hon. Friend when he opened his Budget. The House will see that the Resolution provides that legislation may be introduced into Parliament affecting four different types if settlement in respect of each of which an abuse has been discovered. The first example is of settlements which are wholly or partly revocable. The second is concerned with settlements which, although irrevocable, provide that the income may in certain circumstances revert to the benefit of the settlor. The third example relates to settlements where sums may be deducted by the settlor when paying to the trustees, and where use is made of the settlement in order to accumulate sums of money. The fourth example relates to the type of case where sums are paid by loan or repayment of loan, by the trustees of a settlement or persons connected with a settlement, to the settlor.
    My right hon. Friend, when he made his Third Reading speech on the Finance Bill in 1937, referred to the subject of avoidance of tax and gave a warning that he would not hesitate to propose legislation to deal with the subject, and particularly with that type of avoidance of tax through the form of accumulating trusts, under which Surtax payers were able tto reduce their liability by transfer of income under trusts outside the provisions of Section 20 of the Finance Act, 1922. Under that Act, if the settlor has power, of his own volition, to revoke a settlement, the income is treated as his income, so that he is liable to Surtax upon it,
    928
    but if the power of revocation is subject to the consent of somebody else, he goes outside the provisions of the Act of 1922. The provision that we propose to embody in the Finance Bill when it comes forward will stop up a gap that is obviously available by virtue of that Act.
    We have seen, for example, and I have here a copy of one, a deed which can be completed by means of a 10s. stamp. It begins by reciting certain names of beneficiaries who are to receive annual payments made by the settlor to trustees for them, in such shares as the settlor may direct. It goes on to provide that he may remove the trustees and appoint new ones and that, with the consent of specified people—some accommodating friend, no doubt—he can revoke the deed in whole or in part, may appoint and make a new trust and, in particular, may require the trustees to hand over the trust fund to himself. The fact that revocation can be made only with the consent of an accommodating friend makes the Act of 1922 inapplicable to that kind of case. Of course, the annual payment which the settlor makes under the deed is a deduction when he comes to compute his total income for Surtax purposes, and he avoids Surtax by this obvious device. It is manifest that by selecting accommodating friends he can get back for himself the sums of money he has paid for the security, without the attendant and inconvenient payment of Surtax.
    This device has to be dealt with, and what we propose is that in the case of settlements which can be revoked by the settlor with the consent of some other person the income in any year will be treated for Income Tax purposes as his income, irrespective of whether it is or is not accumulated by the trustees. As to example B, our proposal when clothed with form in the Statute, will deal with those cases where there is not a power of revocation in the settlement and in which the income under the settlement will, in certain contingencies, revert to the settlor or his wife. In these cases the settlor makes a settlement under which the income is to be accumulated over a term of years, and then provides that the whole of the accumulated income shall be paid over to his wife; and, the accumulated funds being a capital payment, when they are paid over under the terms of the settlement all the

    929
    accumulated income escapes Surtax. Settlements of this kind, which are commonly known as "Surtax accumulators," have been largely used in order to avoid Surtax.
    It is now proposed that in the case of these settlements the income, to the extent to which it is accumulated, shall be treated as the settlor's income for tax purposes. If it is distributed to beneficiaries, it is, of course, treated as their income for tax purposes, as it cannot get back to the settlor. Certain exceptions to and modifications of this general scheme will have to be made in the Finance Bill—for example, to meet the case where funds are permitted to revert to the settlor on the bankruptcy of the beneficiary or in the event of an assignment or charge. This is the ordinary kind of provision, not a tax-evading provision at all, which is commonly inserted in respect of minors and in other cases that occur to one—in the case, for example, of a marriage settlement where the funds revert to the settlor on the death of the parties to the marriage. Provision will have to be made for the exclusion of bona fide cases of that kind, but the general scheme will he to prevent this easy method of saving Surtax when, notwithstanding that payments have to be made over a period of time, the benefit of those payments really reverts in a lump sum to the settlor.
    Paragraph (c) deals with settlements which are irrevocable so far as the settlor is concerned, and do not provide for the reversion to him of the funds of the settlement. In that respect they are not covered by paragraphs (a) and (b). The settlor undertakes to make an annual payment to the trustees of the settlement, and, provided that they are made for a term exceeding six years, these payments constitute, under the existing law, deductions from his total income when calculating his Surtax liability. Supposing that those payments are made to a beneficiary, no question arises. If they are paid direct to the beneficiary under a deed creating the charge for a term of six years, he can obtain a deduction for Surtax purposes, and there is no reason why he should not similarly obtain a deduction when a payment is made through trustees, so that that case does not matter. But the case where the payments are accumulated in the hands of
    930
    trustees—in other words, where the settlor is using the trustees as a kind of savings box—is a case in which we think Surtax ought to be leviable, and proposals will be put forward to effect that purpose.
    Paragraph (d) deals with what is perhaps one of the more obnoxious and reprehensible forms of tax evasion of this character. Articles have appeared lately in the Press calling attention to a device under which a settlor can, in effect, enjoy the income of the settlement by means of getting loans from the trustees under the settlement. He makes an irrevocable settlement, the trustees are directed to accumulate funds provided by the settlor for the benefit of somebody, a child or whoever it may be, and the trustees are empowered to make loans to the settlor out of the funds in their hands. In the exercise of that power they make an annual loan to the settlor. That was the kind of case which my right hon. Friend described in opening his Budget as a case in which not only the settlor got his income free of Surtax in the form of loans, but, in fact, does not have to face the inconveniences usually attendant on loans. His indebtedness is not of any importance either to him or to the beneficiary, because usually the beneficiary is a member of his family or some accommodating friend, so that in practice the situation is not a very menacing one from his point of view. I have given an example of the simplest kind of case that is dealt with in paragraph (d), but it will be necessary in the Act to amplify and extend the provisions to deal with very much more complicated matters.
    I will give the House an example. A transfers securities to a company for £100,000. He then makes a settlement, quite a nominal one, on some beneficiary, say for £100, with the provision that the income is to be accumulated during the lifetime of A, the settlor. He then makes a loan of £99,900 to the trustees of the settlement, and with that £99,900 the trustees buy shares in the company to the value of £100,000. The company returns the £100,000 to A in payment for the securities. The House will see that the whole transaction is merely a paper transaction, a mere exchange of cheques. A can fix any figure he likes for the loan, and it need not correspond with the real value of the securities. The

    931
    company pays to the trustees the corresponding income from the securities, and the trustees use this income every year to repay the loan to A. That is a nice convenient arrangement whereby A avoids Surtax for the period of the transaction.
    I will give another example of the kind of case that we shall have to cover in the fuller exposition of our treatment of these problems in the Finance Bill. Suppose that the settlor, instead of making a loan to the trustees, sells to them some asset at a figure much in excess of its real value, and that the arrangement is that the purchase price shall be paid by instalments over a period of years. The income of the settlement is used to pay the instalments, or to cover the fictitious element in the purchase price. This results in an accumulation of the income, and the accumulated income is used to make payments to the settlor in a nontaxable form. To defeat these schemes we propose to provide that any sum paid by trustees to a settlor shall be treated as the settlor's income to the extent to which there is accumulated income from the settlement. This will apply to all existing settlements, but it will only affect sums payable to settlors in the year 1938–39 and subsequent years. In the Finance Bill we shall have to fortify this provision by a provision, similar to some others which have been made, to cover the case in which a company or chain of companies is inserted between the settlor and the ultimate receiver.
    The second paragraph of the Resolution enables retrospective effect to be given to the provisions. It provides that the proposals shall apply to all settlements existing or future, whether made in this country or abroad, and that the new provisions shall take effect as from the year 1937–38. But we only intend that the provisions of paragraphs (a) and (b), which deal with revocable settlements and settlements where the income reverts to the settlor, shall operate in respect of the year 1937–38 and for the purposes of Surtax only. They will not affect the standard rate tax until the year 1938–39, and that will be made clear in the Finance Bill.
    Paragraph (3) of the Resolution defines the expression "settlement" so as to include any disposition, trust, covenant, agreement or arrangement; and the ex
    932
    pression "settlor" includes not only the person who has actually made the settlement, but also any person who has provided funds for the purpose or has made a reciprocal arrangement with some other person to make such a settlement. The paragraph also provides that husband and wife shall be treated as one for the purpose of the Resolution, so that, for example, if a settlor's wife undertakes to make an annual payment under a settlement, or if the trustees make loans to the settlor's wife, the respective provisions will operate as if the annual payment had been made by the settlor or the loans had been made to the settlor.
    The question has been asked, with regard to previous resolutions, whether any estimate could be made of the value to the revenue of the Resolution. I think, however, it will be clear to the House that it would be impossible in this case to say what the effect on the revenue is likely to be. This is another instance in which one has to stop up holes lest the leakage becomes greater than it is at the present time. I remember in my youth reading the story of the boy who put his finger into a hole in a dyke in Holland in order to prevent the country from being swamped by the incoming sea. It may very well be that he would never have been able to estimate the damage that would have occurred if he had pulled his finger out. In the same way, it may very well be that, if we leave open the holes that we are here seeking to stop, very considerable damage might be done to the revenue, but I think the House will agree that it is impossible to make an estimate of what the potential figure is.
    5.13 p.m.
    Mr. Pethick-Lawrence: I am sure the House is very much indebted to the Solicitor-General for his full account of these provisions. Obviously, it will be unnecessary for me to go over the ground which he has already covered so carefully, but there are one or two questions that I should like to ask. As I understood the Chancellor of the Exchequer last week, when he was dealing in his Budget speech with the question of settlements, all that the House was going to be asked to do was to amend certain provisions of the Act of 1936; but, as I understand the Solicitor-General to-day, it is only paragraph (a) that is really concerned with

    933
    the Act of 1936. If I understood him aright paragraph (b), and certainly paragraphs (c) and (d), carry us into realms that were not contemplated in the Act of 1936. Perhaps whoever replies—
    Sir J. Simon: The right hon. Gentleman is quite right, but I did refer to these other points. I dealt with the first point at the bottom of column 52 of the OFFICIAI. REPORT for Tuesday, 26th April, and with the second point in column 53; and then I went on to say:
    " There are two more proposals on this topic to which I attach importance. One deals with the device under which the settlor is enabled to enjoy the income of a settlement, without paying tax upon it, by way of loans made to him by the trustees. A loan is not income. It is first a debt."—[OFFICIAL REPORT, 26th April, 1938; col. 53, Vol. 335.]
    They were all mentioned in a summarised form, but it was not a very easy occasion on which the details could be given.
    Mr. Pethick-Lawrence: I was not making a charge or a complaint against the Chancellor of the Exchequer. He is not bound to cover all the details in his Budget speech, although he does generally make some reference to the points that are to be dealt with in the Resolutions. The Committee on Budget day know that they have to pass the Resolutions at the end of the day, and they are somewhat in the dark because they cannot expect to have a full explanation from the Chancellor of the Exchequer. I gather that it is only (a) that is concerned with the Amendment of the 1936 Act. Again, without making any charge against the Chancellor of the Exchequer or his predecessor, if I remember correctly, such grounds as are covered in this Amendment formed the subject of debate on a former occasion.
    A second point on which I am not certain is how far these provisions concern Surtax. I gather that in the main it is only Surtax that will be affected. I think that in the case of (c) it is specifically confined to Surtax, but I gathered from the speech of the Solicitor-General that there are parts which will also affect Income Tax. I think that comes particularly under (d). If a man makes a settlement, say, in favour of trustees for charitable objects, it is not merely Surtax but Income Tax that is avoided in that case.
    My last point relates to leakage. My hon. Friend the Member for Chesterfield
    934
    (Mr. Benson) has raised this question before, and has asked how much is going to be saved. I understood from the Chancellor of the Exchequer that this is not a leakage that has occurred in the past but a leakage that is going to occur if we do not stop it, and, therefore, it is not a case where a specific sum can be mentioned. I agreed with the Solicitor-General when he said that he could not say how much new leakage was going to be stopped by carrying out the provisions envisaged in the Resolution, but I think we are entitled to know what is the estimated leakage that is taking place at the present time, which it is proposed to stop. I know that the estimate could only be uncertain. We are, however, entitled to some estimate, how ever conjectural, of what is the leakage at the present time. I should be obliged if that information could be given. There must be some figure which can be given as to the amount of leakage which it is estimated may be stopped.
    5.18 p.m
    Mr. Assheton: I should like to congratulate the Chancellor of the Exchequer on having stopped up a good many more holes in our Income Tax legislation, and I should like to say how grateful we are on these benches that this policy is being rigorously followed. I should also like to congratulate the Solicitor-General on the explanation that he has given, and, if I may, to ask him a question. Take the case of a man who has a considerabe surplus income and who is able to put aside into a trust, say, £100,000 of capital, the income of which can either be applied for the benefit of his children or can be accumulated; am I right in assuming that in the event of that income being accumulated the income will be assessed as part of the income of the settlor? If that be so, may I go a step further and ask, what is to happen in the case of the settlor being dead and being no longer assessable to Surtax? There are cases when a settlement is made and the income has accumulated for a long time after the death of the settlor when it is, in a sense, nobody's income, and in that way a certain amount of tax is lost to the revenue. Possibly these points may be dealt with in Committee but perhaps the Solicitor-General would prefer to give me an answer now.
    5.20 p.m.
    Mr. Benson: I am afraid that I cannot follow the hon. Member for Rushcliffe (Mr. Assheton) in congratulating the Government on pursuing this matter of tax evasion with rigour. They are limping tardily along. Take the matter dealt with under (a). That is a question which I raised in 1936, when I pointed out that this evasion was going on, but nothing was done. It is not until two years afterwards that we are to get any legislation. I am not certain the Solicitor-General is correct when he says that (d) does not arise out of the Finance Act of 1936. In regard to the liability of trustees, I raised the point that if the trustees were adequately safeguarded by the terms of the trust deed they would be able to hand over the income in such a way that it might come back to the settlor. I was told that that could not be done, but here to-day we have to legislate against it.
    I am very much disappointed with the explanation given by the Solicitor-General. When I read the Resolution I was hoping that the Government were going to cast their net a great deal more widely than they propose to do. For instance, under (b) where part of the settlement can be used for the benefit of the settlor, I hoped that they were going to deal with foreign trusts, like the Archer Shee Trust. Our courts, apparently, have decided that our tax law in the case of foreign settlements must be subject to foreign tax law. A man makes a settlement in America and income is received out of the securities. Normally, the income received from securities by a person resident in this country is taxed whether it comes into this country or not, but because under the American law income received from securities which goes into the hands of trustees for beneficiaries loses its identity and is no longer held to be income from the specific securities, our courts have held on that change of identity, that only such income as is transmitted to this country shall be taxed. As a result of that decision it is possible for a wealthy man to make a settlement trust in America, to take advantage of American law and accumulate income there and to make investments there, and only have to pay tax if he transmits the income from the accumulated investment. Why is that not dealt with? It was thought worth while to fight an expensive legal case to decide the legality of these transactions
    936
    and try to upset the decision; why, then, cannot we take the simpler and cheaper method of quashing that decision in the Finance Bill?
    Let us consider what is known as the discretionary trust. The discretionary trust in its inception was primarily for the purpose of safeguarding an estate from the depredations of an erratic heir, but since then it has been found that it can be used most effectively as a means of avoiding Death Duties. At the same time it can and does avoid Income Tax and Surtax. Under a discretionary trust the trustees have complete power to pay as they like any sums to A, B, C or D, A being the settlor. Although they have complete discretion to pay as they like, they are chosen with care and they will pay as the settlor desires. They may pay to his children and what goes to the children is not the income of the settlor but is income of the trustees, who can dispose of it according to their discretion. Here is a trust under which a certain amount of benefit goes to the settlor, and it ought to be dealt with. Are the Government prepared to deal with it?
    My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) raised the question of Income Tax. Under these tax-dodging settlements a very large amount of Income Tax is being avoided. Take the case of a man who settles, under a revocable trust, an income of £300 on his son. Although that revocable trust may have the effect of adding the income paid to the son to the settlor's income for Surtax purposes, it does not avoid the dodging of Income Tax. The settlor, when he pays his £300, pays it less tax amounting to £82 10s., but the beneficiary, having received his income less tax, is entitled to apply to the Inland Revenue for repayment. He can claim back, if the total is £300, £55 of Income Tax out of the £82 10s., so that the result is that Income Tax of £55 is avoided. In all these trusts, where they are taxed because they are revocable, the whole of the income for all purposes of tax ought to be treated as the income of the settlor and of nobody else.
    Why have not the seven-year trusts been dealt with? It is one of the most common and extensive methods of avoiding tax. The Solicitor-General quoted

