HC Deb 27 June 1939 vol 349 cc357-64

10.35 P.m.

Captain Cazalet

I beg to move, in page 10, line 16, to leave out "1936–37," and to insert "1938–39."

This Clause deals with a very complicated matter, namely, the apportionment and sub-apportionment of certain moneys among members of a trust or company. If anyone doubts its complexity, I would ask them to read the 18 lines of Subsection (3), which I think, for complicated draftsmanship, must take a high place in legislative history. The Clause fills a gap which was left open by Section 19 of the Finance Act, 1936. I think that all Members of the House, in whatever quarter they sit, are glad when the tax evader is caught, especially in a blatant case of this kind. The Government are perfectly right in introducing this Clause, and I hope it will bring a very considerable harvest to the Treasury. My objection and that of my hon. Friends is, however, to Sub-section (5), which introduces the principle of retrospective legislation in a new and startling form. It allows the Commissioners to deal with taxation going back to the year 1936–37, which may be the result of income received in the year 1935–36. The simple point is, how far can retrospective legislation of this nature be justified?

Members in all parts of the House are against the principle of retrospective legislation. In my view it is un- democratic, and in the United States of America it is precluded by the Constitution itself. I am well aware that the present Prime Minister, in 1936, gave a warning which he meant to apply to those who have taken advantage of the loop-holes of Section 19 of the Act of 1936, and who are now being caught by the present Clause, but I would point out that the Chancellor of the Exchequer himself on two occasions has made very specific statements with regard to retrospective legislation. I should like to quote what he said in July, 1937, on the Third Reading of the Finance Bill of that year: I wish now to give a clear warning to any one who may be contemplating the adoption of this particular device or any other form of avoidance, that we shall certainly not hesitate in those provisions to deal with the subject. I should make it clear that legislation of this character, if it should be necessary, will be applied to the Surtax payable in the year in which the legislation is introduced." — [OFFICIAL REPORT, 16th July, 1937; col. 1746, Vol. 326.] Again, last year, in introducing the Budget, in April, 1938, when he was proposing certain measures which were to catch certain tax dodgers who were trying to evade their liabilities by creating trusts of one kind or another, the Chancellor of the Exchequer said: These two proposals will apply to all settlements, existing and future, and as regards existing settlements they will take effect for Surtax purposes for the year 1937-38, thus having the retrospective effect of which I gave due warning last year." — [OFFICIAL REPORT, 26th April, 1938; col 53 Vol. 335.] It is in accordance with those two definite, specific statements of the Chancellor of the Exchequer in regard to retrospective legislation, and accepting the principle which he laid down in those statements, that we have framed our Amendment. It is a cardinal principle of taxation in this country that a man is expected to comply with the law as it stands. I need not burden the Committee with the many well-known legal statements which have clearly stated the position of the law in regard to that matter.

If this Clause is accepted in its present form, it may open up cases which were settled two or even three years ago. We shall then have this position: Assessments which were brought before the Commissioners of Taxes— who are themselves the representatives of the Government, deputed to deal with this matter— and argued before them, upon which the amount of taxation has been settled, upon which the taxes have been paid, and probably the income remaining spent, will be reopened. Finality in these cases may be delayed for years. In some cases the individual originally concerned may be dead, the estate may be in process of liquidation, and some of the money may even have been paid out. In such cases large numbers of completely innocent people may be involved in endless argument and legislation. I admit at once that if our Amendment is accepted a few— I think very few— people may get off; but they will be caught this year, they will be caught in respect of Surtax for last year, and the loophole will have been filled up for all future times.

The sum, I understand, is not very big, and we are always given to understand that, on balance, between those taxpayers who pay less than they ought and those who pay more than they ought, the Treasury is considerably in pocket. I am not putting that as an argument in favour of this Amendment; but I would rather that the Treasury lost a little than that this Government should introduce a principle which, if it became a frequent factor in our legislation, would be regretted and opposed, I think, by Members in all parts of the Committee. I believe that if such a proposal had been introduced by my hon. Friends of the Opposition it would have been fought tooth and nail by every supporter of the Government. I hope that the Attorney-General will not insist on this Clause as it stands. If he cannot accept my Amendment, I hope he will give the Committee some assurance as to the application and administration of the Clause. I hope, of course, that he will see his way to accept the Amendment, which applies to these people that degree of retrospection which has been accepted in the last two Budgets, which the Chancellor has taken to mean reciprocity, and which, I think, is justifiable in this case under the very special circumstances.

10.45 p.m.

Mr. Hely-Hutchinson

I wish to support the Amendment standing in the names of my hon. Friends and myself, and to say that, in connection with this Amendment and the series which we are putting forward on this and the next succeeding Clauses, my hon. Friends and I are seeking to maintain what we are convinced are sound constitutional principles. We hope that in the interest of general good government the Committee will give these Amendments its support. The purpose of Clause 13, as my hon. and gallant Friend pointed out, is to stop the hole in the provision of the 1936-37 Act through which certain tax dodgers have been able to crawl. It is trite to say that we have no sympathy with tax dodgers, but if we were to ask the right hon. Gentleman for a definition of a tax dodger he would be hard put to it to define him otherwise than as a person who is evading tax law. Where can we look, and where can anybody look in determining whether a person is evading the law, except to the law itself?

It would be no good for us here in Parliament to say, in framing the 1936-37 laws, that we meant something different or something more. It is up to us to frame our laws so that they express what we mean, and if we fail to do so we must take our medicine and the consequences of our own shortcomings. We can change the law, but if we make changes retroactive, that not only destroys confidence in the finality of assessments made and included on the basis of existing law, but also may destroy the confidence of the subject in all laws. One is tempted to ask, as my hon. and gallant Friend asked, what is the price of the Government's virtue in this matter? What is the amount of tax improperly withheld— I cannot say illegally withheld— which it is now hoped to collect? The essence of the Government's position is that this provision of retro-activity is aimed at tax dodgers who are hitting below the belt and that therefore it would be perfectly proper for the Government to hit back below the belt. Such an attitude cannot encourage any regard in those who are governed for their governors, and I join with my hon. and gallant Friend in asking the right hon. Gentleman to accept the Amendment.

10.48 p.m.

The Attorney-General (Sir Donald Somervell)

My hon. and gallant Friend who moved the Amendment stated expressly that he approved of the general principle of the Clause. He also admitted that the Amendment is retrospective, in the sense that it goes back at least one year, so that there does not seem to be any great issue on that matter, though both my hon. and gallant Friend and my hon. Friend have raised— and I do not complain— the general question of retrospection and the reasons why we suggest to the Committee that it is reasonable in this Clause to the extent to which we ask the Committee to approve of it. The then Chancellor of the Exchequer, the present Prime Minister, in 1936, when dealing with Clause 18 of the Finance Bill, which was also the tax evasion Clause, gave this warning. He said, in moving that Amendment: I would wish to make it quite clear that I do not consider that in the future people will be entitled, if they find new methods of avoiding taxation of a similar kind to those which are dealt with in this Bill to show they are protected by anything that I now move from retrospective legislation. Within a few weeks or months certain of the persons whom we now hope to get at by the retrospective effect of this Clause sought to do exactly that for which the Chancellor of the Exchequer had said they would be liable to retrospective legislation. How was it that that warning came to be