    937
    from a duplicated document when he said how easy it was for some of these trusts to be established. In the Debate on the 1936 Finance Bill the Chancellor of the Exchequer, with horror in his voice, described how certain of the educational trust documents were being widely distributed. There is scarcely an institution which depends upon public subscription that does not print these seven-year trust documents and distribute them broadcast. If a man wants to subscribe to any particular charity, why should he be able to compel the Government to subscribe anything up to two-thirds of what it costs him? If a Surtax payer paying the full rate makes an annual donation of £100 to some institution in which he is interested under one of these seven-year trusts it costs the Government something like £70 a year and the generous donor something like £30. Why should such a man be able to deflect from the Revenue 13s. 9d. of every £ that he gives? Why should the Chancellor of the Exchequer be compelled to subscribe to any particular institution, charity or trust which the subscriber likes to choose?
    The Chancellor will not settle the matter of Income Tax avoidance by simply stopping up one hole after another. If he stops up one hole, it will merely means that another hole, which is not being very greatly used at the moment, will be expanded. Until the Government are prepared to take powers of a general character which will enable the courts or the Commissioners, subject to the courts, to look at the reality and not the mere form, we shall have an unending spate of tax evasion legislation. Let us settle the matter once and for all by giving powers to the Inland Revenue to enable them to deal with income as income and not continually to have to adopt these various piecemeal methods.
    5.35 p.m.
    Mr. Ede: I would like to thank my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) for supporting the plea that we should have more information. I was interested in the illustration which the learned Solicitor-General gave in his attempt to avoid giving the information. He seems to occupy the converse positon to that which Talleyrand thought Napoleon occupied, when he remarked:
    938
    " How unfortunate so great a man should have been so badly brought up."
    I would say, "How unfortunate that one who was so well brought up should now be Solicitor-General in the meanest Government of modern times." The hon. and learned Gentleman is the engineer whose job it is to estimate how much water will go through any given leak and to estimate how long it will take before the country is inundated. I am aware that it is now the custom of Members of the Government ostentatiously, as my right hon. Friend the Leader of the Opposition said the other night, to carry on conversations when hon. Members are directly addressing questions to them. The Chancellor of the Exchequer is not Prime Minister yet and he might at least conform to the ordinary courtesies of the House.
    Sir J. Simon: I am very sorry if I appear to have been discourteous to the hon. Gentleman. I hope that he will understand that, if a complicated question is put, it is sometimes necessary for the Minister in charge to confer with the Law Officer on the particular Section which directly bears on the matter.
    Mr. Ede: I cannot think that the point which I am putting to the hon. and learned Gentleman is as complicated as all that. The hon. and learned Gentleman himself said that the second of these evasions was so enormous that they could be called "Surtax accumulators," and he used the phrase, "They are widely used." This must mean that there must be some idea of quantity in the minds of the Income Tax officials and of the Treasury. It is not one of the small matters which have cropped up owing to a recent decision of the courts. It is one of those things which form the main topic at lunch at the offices of the Law Society where one member explains to another the most recent thing he has discovered and the best way to work it. It is not something which the Court of Appeal has decided during the last fiscal year, but it has been operated for some years and has secured a nickname from the people who are engaged in this particular form of in-industry. He described is as objectionable and reprehensible, and it must be assumed that it has occupied a good deal of attention at the Treasury.
    It is desirable that the Treasury should convince the House upon these Resolu-

    939
    tions that this is not mere window-dressing. There is a very strong fear, as has been exemplified by the speech of my hon. Friend the Member for Chesterfield (Mr. Benson), that this matter is not being tackled in any way that really means the bringing in of a great amount of grist to the Treasury mill. Does the present legislation mean the bringing in of £2,000, £200,000, or £2,000,000? What idea is in the mind of the Treasury as to the extent to which they will be able to justify occupying the time of this House in dealing with this matter and putting a very complicated Clause in the Finance Bill? I would suggest to the Government that, in their own interests, it would be as well if they were to put before the House either some statement as to the kind of estimate they have formed, or say quite frankly, "We do not know."
    I gather that the answer of the Chancellor of the Exchequer on the previous Resolution, although it took him three or four minutes to say, was really one of four words, "I do not know." That may have been a justifiable answer on that matter, but in view of the fact that we are now dealing with old and well-established malpractices, the Government cannot take refuge behind the statement of the Attorney-General. They must be prepared to give some estimate of what they hope to get in an ordinary year from being able to stop these practices.
    5.41 p.m.
    Mr. Gallacher: I would like, first of all, to make a reference to the feeble joke which was attempted by an hon. Member opposite when he said that he and the occupants of the benches across the House were glad that the Government were chasing the tax evaders. It reminded me of the paraphrase of the old popular song, "I am laughing with tears in my eyes." That is how the tax evasion Resolutions have been received by hon. Members opposite, and, surely, after all the talk that we have had about the matter, it ought to be possible for an estimate of some kind to be given. This matter did not arise as a result of the speech of the Chancellor of the Exchequer on Budget night, for the present Prime Minister raised this question when he was Chancellor of the Exchequer and gave the impression to the House that the leakage that was going on repre-
    940
    sented a very considerable amount of money. There was no sense in the Prime Minister, when he was Chancellor of the Exchequer, making a speech of that kind and giving the House such a warning if there was not a considerable amount of money involved. Any independent estimates that have been given have created the impression that there is a very large amount of money being diverted from the Treasury through these various measures of tax evasion which these particular Clauses are supposed to try and stop. It is quite natural that hon. Members on this side of the House and people throughout the country should get that impression.
    After all this talk and the threats of the present Prime Minister when Chancellor of the Exchequer as to what would happen if there was any more of it, the Chancellor of the Exchequer has estimated a sum round about £1,000,000. Is that what all the fuss is about? It is right that we should ask for an estimate of what will be saved by the stopping of these various practices which are so well known. The Prime Minister let us know a year ago that they had their eyes on this sort of thing, and surely they can now give us some explanation. I am sorry that the Chancellor of the Exchequer has left the Chamber. He is very touchy. Last night I had to draw attention to the same sort of thing. He is touchy; he has a guilty conscience. He knows the evil he is doing, and, at the least word from anybody he is in a huff. I should like this very relevant and important question conveyed to the Chancellor. When he makes up his mind actually to operate the Resolution to stop the leakage and to make the vessel watertight, if he finds that instead of getting about £1,000,000 he is getting £4,000,000, £5,000,000 or £6,000,000, will he then agree to withdraw the tax on tea? If those responsible work this as we would work it, they will get considerably more than the amount that has been suggested, and the tax on tea ought to be withdrawn.
    5.47 p.m.
    Mr. David Adams: The hon. Member who has just spoken is rather overlooking the fact that the Chancellor is new to his office and is, therefore, likely to be more sensitive than a case-hardened person. I do not say that in any depreciatory way

    941
    of the Chancellor. I am glad that he is of that sensitive temperament which will enable him, no doubt, to perform the prodigies in the financial world which we expect of him, and which are required at the present day in those realms. It must be remembered that tax avoidance is not illegal, but that tax evasion is. If tax avoidance has been committed for a generation past it must have been known to the Treasury and the Board of Inland Revenue. But we are grateful that, under the particular headings which have been so clearly outlined by the Solicitor-General, it is clear now that, by settlements of this character, it will not be possible in future to avoid payment of Income Tax and Surtax.
    I should like the Solicitor-General to apprise us as to why it is necessary to have this particular legislation. Could not there be a general instruction of this House, through this Measure, to the Board of Inland Revenue, that all such avoidances, under whatever head they may occur—and there are quite a diversity beyond what has been indicated here— which in the past have been perfectly legal, shall no longer be legal but shall be treated as though they were tax evasions, and that the inspectors of the board shall keep a watchful eye open for such avoidances? In that connection, there might be injustices perpetrated, but all who know anything about the operation of Income Tax law know that those who have grievances have an appeal to the Commissioners. The only fault with that—and I have always felt it to be a grave injustice—is that, whereas appeals may be made—
    Mr. Deputy-Speaker (Captain Bourne): That is a question of the administration of the Income Tax law.
    Mr. Adams: Am I entitled to suggest that a more general method, instead of this particular legislation, should be under consideration at this moment?
    Mr. Deputy-Speaker: The hon. Member is quite entitled to suggest alternatives, but he is not entitled to go into details.
    Mr. Adams: The Board of Inland Revenue, for some years past, has been quite aware of avoidances that have been going on. These avoidances have been perfectly legal. The board, which has general powers in issuing directions, could
    942
    now be charged with general powers to say that in their judgment certain forms of tax avoidance constituted evasion, and after such a determination it would therefore become illegal. I have indicated— and I could hoi go into the matter now— that persons who have grievances would have a right of appeal, under which their alleged wrongs could be rectified by the Commissioners of Inland Revenue, while evasion could be stopped.
    5.53 p.m.
    Mr. James Griffiths: I do not want to say much on this question, as I am not an expert on Income Tax dodging. I am a man whom all my life Income Tax has dodged. This is a matter, I understand, in which the Treasury are trying to find the best way to close up these holes by which tax dodgers have been escaping in the past. They have certainly closed up all the holes by which working-class people might escape. I would suggest that the Treasury might have a word with the Ministry of Labour and the Unemployment Assistance Board, and all those whose job it is to find out every penny that the working man has, so that he cannot get anything out of the Treasury that he is not entitled to.
    5.54 p.m.
    The Solicitor-General: The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) asked me whether, in addition to Surtax, these provisions are expected to affect Income Tax. Broadly speaking, the answer is no. I do not say that there is no instance in which Income Tax might be affected. For instance, there is the case in which trustees might hold securities which do not pay tax. Those securities might be affected. But the general principle applies. Except in the case of those who enjoy a certificate of exemption, the income arising from trustees is liable to standard rate of tax: it is the Surtax which is avoided; and it is, therefore, to safeguard the position in regard to Surtax that the legislation is introduced.
    My hon. Friend the Member for Rushcliffe (Mr. Assheton) put to me a case relating to £100,000 of capital which was settled and in respect of which the income was to be accumulated. The instance he was quoting, I presume, relates to an ordinary irrevocable settlement. That will not be touched at all. The

    943
    hon. Member for Chesterfield (Mr. Benson) referred to what I know he will recognise when I describe it as the second Archer-Shee case. He seemed to think that nothing had been or was being done to meet that case. I think he must have overlooked the next Resolution, which it would not be in order for me to discuss at the moment, but on which my hon. and learned Friend will have something to say when the time comes, and if you take the Act of 1936 combined with the proposed provision that we expect to make by virtue of the next Resolution, a good deal of the attractiveness of the second Archer-Shee position will have disappeared.
    Mr. Benson: I was assuming that the Twelfth Resolution was to be more or less on the question of motive, which was what the Chancellor dealt with in his Budget speech. The Archer-Shee case depends primarily, as I understand, on the fact that Income Tax from securities loses its identity when it passes into the hands of trustees under American Income Tax law.
    The Solicitor-General: I think that if the hon. Gentleman will await the exposition of the Twelfth Resolution he may find that a good deal of his apprehensions about the second Archer-Shee case will have been modified. The hon. Gentleman also referred to the case of the discretionary trust. We certainly have power to deal with that under the Resolution. If I followed him rightly he was suggesting that, under an irrevocable trust, the child could recover Income Tax. I think that impression arises from a misreading of the Act of last year. The instance he gave was not a sound one. Of course, the child would not be able to treat it as his income for purposes of reclaiming tax. He would be faced with the provision which says that he has no power to reclaim. The Act of Parliament says that it is not his income for all purposes. I will not follow the hon. Member into his inquiry as to whether all charitable payments should not come within the full rigours of the Income Tax law. All I would say in regard to such a suggestion is that it would spread a good deal of alarm and despondency among charitable institutions in the country. The root of the present law is that charities are treated as an exception and are exempted from the ordinary provisions of
    944
    the Income Tax Acts. They are entitled to ask that taxes which have been paid upon such incomes shall be paid back. Anything which would vary the position in that respect would not be very acceptable.
    Mr. Benson: It does not apply only to charities, because the Duke of Westminster paid his servants that way and then claimed exemption.
    The Solicitor-General: I was dealing with the case the hon. Member gave. He was complaining that he could not understand why a gentleman should be entitled to make a settlement under which he undertook to pay to a particular hospital a sum of money over a series of years and why the hospital should be entitled to claim back from the revenue the Income Tax that had been deducted. I have given him the reason. By the operation of the law we put charities in a favoured position, and if they can show that the tax has been paid they can come to the revenue and get it back. It would be disastrous to charities if we now altered the favoured position which they enjoy. The hon. Member for South Shields (Mr. Ede) seemed to think that these proposals were only window-dressing.
    Mr. Ede: I said that unless the Government were prepared to give us an estimate they must not be surprised if people thought so.
    The Solicitor-General: I apologise. I thought it was not a thing which the hon. Member would wish to say. But I repeat, we cannot exactly estimate with anything like precision what wastage to the revenue is likely to be prevented by these proposals. That is something which is completely nebulous. It depends on the patriotism of the people, on the extent to which they co-operate in making the system of taxation work, and on a whole host of other things. What the prevention of wastage will be is a thing which none of us can say. It would be only a guess. But what we can say is that we have given in the White Paper an aggregate figure of the advantage to the revenue in a full year in respect of the provisions relating to trusts and settlements, the transfer of assets abroad and the liabilities by residuary legatees, and we have put the figure at £3,000,000. That is a very substantial figure. Indeed, it will

    945
    be observed that the positive advantage to the revenue is about £500,000 more than the total of the Tea Duty to which the hon. Member referred.
    That is not the end of the picture. If one were in a position to evaluate the imponderabilities and see the picture if these proposals were not carried into law, I have no doubt the figure would be very much more. The hon. Member for Con-sett (Mr. David Adams) was anxious to know why we should not have some general overriding legislation to enable the Inland Revenue Commissioners in the case of tax evasion to deal with the matter. While the hon. Member was speaking I looked at the hon. Member for Dundee (Mr. Foot) and I could see that he was somewhat disturbed. To vest in the administration, in the Executive, power to say, "We do not like the look of this sort of thing," or, "There is something in the flavour of this transaction," would be a complete abrogation of the functions of Parliament. It is for Parliament to put down in terms what is the law, and as long as the subject carries out the law he ought not to be subjected to inquisition by commissioners or anybody else, however benevolent they may be. The responsibility is on us here, and it will be for hon. Members when we table the full effects of these Resolutions in the form of a Bill to say whether they reasonably meet the problem.
    Mr. David Adams: Under my proposition it would be the law.
    Sir Arthur Salter: Would the learned Solicitor-General distinguish the proposal, which I think he has rightly criticised, from a proposal that the law should be so framed as to give to the Courts the right to quash particular arrangements on the ground that they were clearly designed to evade taxation?
    The Solicitor-General: If the hon. Member will give to Parliamentary Counsel and myself the benefit of his assistance in drafting a Clause which would get through this House, I should be glad to have a talk with him.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    6.9 p.m.
    The Attorney-General: This Resolution, which I agree is framed in general terms, is put down in order to give the House the necessary power at a later stage to strengthen Section 18 of the Finance Act, 1936, which deals with the transfer of assets to foreign persons or companies. In 1936, when this matter was dealt with, it was a common method of avoiding taxation to transfer assets abroad to a person or to a company, who might enjoy the income from those assets, but the arrangement was that the person in this country whose assets had been transferred could enjoy or had the power to enjoy when he wanted the income arising from the assets so transferred. Parliament in drafting the Section in wide terms, intended to except from its provisions the transfer of assets made in the ordinary way of trade and business, and which were made without any tax avoidance motives, though of course in some cases it has resulted in less tax being paid than would otherwise have been paid. In one respect this Section has been found to require strengthening, and that is with regard to the words which Parliament then used to cover the cases where such transfers were effected—
    " mainly for some purpose other than the purpose of avoiding liability to taxation."
    Unless a person was able to bring himself within that exception he had to pay Income Tax and Surtax upon it. The word "mainly" has been so construed as to widen the exceptions beyond what Parliament intended, and my right hon. Friend gave an example in his Budget speech. In that case the transfer was mainly for the purpose of tax avoidance, and, of course, for some other purpose. Therefore, if the Section is left as it is the construction of the word "mainly" would defeat the intention of Parliament, which was to exclude normal and bona fide transfers of assets by way of business.
    Mr. Benson: We told you that in 1936.
    The Attorney-General: No doubt there are many other cases where one proves to be wrong, but they do not occur to one's mind with the same vividness as

    947
    when the event proves us to have been right. We have all had the same pleasant experiences, which I have no doubt the hon. Member is now enjoying. At a later stage we propose to strengthen this Section of the Act of 1936 and to deal with a point which has arisen owing to the construction put on the word "mainly." There are two other points with which it is proposed to deal. One is the case where the assets or income arising from the income are under the control of discretionary trustees, whether there should not be words inserted to make it clear that that fact does not prevent it being said that the transferor has the power to enjoy. The definition of the power to enjoy is wide, but doubts have arisen as to whether it would cover a case of that kind. In our view it should cover such a case, and therefore the Resolution is wide enough to enable an Amendment to be made in that regard.
    The third point with which it is proposed to deal is this. The Section refers to "persons abroad "—I am not quoting textually, but that is the effect of it— and doubts have arisen as to whether a company registered abroad but controlled by persons here would come within the words used in that regard in the Section. I think it is right to say that a company, for taxation purposes, is regarded as being resident where those who control it are, as distinct from where it is registered. The point is a technical one, but it has come to our knowledge that possibly there might be a loophole in the Section which could well be stopped up. Those arc the three points with which we are concerned. I agree that the Resolution is in wide terms. It is not an easy matter, and I do not think that the Clause, when it is drafted, will be a simple one. The Section is one which I think had the full approval of the House in 1936, and I feel sure that hon. and right hon. Gentlemen in all parts of the House will desire this year to see that the full intentions of the Section are carried out.
    6.16 p.m.
    Mr. Pethick-Lawrence: It is difficult to know what exactly the Government intend to do in this matter when we have not before us the Clauses of the Finance Bill, because the Resolution is a permissive one only, which we have to take entirely on trust from the hon. and
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    learned Gentleman. Although the hon. and learned Gentleman was inclined to make fun of my hon. Friend the Member for Chesterfield (Mr. Benson), I think he must admit that when the Government last tried their hand at this, they failed to some extent, and they failed in the direction in which my hon. Friends had suggested they would. Therefore, I think we are entitled, not so much to congratulate ourselves on the suggestions we made, but to give a warning to the hon. and learned Gentleman. We hope that the Government, having been defeated in their efforts in this direction two or three years ago, will be very careful not to make the same errors in the terms which they embody in the Finance Bill this year.
    There is one point on which I would like to have an assurance from the Government. The Resolution which we have just passed contains provisions concerning settlements, and the Resolution which we are now discussing deals with the transfer of income abroad. What I want to be quite clear about is that where it is a matter both of a settlement and of a transfer abroad, between Resolution II and Resolution 12, it is not caught in a tertium quid, and that where there is a settlement and that settlement deals with a transaction resulting in a transfer abroad, if it is not caught under Resolution 11, it will be caught under Resolution 12. I would like to have an assurance that, in the opinion of the Law Officers, that will be the case, and that under Resolution 12 we shall not merely catch a transfer of income, but a settlement which is a transfer of income.
    Finally, I would like to raise a wider point. The whole essence of the avoidance of Surtax is the successful attempt, within the terms of the law, to turn income into capital, and for the person concerned to get it back in the form of capital instead of in the form of income. That is done in a very large number of ways, by using settlements, transfers abroad and so on; but in essence the simple method is by putting it into the form of a company and letting the company redeem itself after a certain number of years and return to the person concerned his income in the form of an appreciation of capital. Can the Attorney-General give an assurance that, in his opinion, between Resolutions 11 and 12

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    and the law as it stands at present, such means of enabling a company to accumulate income and then return the proceeds in the form of capital to the person concerned, is effectively prevented? I do not feel satisfied that it is, and I should be glad if, at some stage, the hon. and learned Gentleman would express an opinion on this matter.
    6.21 p.m.
    Mr. Benson: I am not quite sure that the Attorney-General has succeeded in easing my mind on what, if I understand the matter correctly, is the basic fact of the Archer Shee case, namely, that in the case of income arising from a foreign country, our tax laws are in some way subject to the laws of that foreign country in that the laws, and the difficulties arising under the laws in that country, decide what that income or benefit is, and that that is accepted by our judges as binding. It is obvious that in the Archer Shee case the income arose from securities, and had the trust been in England, there would have been no question but that the income would have been subject to tax; but because the American scheme was that the income had lost its identity once it got into the hands of a trustee, it could not, therefore, be held in our courts to be income arising from securities and was not taxable except in so far as it was brought home. From a very interesting article in the "Times" newspaper, I understand that some small countries, such as Liechtenstein, in order to attract this sort of companies, from which they can get taxes, alter their law whenever there is an alteration in our law so that they may help and assist tax evaders to put their companies into those particular countries. If decisions of the English courts are to be dependent upon decisions of foreign courts, obviously there is a weakness that ought to be stopped. I think it should be made clear in the Clause, when it is drafted, that an English decision shall carry, irrespective of what any foreign legal decision may be.
    Are we to understand that the question of motive in the transference of income is being entirely discarded? Surely, the reason a man transfers income abroad is, for tax purposes, entirely irrelevant. The question should be as to what the effect is, and not what the motive is. If a man, for legitimate commercial reasons,
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    suddenly finds that, owing to some particular legal complexity, he is thereby relieved of normal taxation, it is an anomaly which ought not to exist. The mere fact that a man, for purpose A, establishes a foreign company or transfers income abroad, and then discovers, quite irrespective of anything which he had intended, that he is receiving benefit B, no harm is done to him by taking away benefit B. What we are asking is that an entirely unforeseen benefit in the form of a lower tax should not be allowed to operate. Once the question of motive was introduced, it would cause trouble such as already exists, namely, that the courts have to decide not merely questions of fact but questions of motive, which are always extremely difficult to decide.
    A further point I wish to make is that, as the law stands at present, the prevention of tax avoidance applies only to the transferor or to his wife, and in the case of a man who makes some elaborate foreign scheme, the Attorney-General said nothing about what seems to me to he an important point, namely, that that elaborate scheme, although we may prevent it from operating during the period of the settlor's lifetime, immediately he dies his heirs may inherit the scheme and then, because the heirs are not the transferors, the whole question of tax avoidance will arise. That point was very clearly debated on the Finance Bill in 1936, and the then Financial Secretary, who is now the Minister of Agriculture, laid down definitely that the intention of the Government was that the prevention of tax avoidance should apply only to the transferor abroad and should not apply to his heirs when they inherited that particular scheme. If that be the case, and if the present attitude of the Government is the same, it opens the door for very considerable tax avoidance, because a good deal of tax avoidance is not directed primarily to saving the Income Tax or Surtax of the individual concerned, but to preserving the financial status of his children. The schemes for the avoidance of Death Duties are not for the benefit of the individuals who make the schemes or whose estates are to be inherited, but for the benefit of their children. Here we have a scheme which, although it will bring the settlor no advantage, will enable him to leave to his children tax-free income. I think it ought to be made

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    clear in the present Finance Bill that the provisions shall apply not merely to the settlor but also to his relatives, as defined in Section 19 (2) of the Finance Bill, 1936. I see no reason why, in the case of these foreign schemes, they should not apply with equal rigour to the relatives of the settlor. I hope that the Chancellor will see that this further extensive tax avoidance is included in the scope of the scheme.
    6.30 p.m.
    Mr. R. Acland: I was extremely interested just now in the answer of the Attorney-General to the question put by the hon. Member above the Gangway as to the discovery of motive.
    The Attorney-General: I wish to make that clear. The hon. Gentleman asked me whether it was the Government's intention to discard altogether the tests already on the Statute book. I shook my head and I intended to convey that it was not the Government's intention wholly to discard those tests.
    Mr. Acland: It was not exactly in that point I was so much interested, as in the fact that on this question the Government are doing on a small scale what the hon. Member for Oxford University (Sir A. Salter) suggested should be done on a wide scale. As I understood it, the hon. Member for Oxford University suggested that we would not be able to deal with this whole question satisfactorily unless we gave, not to the Commissioners of Inland Revenue, but to the courts the power to look into all these transactions and to ask the question, "Is this being done with the intention of avoiding Income Tax, Surtax or Death Duties?" and also the power to upset any transaction carried out with those motives. I believe that is a proposal which ought to be applied not only to transfers abroad but to all these machinations. Therefore, I await with great interest the Clause in the Finance Bill which will deal with this matter in order to see how the Government draftsman approaches what is admittedly a difficult problem. I believe that knowlingly or unknowingly the Government are breaking new ground in this respect. At any rate, they are going a little bit further into the ground which was first broken in 1936, and they are introducing a proposal which, in the opinion
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    of many, will shortly extend itself to cover all these matters of tax avoidance.
    6.34 p.m.
    Mr. Lathan: I, too, hope that the Government will examine this question from every point of view. It would be unfair at this stage to express too definite an opinion, but some apprehension has developed in the minds of hon. Members because of the limited assessment now made of the revenue likely to be derived from steps to prevent tax avoidance. We must await, as my hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) indicated, more definite proposals from the Government showing the lines on which they intend to proceed. The Government must be aware that feeling is growing in the country in regard to this scandal of widespread tax evasion. Hundreds of thousands of taxpayers with small incomes, who have to pay every penny which is due from them to the State, are becoming intensely annoyed when they read in the newspapers of the devices which are adopted by others, with the assistance of various legal gentlemen, for the purpose of avoiding taxation responsibilities. I hope the Government will extend the range of their survey as widely as possible.
    I hesitate to speak too definitely about this matter in the presence of so many hon. Members who are learned in the law and wise in financial transactions. But is it not possible so to arrange matters as to provide that any money derived from trade or other transactions in this country, shall be taxable whether it is transferred abroad or not? Is it not possible to devise proposals to deal with cases such as one which was described to me a few weeks ago. That was the case of a business which, having been conducted very profitably, in relation to recent developments in the armament industry, was transferred, lock, stock and barrel, with the profit in it, to a new company. I was informed that the profit of the company for the period covered was in the region of £30,000. Not only did they pay no Super Tax, but they paid no taxation at all, because under an arrangement which I am told is legally possible, this was regarded as a capital improvement and not as taxable profit. I hope the Government will inquire fully into all these matters.
    6.38 p.m.
    The Attorney-General: I wish to say, in the first place, that not only has this matter been examined, but it will be kept under constant examination. It is a matter to which my right hon. Friend attaches the greatest importance, and on which he is prepared to receive with sympathy any suggestions and if they are helpful and practicable, to consider putting them into operation. It is obvious that every Chancellor of the Exchequer must approach this question in exactly the same way. He must, of course, desire that Income Tax or Surtax should not be avoided by particular groups, but that everybody should pay his proper share. Therefore, it was with no lack of sympathy towards any of the suggestions which have been put forward that my hon. and learned Friend just now made some observations as to the impracticability of the course proposed by the hon. Member for Oxford University (Sir A. Salter). No doubt the hon. Member's suggestion is extremely attractive, but I assure hon. Members that when we come down to detail there is a great deal of difficulty about it.
    I am not sure whether the hon. Member for Barnstaple (Mr. Acland) realises that the motive test has been on the Statute book since 1936. We are not making any new departure in that respect. We are only making an amendment of the law owing to the fact that the motive test has not worked very satisfactorily. It is quite true that the proposal is more or less on the lines of the general principle suggested by the hon. Member for Oxford University, but the transfer of assets abroad is not in itself the sort of transaction which is carried out hundreds or thousands of times in the course of ordinary business and it is when you get into the area in which the tax evader uses a transaction of that kind that one of the chief difficulties arises in the practical application of any such proposal. However, I must not be led away by general considerations from dealing with the points which have been put to me in the course of the Debate.
    The hon. Member for East Edinburgh (Mr. Pethick-Lawrence) asked what was our main object. The subject is a complicated one. Some of the accumulations by companies were dealt with in the Finance Act, 1922, and any transaction
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    which comes within the specific wording of either the 11th or 12th Resolutions will, of course, be hit by them. As far as transfer and settlement abroad are concerned, those transactions will, for the most part, fall under the Resolution which we are now discussing. Section 18 as amended certainly applies to transfers of capital abroad which is producing incomes and is not restricted in the way suggested. The hon. Member for Chesterfield (Mr. Benson) raised the question of the effect of foreign law. The relevance of foreign law arises in this way. If someone in this country has certain rights in a foreign trust or in any other foreign contract or settlement governed by foreign law in order to see what those rights are, it is necessary to consider the foreign law governing that trust settlement or contract. It would, of course, be wrong to tax a person on rights which he did not possess under the law applicable to the trust concerned and that is a principle on which we could not impinge as I think the hon. Member will agree.
    Reference was made to a case in which the American law had been upheld in relation to persons here who had transferred assets to trusts of that kind. Of course, we have to take steps, and will be prepared to take steps in the future if we find that, as a result of the application of some foreign law, persons who are capable of enjoying the income are not liable to tax. That is exactly the kind of device which has been dealt with in the past and will be dealt with in the future. The hon. Member also raised the question of heirs. They were not covered, as he knows, in 1936 by the intentions expressed, and with regard to this Resolution, I am not sure whether they are technically covered. But it is not our intention to deal with that matter and it appears to me that there is great objection to dealing with it on the basis of the motive test as some hon. Members have suggested. It seems extremely difficult to apply the motive test in such cases. If you ask a son what were his father's motives when he carried out a certain transaction it would seem to be asking a question which the son would have extreme difficulty in answering unless he had communications with the other world—and those are not generally recognised in a court of law. No case of the kind has as far as we know, arisen and it certainly is not proposed to deal with

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    the matter in the Clause which will be based on this Resolution. It is possible that the point might arise in the future and might have to be dealt with then.
    Mr. Speaker: I am informed that it is the general desire of the House that this Resolution and the Sixteenth Resolution which deal with the same point, should be considered together.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    6.45 p.m.
    The Solicitor-General: As you have just said, Mr. Speaker, these two Resolutions really deal with different facets of the same matter, and both of them, I think, arise as a result of a casualty which occurred in the Court of Appeal in a recent case. The question arising is, What is the position of income payments received by executors during the period after the death of the testator and before the estate is fully administered? This sum reaches the executors' hands, and in the normal course of events the executors will pass on some part of the money either to the life tenant or to the residuary legatee in anticipation of the estate ultimately being administered. The difficulty has arisen that in a recent case it has been decided that before the administration of the estate is complete, there is no residue, so that there is no source from which a person receiving the money can be said to be receiving income, and, therefore, those sums of money, although they reach the executors' hands minus tax, because the tax is deducted before coming to them, when they are passed on by the executors to the life tenants or the residuary legatee are held not to be the income of the residuary legatee or the life tenant, as the case may be, and reach that person's hands, therefore, in a condition in which he does not pay Surtax.
    We propose to restore the law to what most people thought it was before the recent case. Such a situation in law has not presented itself either to us or to the Revenue authorities, and no doubt the
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    country at large has cheerfully gone forward on the assumption that when a gentleman left his estate for the benefit of somebody, and it took some time to wind up that estate, the payment made to the ultimate residuary of money which reaches the executors' hands as income is money passing to the beneficiary. Unfortunately, that is now shown to be not the correct view of the law, so that we propose to restore the law to what most people thought it was before the Corbett case was decided. We propose that, in the case of the life tenant, payments made to him during the administration or on completion of the administration will be taxed as part of his total income for Surtax purposes. We propose also that, in the case of the residuary legatee, the income arising during the administration will be treated as his income for Surtax purposes to the extent that he enjoys it, but that his liability to pay Surtax on the income will, of course, only arise, as it should, when he comes to enjoy it and not until it reaches his hands.
    The main effect of these proposals will be to fortify the Revenue, but a counter loss to the Revenue of a kind which I am sure the House will approve will necessarily result. There will be an advantage now to charities which they do not at present enjoy, in consequence of some rather difficult legal decisions to which I need not refer. After the Barnardo case some years ago, there was a provision put in an Act of Parliament by which charities can recover tax which, under the Barnardo decision, they were not entitled to do, levied upon the income of the estate in which they were interested from a date one year after the death of the testator. In consequence of the legislation which we shall introduce in implementing this Resolution, charities will in future be able to claim repayment of tax as from the date of the death of the testator. That will be a necessary corollary of this legislation.
    In this case I am in a position to satisfy the hon. Member for South Shields (Mr. Ede) with something in the nature of figures. We are able to make some estimates as to what advantage will accrue to the Revenue from these proposals. We estimate that the Surtax loss to the Revenue in the case of beneficiaries entitled to an absolute interest as residuary legatees is not less than £750,000 a year, and that in addition the casualty to which

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    I have referred, which occurred in the Court of Appeal, would involve a loss of nearly £750,000 a year in the case of the life tenants, so that the sum of those two figures is something like £1,500,000 of possible loss to the Revenue, which will be prevented by the effect of Resolution 13 as implemented by the Act of Parliament when it is passed.
    I do not desire it to be thought that the whole of these provisions relate to the avoidance of tax. That was not suggested for one moment to be the fact in the Corbett case. Of course, it must normally happen that in the case of large estates it takes some time to wind them up, and as the law now stands you cannot charge Surtax on the income during that interval, but the House will readily see that it does offer a considerable inducement to people to be a little sluggish, shall we say, in winding up estates if they know that until they are wound up, they are not in an income-producing condition. I can give some examples. There is a case where the date of death was 1919, the annual income is £1,100, and the annual Surtax £220, which is lost at the present time. There is another instance of an estate with an annual income of £150,000. The death was in 1929, the residue was only ascertained in 1935, and the Revenue lost annual Surtax of £55,000. Resolution 13 and the legislation which will follow will, we hope, put that situation at rest.
    With regard to Resolution 16, this is in case there be any doubt as a result of the Corbett decision as to what is the position in regard to the Estate Duty. It simply gives effect to the practice according to which Estate Duty is levied at present. In the case where, for example, a life tenant dies before an estate has been completely administered, where is the burden of Estate Duty to rest? The practice has for years been based upon a decided case, and everybody has thought that in those circumstances the estate passed upon the happening of the event during the period of administration, that is to say, upon the death of the life tenant. Everybody has assumed that to be the law. It appears to us that in view of the decision in the Corbett case, it may be doubtful, and it may be said that the beneficiaries in those cases have no direct interest in the specific assets of the estate, because it has
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    not yet been administered, and that, therefore, those assets cannot truly be said to pass. So, on the death of the life tenant, before administration is complete, and after the death of the testator, it may be said that there is no estate passing and, therefore, that Estate Duty is not payable.
    Mr. Pethick-Lawrence: I understand that the learned Solicitor-General is not talking of the whole estate, but of that part which has arisen as income?
    The Solicitor-General: Where, during the period of administration, the life tenant dies, and, therefore, the portion of the estate which is the source of the income that goes to him now becomes available for whomsoever ultimately becomes entitled on the administration, it has always been assumed that that amount of the estate passed on the happening of the event. Corbett throws some doubt on that as a proposition. The law has been administered for years and years on the footing that the other view is right, and we propose to make it perfectly clear, by Resolution 16, that in those circumstances the Estate Duty shall continue to attach to the estate as passing on the happening of the event.
    Sir Robert Tasker: In the event of a man dying and leaving his estate to four daughters, and on their death it reverting to the son, who becomes the residuary legatee, do I understand the learned Solicitor-General to say that although Death Duties have been paid, the son will again have to pay them on the death of the sisters?
    The Solicitor-General: Let me take a simple case. "A" by his will leaves his residuary estate to "B," the daughter, for life, with remainder to the son, "C." Supposing "B," the daughter, dies before the estate is administered, then a claim for Estate Duty under the existing practice is made on "B's" death in respect to the estate which passes to "C "; that is to say, it was made on the death of the daughter in respect of that part of the estate which represents that income and which passes to the son. On that basis we have always treated the property as passing, and Estate Duty must be paid. The Corbett case throws doubt on the question of whether that is right or not, because it: can be so con-

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    strued as suggesting that in those circumstances, the estate not being administered, nothing has yet passed to the daughter. In those circumstances, since doubt might be cast upon a practice which has been very general and very long continued, we propose by legislation to make the position clear.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    6.59 p.m.
    The Attorney-General: This Resolution affects only certain kinds of enterprise, namely, those which deal for their stock-in-trade in things which increase in value: for example, a company which buys land with a view to future development, land which it believes will increase in value, because it will be demanded for building purposes, or companies which deal in securities, which buy and sell securities and shares. One might perhaps, in order to explain the effect of the Section, take the simple case of a company which bought a large consignment of immature wine or whisky with a view to retaining it for five or six years and then disposing of it at a profit at the enhanced value which it would then rightly have. As things are at present, if you take a company which goes on trading continuously, it is assessed on its trading profits made by buying and selling its stock-in-trade as and when those profits are realised by sale. Until the trader sells, you do not tax him on the ground that what he bought at 5s. is now worth 7s., but if he sells it at 8s. there will be a profit of 3s. to come into his trading account. A company which has a stock-in-trade of this kind may, in certain circumstances, avoid paying Income Tax by discontinuing business and transferring the stock-in-trade, which has appreciated in value, to a newcomer, the sum that he gets from that newcomer, which represents the increased value of the stock-in-trade, being the sum received as the purchase price of the business, and therefore a capital sum, and not a sum received by way of sale of stock-in-trade in the ordinary way.
    960
    It is a matter which my right hon. Friend thinks should clearly be dealt with. It was dealt with by Parliament on the same lines as this Resolution in connection with Excess Profit Duty, enabling appreciated value of this kind to be brought in, but it has not previously been dealt with under Income Tax law. I do not say that it is a very big thing, but some cases have come to the attention of the Revenue where this device of discontinuing business and transferring it to a new concern has been used and thereby tax avoided on what clearly is a proper trading profit.
    Sir Robert Tasker: In the case of land, if it lay derelict for a number of years could not some interest be calculated on the initial outlay in purchasing it?
    The Attorney-General: Under the present system allowances are made in respect of the time the money has been out of use and all the rest of it, and allowances are made for expenses. The point is this. If the company continues business and sells the land at a greatly enhanced value, subject to all proper deductions, that is a trading profit which will bear tax. If they transfer their whole business to another company, getting the enhanced value of the land as a capital sum in the purchase price of the business, it is kept out of the charge for tax as a trading profit. The purpose of the Resolution is to see that it comes in as a trading profit subject to exactly the same deductions and adjustments as would have been made if the company had realised the value in the ordinary way by selling it.
    Sir R. Tasker: Who determines what is a fair rate of interest?
    The Attorney-General: That does not arise upon this Resolution. It arises in exactly the same form in the case of a company which does not discontinue business. The answer is probably that the company borrows money from the bank to purchase its stock in trade and brings the interest in as an expense.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    7.10 p.m.
    The Attorney-General: This is a Resolution, which I understand insurance companies agree is fair, to put what is called capital redemption business on the same basis as life assurance business. Life insurance, of course, is a scheme under which one pays so much a year and either on an endowment policy gets a lump sum at 60 or, in the case of a full life policy, other people get it when one dies. In addition to that business there is a considerable business carried on under which capital or lump sums become payable not from the point of view of life insurance but at a certain date, say for paying off a loan when it becomes due or for some purpose of that kind, but normally, as the name that is used to describe the business implies, for the redemption of capital. A sum of money may have been borrowed to be repaid in 15 years and, in order that the money may be available, arrangements are made with an insurance company for capital redemption assurance. At present business of that kind is not assessed on the same basis as life insurance business. Life insurance business has its own special rules. An ordinary life insurance company's main source of income is from the investments that it makes with the premiums that it receives, just as the ordinary trading company's main source of profit is the realisation of the goods that it buys and sells. It is, therefore, desirable that this capital redemption business should be dealt with by the same methods as are applicable to life insurance business.
    May I give a short example of how it works out at present? In computing profit or loss for the purpose of assessment under Case i of Schedule D, there is deducted from the profit actually made the amount of taxed income that is included in that profit. Tax has already been paid on that. If you want to find whether there has been a trading loss, you have to take into account that the trader has paid tax on that part of his income that he has received from investments. If a capital redemption business produces an investment income of £100,000 and the profit actually made is £10,000, the £100,000 has to be deducted
    962
    from the £10,000 in order to arrive at the Income Tax profit or loss, with the result that the business is found to have an Income Tax loss of £90,000.
    Mr. Tinker: Have you not put it the wrong way round?
    The Attorney-General: It is a minus quantity, and therefore there is a loss. If the company has other insurance business —not life insurance—on which the profit for assessment under Case 1 of Schedule D amounts, say, to £500,000, the loss that I have described on the capital redemption business is set off against the £ 500,000 profit, with the result that the assessment on that business is reduced to £410,000. In that case the revenue has lost tax on £90,000, because this artificial loss has been deducted from the other business carried on by the company.
    Mr. Tinker: The Attorney-General has attempted to explain what this Resolution means. If this is what is called high finance, I am entirety lost. In order to understand it I shall have to go to school again.
    Mr. Higgs: What will be the position of an individual running two businesses— not capital redemption businesses but genuine trading businesses—where at present he can set the loss of one against the gain of the other? Is he still in a position to do that?
    The Attorney-General: Yes, quite.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    7.15 p.m.
    The Solicitor-General: This Resolution is to prevent the avoidance of Estate Duty through the one man or family company and to amend Section 34 and Section 38 of the Finance Act of 1930. Those sections were specifically designed to deal with the case of the person who in anticipation of death conveyed his property to a company from which he continued to derive a good deal of benefit. It was provided in Sections 34 and 35 that the benefits which he so derived should not

    963
    be aggregated with other elements of his estate. The effect of that has been to enable considerable evasions to be made of what Parliament desired to effect. The first proposal that we make in this Resolution is that for the purpose of determining the rate of duty payable the property shall be aggregated with other property passing on death. Let me explain what Sections 34 and 35 of the Act of 1930 do. They impose the charge of Estate Duty where property has been transferred to a one man company in such a way that under the previously existing law no charge of duty had been existing although the owner had been enjoying the benefit of it. Section 34 deals with the case where the deceased was the absolute owner of the property transferred and Section 35 dealt with the case of the man who was a life tenant. Under Section 34 a notional sum of money is deemed to pass on his death. A sum not exceeding the value of the assets transferred to the company by the deceased which bears the same proportion to the value of the total assets of the company as the benefits drawn from it by him bears to his own total income. Under Section 35 the actual property transferred is deemed to pass on the death of the life tenant.
    The important point to note is that under both sections the property which is deemed to pass on death is by express statutory authority not aggregable with the rest of the property passing at death. To some extent these non-aggregating provisions were due to an oversight left out of both sections. There is no good reason really why you should not aggregate, and the result of the existing law, which was devised to prevent tax avoidance, has been to provide a new loophole for tax avoidance because tax dodgers can reduce their Estate Duty liability by the simple expedient of splitting the property which it is proposed to transfer, and then transferring it to several companies thereby securing lower rates of duty on various parts which are not aggregated. I can give an instance. The worst case that has been come across is in reference to a property of the value of £800,000. It was split up between five companies to which Section 34 applied, and instead of there being one non-aggregable estate, there were five and this aggravation of the principle of aggregation saved the estate from £164,000 Estate Duty. It is obvious
    964
    that this is a leakage which ought to be stopped, and the effect of the two limbs of this Resolution will be to cure the defects that have been discovered.
    Mr. Pethick-Lawrence: I am very glad that the Government are remedying these defects. I remember the facts of the case described by the hon. and learned Gentleman. It was due to an oversight, and it was felt that the two parts should be of the same kind and that the legislation should be amended at a later date.
    Motion made, and Question proposed, "That this House cloth agree with the Committee in the said Resolution."
    7.21 p.m.
    The Attorney-General: This Resolution deals with another rather technical point, and I am not sure whether the hon. Gentleman the Member for Leigh (Mr. Tinker) will regard it as any more intelligible than the previous one. It arises out of an article in the "Law Times" which suggested that the particular provision of the Finance Act, 1894, which was put in as a relieving section to prevent Death Duties being levied where they ought not to be levied, could be used to get round the provision that if property is transferred within three years of the death of the transferor it is aggregated with his estate for the purposes of estate duty. The relieving section dealt with a case of this kind. Suppose a man settles property on himself for life, and, on his death, on B for life, and, after B's death, to B's children. The Section to which I have referred dealt with the position on the basis that B dies during the life of A. There was a passing of property in this sense, that the children, as it were, came up a step, but obviously it was not a passing that should be made the subject of Estate Duty. This Section made it clear that in a case of that kind Estate Duty should not be payable.
    What the writer in the "Law Times" said was this. Suppose somebody desires to make a gift by settling property on B for life, and on B's death on his children. That is done by A. But if A puts in a life interest for himself after B saying,

    965
    " I transfer this property now to B for life and on B's death, if I am still alive, it is to come back to me and then it is to go to the children." Then A dies within three years of making that transfer. The writer in the "Law Times" suggested that the provisions of this Section were such that in his view it would prevent the provisions which bring in gifts within three years as part of the estate from being applicable. This is a technical matter and I think probably the Committee will not want me to go into details. The point is that a Section which was intended to prevent Death Duty being exigible on a death which really did not bring about a passing of property could by an artificial method be used to prevent a transfer within three years of death from being made liable to the duty.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    7.26 p.m.
    The Financial Secretary to the Treasury (Lieut.-Colonel Colville): This Resolution is for the purpose of remedying two defects in the law which has been passed relating to national defence contribution and it paves the way for the legislation which we shall lay before the House for that purpose. Its first object is to prevent the deduction, in computing the profits of a company which belongs to a group of parent and subsidiary companies, of interest on loans and other annual payments to other companies within the group, which really affect the internal and not the external finance of the group. Such payments are not true expenses of earning the profits of the group but are merely transfers of profits dictated by the structure of the internal finance of the group. In the existing law there is a provision which disallows a deduction of interest paid within the business to proprietors of the business or to directors having a controlling interest in the business, but the provision does not extend to the case of parent and subsidiary companies. It is our view that
    966
    these payments which are in essence internal arrangements should not be allowed as deductions.
    The second object of the Resolution is to prevent a double allowance of losses. Owing to a technical flaw in the existing law, in certain circumstances a loss in one trade or business may be set off against the profit arising in another trade or business, and may also be carried forward by the concern making the loss so as to secure a second allowance of the loss by deduction from its own future profits. It was clearly not the intention of Parliament that that should be so and it arises owing to a flaw in one of the Schedules. I could give the House several examples of what I mean in actual practice, but if the House will allow us to have this Resolution now we shall be able to discuss the matter in more detail when we are considering the precise proposals.
    Mr. Pethick-Lawrence: May we have one example?
    Lieut.-Colonel Colville: Yes, Sir. Supposing a principal company makes a profit of £100,000 in the first accounting period and in that same period a subsidiary company makes a loss of £40,000. Under the existing law the principal company can ask that the profits or losses of the subsidiary company shall be treated as the profits or losses of the principal company, and the principal company is accordingly assessed to National Defence Contribution upon £60,000 only. In the second period the principal company makes a profit of £150,000 and the subsidiary company this time makes a profit of £90,000. The assessment upon the combined profits ought to be £240,000, but under the paragraph in the Fourth Schedule which we say needs correction the subsidiary company is entitled to claim that the loss of £40,000 sustained by it in the first accounting period shall be carried forward and deducted from the profits made by it in the second period. The profits of the subsidiary company for the second period are, therefore, computed, not at £90,000, but, after deducting the £40,000, at only £50,000. The loss of £40,000 has thus been allowed for twice over. That is due to a flaw in the existing law, and it is a flaw which we wish to put right and we shall bring forward proposals based upon this Resolution to remedy it.
    7.33 P.m.
    Mr. Croom-Johnson: I wish to call attention to the last line of the Resolution. I have not had any experience of the particular point to which my right hon. and gallant Friend the Financial Secretary has called attention, and the explanation he has given sounds all right, if he will allow me to say so, but I do observe that it is intended that this change in the law shall be deemed to have effect as from the date on which Part 111 came into operation. There may be, and there probably is, a very good reason indeed for suggesting that this amendment of the law should be made retrospective in effect, but when the House is dealing particularly with taxing legislation I do not think we ought to allow such a point to pass without someone calling attention to it, so that we may all have our minds upon it in order to see what the reason, which I have no doubt is a good reason, is when we come to consider this proposal when it is translated into the Finance Bill.
    7.34 P.m.
    Lieut.-Colonel Colville: If I may have the permission of the House to speak again, I will answer the point put by my hon. and learned Friend. He quite properly called attention to the fact, which I had intended to mention, that this provision is retrospective. I think the reason for making it retrospective will appeal to the House, although of course he was quite right in drawing attention to it. In the case of a tax such as the National Defence Contribution, which was imposed for a specific period of five years, it is important that it should be levied upon the same lines as far as possible over the whole period. It would be inequitable as between different classes of taxpayers if an obvious defect of the law should not be remedied as from the inception of the tax. We have not yet had a full year of the tax and in order that all trading concerns should pay in a common measure throughout the whole period of charge it is a fair thing that we should in this case make the alteration retrospective.
    Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
    7.36 p.m.
    Lieut.-Colonel Colville: This Resolution authorises the introduction of a Clause which is designed to prevent the avoidance of Stamp Duty which is taking place in connection with the sales of property by one limited company to another. Instruments of conveyance or transfer on sale are, in the ordinary way, liable to duty at the rate of £ per cent. ad valorem. Where, however, two limited liability companies constitute, as parent and subsidiary company, one financial whole, or where they are both subsidiaries of a third company, the law has, since the Finance Act of 1930, recognised that such a transfer does not represent a real change in ownership, and so exemption from the ad valorem duty was given. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) will remember that when his Government was in office that point was discussed fully, and it was agreed that there should be this exemption, which was granted partly to encourage wise grouping in the interests of rationalisation, but I am sure the Government did not intend the exemption to be misused as we find that it is being misused in some cases at the present time.
    A quite unjustifiable advantage has been taken of this relief by certain companies having no financial or other connection except that they happen to have contracted, as ordinary vendor and purchaser, to sell property to each other In such cases there is a real change of ownership. But by interposing a small limited liability company created for the purpose they can avoid the payment of Stamp Duty. I think the right hon. Member for Hillsborough (Mr. Alexander) was interested in this matter and mentioned it in the House of Commons last year—this avoidance of Stamp Duty by the interposition of a small bridge company. It is clear that such a proceeding is an abuse of the present law and we propose to bring in provisions to put a stop to it. We have been frequently asked during this Debate whether we can give any estimate of the amount of money saved to the revenue by the provisions we have been proposing, and in this instance I am able to say that we think that the amount of Stamp Duty which is being avoided at present is about £100,000 annually.

  FINANCE [POWER TO BORROW FOR CERTAIN FINANCIAL PURPOSES].
  Resolution reported,
  " That the whole or any part of the sums required in the current financial year for the purposes mentioned in paragraph (a) or paragraph (b) of Sub-section (4) of Section twenty-three of the Finance Act, 1928, as amended by auy subsequent enactment, may be provided out of money borrowed for the purpose under Section one of the War Loan Act, 1919, instead of out of the permanent annual charge for the National Debt."
  Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
  7.38 p.m.
  Sir J. Simon: The House will probably wish me to make a short statement upon this Resolution. It is to enable a Clause to be introduced into the Finance Bill which in case of need could be used to enable us to borrow to meet Sinking Fund charges on the contractual Sinking Funds. The House may remember that for some years past the Budget arrangements have provided £224,000,000 as the fixed debt charge. That £ 224,000,000 is intended primarily to pay the interest on debt, together with the cost of the management of the National Debt, and includes the interest upon savings certificates actually cashed during the year. The figure has been £224,000,000 year by year for the last four or five years, and down to last year it was sufficient, not only to meet completely the primary purpose of paying for the interest and management of the National Debt but to leave a margin which was enough to provide in full for the statutory Sinking Funds. The figure needed for that purpose varies from year to year according to changing conditions, and at present is in the region of £10,000,000 or a little more. Last year, as I told the Committee of Ways and Means when I opened my Budget, the provision of £224,000,000 was not enough to meet the whole of the cost of providing for the statutory Sinking Funds, but was sufficient to provide most of what was needed. There was a balance of some
  970
  £2,770,000, which was met out of revenue and which, in effect, reduced the surplus last year.
  I have announced that it is my intention this year, and a Clause will be included in the Finance Bill, to provide £ 230,000,000 for the fixed debt charge, and not £ 224,000,000, and I gave my reasons in the Budget speech. The reference will be found to it in column 49 of the OFFICIAL REPORT of Tuesday, 26th April. I hope and believe that that £ 230,000,000 will be sufficient to cover the interest and management of the National Debt, and the interest on the savings certificates cashed and to leave a margin sufficient to serve the statutory Sinking Funds, but according to our ordinary practice, which has been followed year after year, as a precaution one also takes power in case of need to borrow for that last purpose. This proposal is exactly in line with the provision which has been adopted by the House for a number of years past, and I ask the House to give me this Resolution in order that I may include the ordinary Clause in the Finance Bill.
  7.42 p.m.
  Mr. Pethick-Lawrence: If I understand the Chancellor aright, he has properly recognised the conditions with regard to savings certificates. They always have an interest for me, because they were one of the questions which I constantly raised as a junior Member of the House. I pursued the right hon. Member for Epping (Mr. Churchill) on this point in every one of the years of his Budget, and I think that in the end he had to make some concession to my protest. I am glad that the Chancellor has recognised that if he were not to make an allowance for the accruing interest on those certificates he would be borrowing even more than he is borrowing at the present time, and therefore, in so far as he has put up the charge which he expects to cover this point, and others, I feel that he has acted correctly. He has arranged to borrow so large a sum of money altogether that it does not, of course, seem to be a very great matter whether he borrows a little more or a little less. When we are borrowing £100,000,000 or more a few odd millions almost pass out of our ken as a matter of small importance, but we have argued that out on previous occasions and I do

  971
  not think it is necessary to go through it again to-night. We do not find it necessary to oppose this Resolution.
  7.44 P.m.
  Mr. Benson: With regard to the payment of these contractual obligations I am not quite clear why it is necessary to take power to pay these Sinking Funds out of borrowed money if necessary. I should have thought that the State would have had to pay the statutory Sinking Funds whether they had taken powers or not, and that if there were a deficit the payments would take their place in the normal payments for the year irrespective of any power to borrow. Assuming that the Chancellor were unduly optimistic and felt there was no danger of having to borrow to pay those Sinking Funds and omitted to take the power, if by some mischance there were a heavy deficit what would constitute the position then?
  7.45 P.m.
  Mr. A. V. Alexander: It is difficult for the ordinary Member of the House always to understand exactly what the position is in some cases. I wonder whether the right hon. Gentleman can give us an idea of how the Sinking Fund arrangement is working in relation to reduction of the National Debt. We understood the position very well before 1930£ 31, when we had a fixed sum always put before us representing the Sinking Fund of the year, but we are not clear now whether a fixed sum is actually placed aside for debt reduction. If the right hon. Gentleman has figures available to put before us easily, perhaps he would give them to us, as they might reassure us.
  7.46 p.m.
  Sir J. Simon: I quite understand the nature of the question put to me, and I will say a word briefly upon the point but hon. Members, and the right hon. Gentleman, will probably agree that it might be better to authorise the Clause, after which we shall be able to consider it. As regards the question put by the right hon. Gentleman, I understand that it is undoubtedly the case that we have to provide money for the contractual Sinking Funds. If there were no specific authority to borrow and there was still a charge to be met, the right hon. Gentleman will apprehend, that would either reduce the surplus or increase
  972
  the deficit, as the case may be. Assuming that it is a case of a deficit, it would be necessary to find the money by borrowing. It is a matter of precaution, and it is desirable to have two ways of dealing with the matter. This is now our regular system, followed year by year. In practice this amount is found out of revenue.
  As regards the question put to me by the right hon. Gentleman from the Front Bench opposite, I would remind him that I did endeavour in my Budget statement to make the position clear regarding the position of the National Debt. Perhaps he will be good enough, at his leisure, to look at the passage, which in the OFFICIAL REPORT begins in column 48. He will see whether I have provided the information which he has in mind, and, after he has refreshed his memory, if he does not feel that it gives him all he wants and will let me know, I will gladly see whether there is something more that I can say. I do not want there to be any misunderstanding. The reason why we make this provision for paying off, even in these difficult times, a portion of the Debt against us, is, among other things, that if we did not do so, we might imagine that we were standing quite still, whereas we should really be increasing our liability. As I explained in the Budget speech, the savings certificates which are outstanding and are not presented for payment in cash in the course of the year, are earning interest all the time. Good bookkeeping requires that we should take that fact into account. I am not open to reproach in this respect. That £ 230,000,000 should properly be regarded as an effort, at a time when there is a debt operation going on, to secure that our capital liabilities are not, as it were, secretly increased. With that explanation I hope that I shall earn the commendation of the stern and unswerving rectitude of the right hon. Gentleman opposite.

  FINANCE [CURRENCY OF CERTAIN SAVINGS CERTIFICATES].
  Resolution reported,
  " That the power of the Treasury, under Sub-section (1) of Section forty-three of the

  973
  Finance Act, 1931, to prolong the currency of savings certificates shall cease to be limited as provided in proviso (b) to that Subsection (which limits such prolongation to the thirty-first day of March, nineteen hundred and forty, in the case of certificates issued on or before the thirty-first day of March, nineteen hundred and twenty-two)."
  Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
  7.51 p.m.
  Sir J. Simon: For hon. Members who desire an explanation of this Resolution I am not certain that reading it will make it reasonably intelligible, but I think I can explain it in a way which I hope will make it clear to everyone. The object of the Resolution is to authorise the Treasury to extend the first issue of savings certificates, the original issue, beyond their present final date which, as things stand, is 31st March, 1940 They must be brought in and encashed by that date. The first issue of these certificates was on sale from February, 1916, to March, 1922, at the price of 15s. 6d. They were to be worth £1 after five years and 26s. after 10 years, and their value thereafter was to increase at the rate of 1s. per year. Certificates of the first issue still in existence are now worth between 32s. or just over 38s., according as they were taken out in 1916 or 1922. As the matter now stands they have their final date in March, 1940.
  Some years ago, in a previous Finance Act, that of 1931, the Treasury were given leave to extend the final dates of saving certificates, but it was applied only to later issues. The final date of this original issue was retained for the reason that at that time it was supposed that by 1940 the amount of the first issue would be a very small matter indeed; they would have worked themselves out and the issue could be finally wound up and disposed of. In fact, the popularity of this issue is such that the certificates have not been brought in and encashed as might have been expected, and the amount outstanding, including the accrued interest, is still the equivalent of over £45,000,000. It will probably be £40,000,000 in 1940. It appears to us that, having given the facility of extension to the other issues, it would not be advisable to force redemption of this issue for so large an amount. A good many of the holders want to keep them, and would not by any means be averse to a further extension, which is
  974
  clearly desirable. What I now ask is for authority by this Resolution to introduce a Clause into the Finance Bill. When hon. Members see the Clause they can consider it at their leisure.
  7.55 P.m.
  Mr. Benson: May I ask why these Resolutions were not printed with the other Resolutions? These proposals were foreshadowed in the Budget speech of the right hon. Gentleman.
  Sir J. Simon: I think they stand in a different position from the Resolutions which were reported to the House from the Committee of Ways and Means, which are the Resolutions upon which the Finance Bill is founded. Is that not so, Sir?
  Mr. Speaker: The two Resolutions we have been considering are upon the Paper for their Report stage.
  Mr. David Adams: What is the prospective duration of the extended time?
  Sir J. Simon: I am not asking that the Resolution should limit it. That is a matter for consideration in the Bill. What I was proposing to do was to remove the present limit which says that, Willy-nilly, they must all come to an end in 1940.
  Mr. Alexander: Is not the whole point whether it is best to force that compulsory conversion in 1940 or to leave things as they are? If the interest now remains at 1s. it is believed that people would like it to continue.
  Sir J. Simon indicated assent.

  WAYS AND MEANS [28th April].
  Resolution reported:
  AMENDMENT OF LAW.
  " That it is expedient to amend the law relating to the National Debt, Customs and Inland Revenue (including Excise) and to make further provision in connection with finance."
  Bill ordered to be brought in upon the said Resolutions and upon the Resolutions reported from the Committee of Ways and Means on 3rd May and agreed to by the House on that day, by the Chairman

  975
  of Ways and Means, the Chancellor of the Exchequer, and Lieut.-Colonel Colville.
  FINANCE BILL,
  " to grant certain duties of Customs and Inland Revenue (including Excise), to alter other duties, and to amend the law relating to Customs and Inland Revenue (including Excise) and the National Debt, and to make further provision in connection with Finance," presented accordingly, and read the First time; to be read a Second time upon Monday next, and to be printed. [Bill 138.]

  BACON INDUSTRY [MONEY].
  Considered in Committee, under Standing Order 69.
  [Captain BOURNE in the Chair.]
  Motion made, and Question proposed,
  " That, for the purposes of any Act of the present Session to provide for the better organisation of the bacon industry and the pig producing industry, it is expedient to authorise—
  A. The payment out of moneys provided by Parliament of any administrative expenses incurred for the purposes of the said Act by the Minister of Agriculture and Fisheries and the Secretary of State for Scotland;
  B. In respect of certain pigs related to years comprised within a period of three years commencing with an appointed day—

  (1) the payment out of moneys provided by Parliament to bacon curers of sums related to rises in the cost of a standard ration for pigs over eight shillings and six pence per hundredweight;

  (2) the payment into the Exchequer of sums recovered from bacon curers, being sums related to falls in the cost of the said standard ration below the said sum;

  (3) the payment out of moneys provided by Parliament to bacon curers of sums related to falls in the price of bacon below, in the case of sums payable in respect of the first year, ninety-four shillings and nine pence per hundredweight, in the case of sums payable in respect of the second year, ninety-three shillings and nine pence per hundredweight, and in the case of sums payable in respect of the third year, ninety-one shillings and nine pence per hundredweight;

  (4) the payment into the Exchequer of sums recovered from bacon curers, being sums related to rises in the price of bacon over the said amounts respectively;

  so however that the sums to be paid in respect of any pig shall in all cases be calculated by reference to, amongst other things, the weight of bacon produced or presumed to be produced from that pig on specified
  976
  classes of premises, with an addition in certain cases for weight lost by the removal of bones and skin, and that sums are not paid, in the case of the first year, for more than two million one hundred thousand pigs, in the case of the second year, for more than two million four hundred thousand pigs, and in the case of the third year, for more than two million five hundred thousand pigs."—(King's recommendation signified.)—[Mr. W. S. Morrison.]
  7.59 P.m.
  The Minister of Agriculture (Mr. W. S. Morrison): I am moving this Resolution on behalf of my right hon. and gallant Friend the Financial Secretary to the Treasury. The Committee will be aware that it authorises the financial backing for our proposals for the reorganisation of the bacon industry in this country that were embodied in the Bill recently read a Second time. The full proposals have so recently been under the consideration of hon. Members that it will not be necessary to expatiate upon them at this stage, but hon. Members will remember that the two main objects of the proposals are the setting up again of the contract system for the supply of bacon pigs in this country, and a scheme for the reorganisation of the bacon factories of the country so as to provide the industry with the asset of low cost and efficient curing establishments. To enable this process of reorganisation to be carried on, it is proposed that assistance should be given to the industry for a period of three years, with the object of insulating it against wide fluctuations in prices of feeding stuffs as far as the farmer is concerned, and in the price of bacon as far as the curer is concerned.
  The Resolution is, I think, almost self-explanatory. The assistance is based on the assumption that an efficient pig producer can work at a profit if he gets 12s. 6d. per score for his bacon pigs, and has not to pay more than 8s. 6d. per cwt. for the standard ration of feeding stuffs, and the Resolution, in its first two numbered paragraphs, provides for that part of the assistance. The proposal is founded upon the report of the Lane-Fox Reorganisation Commission, in paragraph 23 of which hon. Members will find the matter more fully discussed. Provision is made in these two paragraphs for payment from the Exchequer to bacon curers of the necessary subsidy, and the curers are bound to pay 12s. 6d. a score to the pig producer, plus the food cost subsidy which is appropriate having regard to

  977
  the ruling level of prices for the relative commodities.
  The contract between the pig producer and the curer may, and certainly will, provide for variations in price according to the grading of pigs, in order to secure that the proper animals are produced, and also according to the month of the year in which they are coming forward, in order to secure level delivery, which is so essential for the efficiency of the bacon curing industry. The other side of the picture is the assistance that is here given to the curing side of the industry. It is thought that, if the price of bacon sold in this country does not fall below 94s. 9d. per cwt., the curer can afford to pay the 12s. 6d. per score, and the second pair of the numbered paragraphs deal with the conditions on which the subsidy will be paid from the Exchequer to the bacon curer should the price of bacon fall below the figure of 94s. 9d.
  The only other feature to which I ought to draw attention in connection with these proposals is that throughout the three-year period the assistance is diminished, or tapered. The reason for that is that it is supposed that, during the three-year period of reorganisation, economies will become available on both sides of the industry, as a result, not only of rationalisation, but of research and education in the matter of the production of pigs, and that, therefore, slightly less assistance may be necessary as the time from the inception of the proposals goes on. It will be understood that these proposals are not only for payments out of the Exchequer to the persons affected, but for repayment to the Exchequer should conditions become more favourable for either curer or producer. What the scheme really does is to provide, for this period of three years, a measure of stability and security which is eminently desirable if these proposals for the reorganisation and betterment of the industry are to succeed.
  The last words of the Resolution refer to the numbers of pigs in respect of which this assistance is to become available. In the first place, the assistance is available only in respect of pigs sold on long contract. That is the basis upon which the contract system is established. The numbers given in the last part of the Resolution are 2,100,000, 2,400,000 and 2,500,000 in the three respective years. This provides for a certain expansion of
  978
  the industry. It was estimated, although no exact information is available, that in 1937 the number of British pigs converted into bacon was round about 1,900,000, so that, even in the first year of the operation of these proposals, it is anticipated that there will be some expansion. This expansion will not only be a good thing for the agricultural industry and for the nation in general, but will make it possible, by securing a greater supply of proper animals for the curing side of the industry, to obtain that steady throughput which is such an essential economic factor in its prosperity.
  8.8 p.m.
  Mr. Alexander: If it had not been for a little trouble at the Ministry at the time when the Bill was before the House, I have not much doubt that the Money Resolution would have been on the Paper at that time, and probably, in view of the long Debate that we had on the Second Reading of the Bill, it would have been passed with very little discussion. The principle of the Bill has been approved by the House of Commons, and the Bill is now before a Standing Committee, which is discussing the details of the legislative provisions proposed. While I shall have a few things to say to-night about the purely financial provisions and their relation to the industry, I would say at once that we do not wish at this stage to indulge in what would be a sham fight, because we have already said on the Second Reading a great deal of what we have to say, and we shall have a good deal more to say both from above and from below the Gangway, in the Standing Committee, on the Amendments that we desire to see adopted.
  In dealing with the financial provision which the House is now asked to make, I thing it is important to make one or two general observations. We are asked to provide a sum which cannot be exactly measured, but which, the Minister's Department thinks, may average about £ 1,000,000 a year for three years; but there is, of course, a great deal of doubt in the minds of many hon. Members as to whether there is really going to be a strict limitation of the period. We have seen so much of the expansion of the subsidy system under the National Government in its two terms of office since 1931, that some of us have very little hope that, as long as that Government stays in,

  979
  there is going to be any real limit to the extent to which it spends public money upon particular industries.
  When I consider the general situation in relation to this subsidy, I find it rather disturbing. We now have a large number of separate subsidies operating outside agriculture, with which I will not deal, because it would not be in order to do so, but in relation to agriculture today we are subsidising wheat, in respect of which the Treasury acts only as a collector, because the consumer pays in the price of bread and flour; we have the Cattle Subsidy, which we were assured was in large part going to be paid for by the beneficent producers in the Argentine, who would be able to exercise such economies that they would reduce the price so that the British consumer would not pay; and in the case of the Cattle Subsidy the Treasury also provide an actual sum of £ 5,000,000 towards the cost of the subsidy.
  When one looks at other subsidies, like that on milk, the continuance of the sugar subsidy, and the sugar rebate, and when one remembers the dead-weight burden of agricultural rate relief and the fact that we are now being asked to provide £ 1,000,000 a year for the next three years for the purposes of agriculture, we find that we shall now be actually voting to agriculture direct subsidies at least equal in amount to the yield of 6d. in the£ on the Income Tax, or about £30,000,000 a year. What worries a great many people when we are asked to consider financial provisions of this kind is what is going to happen to British agriculture if at some time or other we find ourselves in such a situation that the subsidies have to be removed. That would lead to an exceedingly unhealthy and difficult position.
  I said a word or two on the Second Reading of the Bill about the general view of producers in relation to these matters. It was very significant to me that one of the leading speakers on behalf of the board, at the recent annual meeting of the Pigs Marketing Board, said that, although of course the Government assistance was limited to three years, they were quite convinced that they would not be let down at the end of that period. I think, therefore, that the point I am raising in regard to this financial provision
  980
  has some substance, and that really a very dangerous situation is created by this constant outpouring of public money. I am not attempting to deny that agricultural production in this country for some years has had a very difficult position to face, but I am not at all satisfied that the method of constant subsidies is the way in which to provide a really lasting and effective policy for the reconstruction of agriculture on a paying basis.
  I should certainly like to know from the Minister whether he can say that the Government now issues a fiat that the three-years period outlined in the Money Resolution and in the Bill is final, and that if at the end of that time contract pigs are not forthcoming at the proper rate and of the proper grade to maintain the proper expansion of the bacon curing industry in substitution for foreign imports, the expenditure of public money which we are now asked to vote will definitely come to an end. I think we ought to have from the Minister, in the interests of the general body of taxpayers, some statement on that actual situation.
  There is another point, to which reference was made by my hon. Friend the Member for Don Valley (Mr. T. Williams), when he was dealing with the financial Clauses of the Bill on the Second Reading. I come back to it because I noticed that the Minister, in his remarks to-night, said that of course it was hoped that a rationalisation of the industry and a reduction of costs might make possible some reduction, or tapering, as he called it, of the subsidy, and he went on to speak of what he called the recoupment of the Treasury for the expenditure. I am all in favour of that in principle, and am not quarrelling with him for saying it, but I am concerned as to how that is to be done. One of our principal complaints about the general provisions of the Bill is that it does not deal with this industry in regard to organisation in such a way that you can organise it for plenty, and make an end to this situation, in which you have a constantly restricted supply of an important item of food, of the working classes especially, at prices which they are unable in many departments of working-class life to meet.
  When the Minister speaks about the recoupment of the Treasury, I should like to know from whom the recoupment is

  981
  to come. I should like, when I come to speak on the detailed proposals in this Bill, to say something about the supply in relation to the total population to-day, as compared with that in 1933. It is so simple for the Minister to say at any given time, "The time has now come for recoupment of the Treasury. We can do that by so arranging a further restriction of imports from two main supplying countries, like, say, Denmark and Holland, that the price will rise so far above the 94s. 9d. that not only will no subsidy be required but there will be a presumed profit which will accrue to the Treasury." We ought to have some assurance about that, because the view of this party, as far as I can gather by discussing the matter with my colleagues, is that we want to see the problem of bacon production in this country tackled; we want to see the organisation of pig production of a kind that will be helpful in a well-balanced system of farming; but we also want to see that our people get enough of this important food at a price which they can pay.
  So far, we have been limited to a total supply of bacon, including those parts known as pickling pork, to, at first, 10,600,000 cwts., and afterwards 10,800,000 cwts., although we were able to consume in the years of depression, when bacon was cheap, about 1932, much nearer 13,000,000 cwts.—and I have no knowledge of any substantial waste. People will eat bacon when they can afford to buy it. It may be said, with some truth, that the price of bacon then was so low as to be unremunerative, to bacon curers as well as pig producers. That we have to recognise, but for the Government to pursue a policy of either limiting the bacon supply of this country to 10,800,000 cwts., or actually reducing that amount, will go far to defeat their main objective, because they will kill the bacon-eating habit among a large section of the people.
  You cannot have a satisfactory industry from the point of view of either the primary or secondary producers unless you are going to have a regular, stable, consuming market. I beg the Minister, therefore, to be quite certain as to what his policy is to be in that connection. I am tempted to ask, in view of the announcement made in the House only a few days ago that Denmark has been induced to take a larger supply of British
  982
  exports to that country, whether there was any talk at the time that the agreement was made with regard to contra trade from Denmark to this country. I know that that is not the whole problem—Denmark is not the only country—but we ought to know what was said about that, and what the policy is going to be now that we are actually asked to vote the money.
  The only other point I think I need raise—because we put the position very clearly on Second Reading, and we shall say a great deal more upstairs—is that in the Minister's statement in the House of Commons on 10th March he stated that in the second year the basic pig price will be reduced by 1d. a score and the notional bacon price by 1s. a cwt. He went on to say that there will be further reductions in the third year. The Financial Resolution, which is necessarily drawn in general terms, gives us no indication as to how this decrease in the second and third years will operate. I would like to have some assurance on that. While I recognise that the pig producer, in common with other sections of the agricultural industry, has had difficult problems to face, all the trouble has not been on the side of the pig producer.
  As to whether this can come about with ease will depend to some extent on how you treat the bacon curer. In considering what economies can be brought about by rationalisation, many factors have to be taken into account. Following your control of imports policy, you cut off from a factory—I mention this particular factory because it is one in which I am much interested—nearly 50 per cent. We endeavour to work according to methods which we have already demonstrated can be successfully adopted, and we find ourselves actually prevented by Government control from achieving the economic working of the factory. It is in the light of that that I am asking what is the intention of this decrease. I doubt whether a man who processes about 100 or 120 pigs a week for bacon, unless he is paying abnormally low wages in a rural area, could process them at less than 12s. or 13s. per pig, but if he is a large producer of bacon, handling not fewer than 1,200 to 1,500 pigs a week, the actual processing cost per pig will be 4s. That is an extraordinary difference.

  983
  If this scheme is to function, to the benefit of both sides of the industry, it is absolutely essential that the curer should get a fair opportunity. We provide capital, put the factory up, get the most modern machinery and the latest technical devices, and then we are not allowed to produce, Further, we have to sell at a price on which we lose. If one were to look at the average record of the large curers in this country during the last eight or nine months, one would find that, without exception, they have lost money. It is in the light of that side of the industry that I am asking what is really meant by this scheme of decrease and how it is to be worked. I hope that I have put the various small problems that I had in mind clearly before the Minister and the Committee. There may be other people who take a different point of view. I shall not ask my hon. and right hon. Friends to divide against the Resolution to-night, but we should like these points to be clarified, because it will assist us in our further discussions, which we are undoubtedly going to have on the more important details of the Bill in Standing Committee.
  8.26 p.m.
  Mr. Acland: The Bill and the attendant Money Resolution are based upon the operation of the Development Board. I do not want to go into the discussion which we had upstairs, but the Committee has by a majority declined our suggestion to establish a board with a majority of independent members working in the interests of the public, and has established, unless we can reverse the decision on the Report stage, a board with a majority interested in the industry. Those who were of the majority in that decision seem to take the view—and I think that the hon. Gentleman the Member for Stone (Sir J. Lamb) expressed it—that nothing could be more in the public interest than to have the industry run by the industry in the interests of the industry. It is enormously in the public interest to have this industry run efficiently and well, and in that the interests of the public and of the industry coincide.
  There is one rather important question, that of price, upon which the interests of the industry and of the public as a whole conflict. There are two problems in the industry. There is, first, the price at which the semi-finished product is passed
  984
  on from the primary producer to the secondary producer, and that price has to be a fair price, and for the settlement of that price the present board is most admirably suited. But more important from the public point of view is the final price, and it is in the private interests of the industry that the price should be high and in the interests of the public that the price should be low. I appreciate that it is possible for an individual, when he finds himself appointed to a board, to address himself to his task entirely divorcing himself from any consideration of his own private financial interests. It is a little harder for him to do that when he has been appointed to such a board for the very purpose of representing the whole class of interests. Therefore, we must be forgiven if we fear lest these boards may look primarily to the interests of those who are in the industry rather than to the interests of the public as a whole.
  In the Money Resolution the price for bacon is fixed for three years, and the State is to pay to the industry any margin by which the realised price falls below the fixed price. Under Clause 27 of the Bill the State also has power to raise or lower the price of bacon by its regulation of the volume of imports. Therefore, the State, having power to raise prices, is made financially interested, together with the board, in maintaining prices. That is rather an ominous provision to put in an Act of Parliament. As at present estimated, the cost of this provision is to be round about £ 1,000,000. Is it going to be temporary or permanent? It is for three years, as provided in the Bill, but we have had in this industry Measures introduced with every possible promise and undertaking that they would be of a purely temporary nature and yet they have become permanent.
  Therefore, I think that I can safely say to the Minister, though this is subject to any decision to which the electorate may come at the next General Election, that the provisions of the Bill will, in fact, become permanent. We are settling the price of this product for three years, but if this scheme goes on, no doubt the House of Commons will again settle the price in the fourth, fifth and sixth year. It will be settled, as will the volume of importation, almost solely on the advice of this board. Hon. Members opposite regard all this sort of thing apparently as

  985
  perfectly normal. The Minister described this process as if it were absolutely usual and unexceptional. I saw the hon. and learned Gentleman the Member for Ashford (Mr. Spens) most vigorously shaking his head at me in Committee when I stated that there should be nothing suspicious or dubious about the way in which the board carry on. It really is one of the privileges of belonging to my party that one is able to watch the way in which both the other parties swallow with complete complacency suggestions made by themselves, which they would mock to scorn if they were proposed by members of the party opposite to them.
  Mr. Alexander: I hope that the hon. Gentleman is not going to attack my party in that way. I remember the present Viscount Samuel and the present Leader of the Liberal party swallowing Protection holus-bolus when they joined the National Government.
  Mr. Acland: They expressed their opinions on that matter pretty strongly.
  Mr. Alexander: After they had accepted it.
  Mr. Acland: I suggest to the right hon. Member for Hillsborough (Mr. Alexander) that there might be protests from above the Gangway if a Bill were to he introduced, not to nationalise the coal industry, but to conduct the coal industry efficiently and well in the interests of that industry by means of a board containing a majority of those engaged in the industry, namely, the miners. That Bill might fix the price of coal for three years and then stop, but no hon. Member would assume that in the fourth year the price would be free. It would be taken for granted that in the fourth, fifth and sixth years the miners' representatives on the board would suggest, and the Labour Government would accept, further price-fixing. One can imagine the leading article in the "Times" newspaper if it were a provision of that Bill that the State should make up to the board any sum by which the price of coal fell short of the price fixed by the Labour Government at the suggestion of the trade union representatives forming the majority of the board in control of the industry. do not expect that the hon. and learned Gentleman the Member for Ashford and his friends will agree with many of the detailed criticisms which we intend to
  986
  bring against the Bill, but I hope that he will understand why so many of these things, which seem to him to be perfectly normal and right, are bound to seem to us a little open to suspicion.
  It is almost a mistake to talk about big bacon factories in this country. Our average is 250 pigs per week, while the Danish average is 800 per cent. higher. Our average bacon factory is not to be compared with the Danish bacon factory. The Minister told us that we have factories capable of handling over L000 pigs a week. Are there any capable of handling 2,000 pigs a week, which is the Danish average? Have we any factory which comes up to the Danish average? We speak of bacon factories in Denmark, but in this country we speak of middle-sized and small bacon factories. I am afraid that under this Bill the middle-sized factory will squeeze out the small factory and frustrate the big factory.
  I visualise the time, three or four years hence, when the factory rationalisation scheme has gone through and when the small factories are being bought up and the middle-sized factories are running to a capacity varying between 250 and 500 pigs per week, and then I think of some courageous, far-sighted, patriotic and astute group of business men coming to this country and saying: "Let us establish a couple of factories on the Danish scale capable of dealing with 4,000 pigs a week." Those two factories would put up our capacity by 10 per cent. I imagine that there would then be a howl from the Development Board. They would say: "This is going to upset the whole of our arrangements. We shall no longer be able to maintain our high percentage of output and we shall be prevented by these big bacon factories—which is what the public want—from making profits in our middle-sized bacon factories. Therefore, we will under the Act prevent those factories from being established in this country." That is what I fear.
  May I repeat a question which I asked in the Second Reading Debate, to which I did not get an answer? Under the Bill the price which the curer will pay to the producer will be reduced from 12s. 6d. to 12s. 3d. That is a reduction of 3d. a score, which represents is. 9d. for a seven-score pig, which I understand produces 1 cwt. of bacon. Therefore, the curers would get 1 cwt. worth of pig for

  987
  1s. 9d. less. They are going to sell 1 cwt. of bacon at 3s. less. Does that mean that the total savings which are anticipated from rationalisation is worth no more than 1s. 3d. per cwt.? If it is worth more, why does it not show, and if it is not worth more, what are we bothering about? These figures of 12s. 6d., 12s. 5d. and 12s. 3d. and the corresponding figures of 94s. 9d., 93s. 9d. and 91s. 9d. per cwt. must be based upon some calculation. Can the Minister publish the calculation, or can he supply to interested Members a copy of the calculations? It seems to me that that calculation ought not to be a confidential document. It would assist us in the consideration of these prices.
  Could the Minister help us in dealing with the financial provisions of the Bill by giving us another set of figures? With respect to certain typical factories of the top size, our biggest factories dealing with 1,500 or 2,000 pigs a week, a factory dealing with 500, and a factory dealing with 75 pigs a week, can he give us figures showing approximately the cost of the pigs, raw materials, the costs of labour and other running expenses and overhead expenses, expressed perhaps not in figures but as a rough statement of total? It makes a difference if raw materials represent 40 per cent., labour 50 per cent. and overheard charges 10 per cent., compared with overhead charges 30 per cent. and other charges correspondingly lower. Those figures must be in the Minister's possession. He could not talk as he has done about rationalisation unless they were in his possession. I hope he will be able to assure us that he can give us answers to these questions of detail so that we may consider this Bill, of which we are suspicious for the reasons I have tried to give.
  8.38 p.m.
  Sir Ernest Shepperson: I find myself in 100 per cent. agreement with the right hon. Member for Hillsborough (Mr. Alexander) in regretting the fact that a subsidy of £1,000,000 is to be paid by the Exchequer to this industry. I should possibly have preferred that the £ 1,000,000 went towards rearmament rather than to the pig industry. I regret it not because the industry does not require the £ 1,000,000—it does—but I would rather have seen the £,1,000,000
  988
  put into the industry not by the Exchequer but by a levy on imported bacon coming into this country. The right hon. Member for Hillsborough said that it might be possible for the Minister by restriction or control of imports to raise the price of bacon beyond the figure of 94s. per cwt. That might be possible, but I would suggest to the right hon. Gentleman and to the Government that if the £ 1,000,000 required had been paid by a levy on imported bacon it would have the result that the price of bacon would not have risen to anything like the figure to which it will rise on restriction of imports, and the producer of bacon under the levy subsidy principle would have obtained what he wants and what he must have in order that the industry may continue, while the consumers would have got their bacon far cheaper than they will get it under and restricting methods. I prefer that the Danish importer should pay the subsidy rather than the British taxpayer should pay the subsidy to the industry.
  Mr. Alexander: After our experience of food taxation in the last seven years does the hon. Member suggest that the foreigner pays the tax? The Minister told us when he was introducing the meat tax 12 months ago that the Argentine producer would pay it. The fact is that although the tax was three farthings per lb., we have been paying from 1½d. to 2d. per lb. more since the tax was put on. The foreigner never pays the tax, but the consumer does.
  Sir E. Shepperson: In putting forward the principle of a levy on imported goods coming into this country the reply that has come to me from different parts of the House has been that the effect of the tariff or levy placed upon the articles will not be what is desired, that is, to raise the wholesale price, because the foreigner will pay the levy. Does the right hon. Gentleman not know what happened when we put a duty of £ 1 a ton on Dutch potatoes coming into this country? The Dutch Government subsidised the export of those potatoes to England. When we took the duty of £ 1 off, the potatoes did not alter in price because the Dutch Government ceased subsidising the export of the potatoes. That is definite proof that the duty on those potatoes was paid by the exporters who were subsidised by

  989
  their Government. That is my only criticism of this proposal. I should have preferred that this subsidy to the industry should have been obtained by a levy on the exporters rather than out of the pocket of the British taxpayer. I should like to ask the Minister or you, Mr. Deputy-Chairman, a question. The Financial Resolution provides:
  " For the payment out of moneys provided by Parliament to bacon curers of sums related to rises in the cost of a standard ration for pigs over eight shillings and sixpence per hundredweight."
  I am hoping in the Committee stage of the Bill to move Amendments which will increase the figure which the producer shall receive. I should prefer that the figure should be 12s. per score, when the standard rate of foodstuffs is 7s. 6d., the figure which applied when the Bacon Marketing Board first introduced their Measure three years ago. The question I want to ask you, Mr. Temporary-Chairman, is whether this Financial Resolution will bar me from moving those Amendments in the Committee stage? I hope to do so, although I cannot say that I have very much hope that they will be accepted.
  The Temporary Chairman (Sir Hugh O'Neill): I could not give a Ruling now as to what Amendments will or will not be in order on the Committee stage of the Bill, but any Amendment to increase the money paid by the Government would not be in order under this Resolution.
  Sir E. Shepperson: Then I am afraid my Amendments will not be in order. Although the Financial Resolution provides this money by a method which I do not prefer, I say to the Minister that the pig producers of England thank him for having brought forward the Bill. While this, is not the method I should have preferred for providing this money, we do accept the Financial Resolution and the Bill as a very definite attempt to solve the difficult problem of pig production in this country.
  8.49 p.m.
  Mr. Price: The provisions in the Financial Resolution will undoubtedly do a great deal to help the pig and bacon industries through a difficult time. At the same time, many of us are a little uneasy at the continued use of public money in support of one or other branch of the
  990
  agricultural industry. I am not one of those who take the view that this should not be the case. On the contrary, having regard to the fact that agriculture as a whole has to meet the products of agriculture in other countries in world markets subsidised by the Government of these countries, it is difficult indeed for the Government of this country to remain altogether uninterested in the matter. But I do not think that is the main reason why this financial provision is necessary at the moment for this industry. I think the main reason is that the industry has in the course of the next couple of years to pass through a process of rationalisation. I refer to the pig-curing side of the industry, and until that is carried through there is a very strong case for the expenditure of a certain amount of public money. But it must be temporary, and it must be contingent upon the rapid rationalisation of the industry.
  There is no doubt that there are in different parts of the country great waste and far too high overhead charges in consequence of small and inefficient methods which are responsible for the present state of the industry. While safeguarding the legitimate interests of the small curers, nevertheless, this process has to be carried through, and I think there is a strong prima facie case for the expenditure of a certain amount of public funds for the purpose of helping the industry through this difficult time. But it must not become permanent. The whole matter must be subject to review, and this House should withdraw its sanction for further expenditure if for one reason or another rationalisation is not carried through in the way it should be carried through. Of course, there are other reasons. The State cannot wash its hands of the industry if owing to the collapse in prices on the world market, or, as I have said, owing to subsidies given by foreign Governments prices are forced down to an uneconomic level, as was the case in 1930 and 1932. I am not one of those who say that the State must wash its hands of the industry in those conditions. But as far as the industry at the moment is concerned, the main reason for the Financial Resolution is the necessity for rationalisation.
  There is one point upon which I should like the Minister to tell us something, and that is on what basis he has calculated the standard ration for pig feeding. There

  991
  has been a certain amount of research carried out in the agricultural research stations in recent years to find the best and most economical pig-feeding ration. Has the Minister consulted the figures in the research stations, and are these the figures on which the subsidy is to be based? I may point out that pig rations vary considerably. There are, of course, three main articles, bran, middlings and hydrogenous food like fish meal, but it has also been found possible to include such articles as maize. A few years ago the Harper Adams College made investigations into this question and found that, up to 30 per cent., one could feed maize meal to pigs without unduly affecting the pig meat. Up to last year, the price of maize was £7 a ton, and the introduction of maize into the pig ration would very substantially reduce the figure. To-day, of course, the situation is different. The price of maize is up to nearly £9 a ton, and any advantage of introducing maize into the pig ration has gone, owing to the rise in the price of maize on the world market.
  What I wish to point out is that all these things should be liable to revision. The movement of prices on the world market may make it possible for the pig feeding stuffs of to-day to be uneconomical to-morrow, but it might be possible to introduce some other ingredient which had fallen in price and thus bring about a reduction in the figure, thereby saving money to the Treasury. The price of the standard ration is likely to be at a varying figure, and therefore, the Minister ought to keep a careful watch in order to save public money. Personally, I think that the figures mentioned in the Financial Resolution for dealing with the standard ration of pigs and the price of bacon are reasonable, and I think that all efficient pig producers should be capable of carrying on reasonably in present conditions. I think that the Committee, in considering this Resoluton, must do everything it can to see that, where possible, public money is saved, and therefore I hope that the Minister will be able to give some assurance that he has gone closely into the matter of the standard feeding-stuff ration for pigs.
  8.58 p.m.
  Mr. W. S. Morrison: In replying to some of the questions which have been
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  asked in the course of the Debate, I would like to begin by saying something about the paragraph in the Financial and Explanatory Memorandum which mentions the sum of £1,000,000 a year. In the course of the discussion, hon. Members have once or twice referred to this figure as though it were the average cost of the scheme. What the Financial and Explanatory Memorandum says is that it is difficult to estimate exactly what the cost will be, but that on certain assumptions it will be £ 1,000,000 a year. I will elaborate that a little bit, because hon. Members will be interested to see how the financial provisions work out. Hon. Members will see that a subsidy becomes payable to one or other branch of the industry in the case of two eventualities —when the price of feeding stuffs rises, or when the price of bacon goes down.
  The sort of assumption on which we have been working, for the sake of making a careful estimate, is that, supposing that feeding stuff prices remained at about what they are to-day—10s. a cwt.—and bacon prices fell, the cost might approximate, as nearly as one can estimate, to £1,000,000 a year. But all experience shows that these two things very seldom go together; that is to say, when feeding stuff prices rise, there is always a reduction in the pig population, accompanied by a scarcity and a rise in bacon prices. That is true not only of this country, but of every country in the world. Last year when the cost of feeding stuffs began to rise, not only did our pig population suffer, but the pig population of Denmark and Holland was reduced by no less than 15 per cent. and 16 per cent. respectively. The conclusion which I ask hon. Members to draw from that fact is that the real influence on the price of bacon is, in the long run, the price of feeding stuffs, and the question whether or not conditions exist which make it profitable for pig production to go on.
  The right hon. Gentleman the Member for Hillsborough (Mr. Alexander) referred to this aspect of the matter and to the great importations into this country in 1932, and he said that people will eat bacon when they can afford it. I would ask him to accept the corollary to that, which is that people will produce bacon only when they can afford to produce it. The low prices of 1932 did not last, and they would not have lasted even

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  if there had been no scheme. What happened was that pig production on the Continent became so unremunerative to the Danes and the Dutchmen, who could make no profit out of the low prices, that wholesale destruction of the breeding herds took place, with the result that we had an immediate scarcity and a very violent example of what has come to be known as the pig cycle.
  As prices have been mentioned, let me say what the Bacon Marketing Scheme has done. It has steadied prices, and it has prevented the wild swings and fluctuations of the pig cycle. By doubling the output of British bacon, it has left us to that extent less dependent upon foreign supplies. If hon. Members will look at the published figures for bacon, they will see that since the bacon scheme came into operation, the price of bacon has risen less than the prices of other foodstuffs, and that the prices of food stuffs have risen less than the prices of other commodities purchased by the wage-earning population of this country. It would be a great gain if we could somehow secure the people of this country against such fluctuations in prices. I think I speak for the whole agricultural population when I say that what the farmers want is not high prices and not excessive profits, but that they long for some stability in the price structure which would make their occupation less hazardous.
  The right hon. Gentleman the Member for Hillsborough asked certain questions to which I will endeavour to reply, although I am sure he will excuse me if I make the general observation that many of the points that he made can be dealt with in greater detail when we face each other across the floor in the Standing Committee.
  Mr. Leach: I beg to call your attention, Sir Hugh, to the fact that there are not 40 Members present.
  The Temporary Chairman: I think the hon. Member has forgotten that it is not possible under the Standing Orders to call a "count" between 8.15 and 9.15.
  Mr. W. S. Morrison: The right hon. Gentleman raised the important matter of the duration of the scheme. This is a three years scheme, but the permanent benefit which we hope it will give to the industry will be to enable the industry
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  during that period to equip itself, so that the factories in this country will approach a standard of efficiency and low-cost production which will facilitate the supply of cheap British bacon capable of competing with bacon from any other part of the world on equal terms and with profit to the industry. The right hon. Gentleman asked how recoupment would be carried out by the Treasury. In this matter of financial arrangements, the curers will be agents for that purpose. The curer will pay his price to the pig producer, adding if necessary the appropriate feeding stuffs subsidy, and in his turn he will receive from the Treasury what he has paid to the producer for the feeding stuffs subsidy. But if the bacon curer has to make recoupment in respect of feeding stuffs, then that will be deducted from the sum which he will pay to the producer. So the recoupment will go on; there will be a balancing of accounts and there should be no difficulty whatever in these financial arrangements.
  The hon. Member for Barnstaple (Mr. Acland) invested this discussion with a miasma of suspicion and seemed to suggest that at some point a man with a cloak and dagger was lurking ready to jump out; but I ask him to believe that we on this side are as conscious as he is of the necessity of building up the industry in a way which will be fair to all concerned. He said that it might be in the interests of the bacon industry in this country to have what he would consider unduly high prices, but I think he got his answer in what was said by the right hon. Gentleman the Member for Hillsborough. If anyone were stupid enough to try to kill the bacon demand in this country, it would be one of the most short-sighted commercial propositions imaginable. The truth about this question of price and about the interests of the various boards in price, is that under this proposal, for three years, neither the Bacon Board nor the Pig Board will have any interest at all in the price of bacon. They will be able to observe its fluctuations without any interest in them whatever. They will be insulated; they will be able to put their own house in order and to supply what is such a desirable thing for the people of this country, namely, cheap British bacon.
  The hon. Member also asked certain questions about the size and output of the factories in this country and particu

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  larly whether there were any factories with a production of over 2,000 a week which, as he correctly said, is about the average of the factories in Denmark. There are at least three factories which exceed that output. One of them at Brierley Hill near Birmingham has an output of 6,000 a week and is as far as I am aware, the biggest and most up-to-date bacon factory in the world, so that there is nothing lacking in the genius of our people, if they are given a chance to produce bacon factories equal to anything to be found abroad. It is a wonderful thing that, in spite of the selective competition to which our agriculture has been exposed from all over the world, you should find remaining such confidence, skill and enterprise, and we hope that under the provisions of the Bill those qualities will provide us with the sort of factories which we want in this country.
  Certain questions were also put by the hon. Member about the "taper" and he seemed to wish us to calculate, with a nicety which is really impossible, the relative values of the decrease in the price per score of pigs and the price of bacon that was guaranteed. In the first place I should make it clear to him that the three figures which we take for the purposes of our financial calculations, namely, 8s. 6d. per cwt. for foodstuffs, 12s. 6d. per score dead weight for pigs and 9d. for bacon, are important only in their relation to one another. We are not really fixing the price of bacon at 94s. 9d. or the price of pigs at 12s. 6d. per score. There will be added or deducted the appropriate amounts for the cost of feeding stuffs. It is in the way in which these figures are related to one another that the validity of the scheme lies. While it is obvious that we can expect economies in production during the progress of this scheme, I would not be rash enough to predict with any likelihood of accuracy what the money value of those economies will be in every case, but I think there is a strong case for supposing that there will be economies, a case which justifies the financial proposals now before the Committee.
  Mr. Acland: Is it not the case that the total expected economy is 1s. 10d. per cwt. in two years?
  Mr. Morrison: That is not really the whole of the story. I anticipate that the
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  full economies of rationalised bacon production will take a great deal longer than that to mature. There will have to be a good deal of reorganisation and it would not be quite justifiable to suppose that in a certain period of six months or 12 months you will achieve a certain amount of economy. The thing will be a continuous process and all we can say is that as there will be some economies, it is right to make this "taper" provision.
  Mr. Price: The figure of two years is in the Bill.
  Mr. Morrison: Rationalisation will take place in that time, but when the economies of rationalisation will be realised is another matter. It takes a little time for the economies to accrue. There is expenditure of one kind and another to be taken into account.
  Mr. Acland: The economies of rationalisation surely take place the moment rationalisation is completed and the economies of which the Minister and hon. Members opposite have been talking, are the economies which will be effected when you get your factories working at something like 100 per cent. instead of 60 per cent. of their capacity. Surely that begins to happen as soon as rationalisation has been completed and therefore, if rationalisation is to be completed in two years, we ought to expect these economies to be realised in two years. I appreciate the fact that after that there is a further period of getting in the more up-to-date machinery, which your 100 per cent. capacity makes possible, but the 100 per cent. ought to be achieved simultaneously with the rationalisation.
  Mr. Morrison: I do not think there is anything between us in this matter. It is clear that rationalisation is a process which brings economies. It is not clear that you can absorb all the capital costs that may be necessary for purchasing businesses, amalgamations and so on and realise economies straight away. It will take some time and all we can say with certainty—and I would not like to prognosticate anything of which I was uncertain—is that there is a reasonable chance of sufficient economies during the period of the currency of this scheme to justify the "taper" which we propose. The hon. Member also asked for a number of figures. He asked on what grounds

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  we justified these various price relationships. They are the result of a great deal of information of a very varied character which has been supplied to us in confidence. The Department is able to rely upon business people to give them information which they know will not be divulged against their wishes. I will look into the matter and see whether any figures are obtainable which I can give to the hon. Member, but I am sure he will not ask me to give any figures which I ought not to give. It is on the information with which we have been provided that we have arrived at these various figures and I may be able to tell the hon. Member a little more later. He will appreciate that it is impossible to group these factories altogether by size. There are costs inside the factories which vary very greatly.
  The hon. Member for Leominster (Sir E. Shepperson) also gave us his views, and I am grateful to him for his speech of general commendation. It was suggested that the limitation of imports since the date when the scheme came into operation had had the effect of raising prices. I am confident that it has done nothing of the kind. It is true that it has rescued the industry from the slump crisis of 1932–33. I have endeavoured to argue earlier that if that had not been clone, if the bacon-pig producing industry had been suffered to perish, the position would have been very much different from what it is at the present time.
  The hon. Member for the Forest of Dean {Mr. Price) also gave a general commendation of the Bill, but he mentioned a dilemma about assistance to agriculture which is sometimes expressed. I think everyone in this House would like to feel that he was associated with our general desire to assist this vital and important industry, but sometimes I hear it said that the particular method which we have chosen is not the right one. I believe that, as agriculture is a vital industry and one which, if they allowed it to decline, the people of this country would regret, not only in time of peace, but in time of war, we ought to apply
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  such measures of assistance as appear to us to suit the exigencies of each particular problem as it arises. It is no good saying that we are anxious to assist agriculture if we object to import duties, to regulation by quantities, or to subsidies. It is no good saying that we like agriculture very much, but that we hate all of the only methods by which it can be brought into some degree of prosperity. Therefore, I hope the hon. Member will continue to give us his assistance upstairs in Committee, on the basis that we have made a real attempt, by these proposals, to provide the industry with the assistance necessary to enable it to be reorganised.
  I can assure the hon. Member that, on the question of a standard ration in particular, we set great store by the provisions for education and research contained in the scheme, that the question of what is the proper method of feeding pigs will be kept constantly under review, and that every effort will be made to ensure that a standard ration is so determined as to give a just reward to the producer and not to encourage waste in any department. At present, for the purpose of contracts, the standard ration consists of certain proportions of barley meal, wheat offal, and fish meal; but all these matters are being kept under review. I think I can commend this scheme with sincerity to the Committee, and I hope it will now let me have the Financial Resolution.
  Question put, and agreed to. Resolution to be reported To-morrow.
  The remaining Orders were read, and postponed.
  ADJOURNMENT.
  Resolved, "That this House do now adjourn."—[Mr. Furness.]
  Adjourned accordingly at Twenty Minutes after Nine o'Clock.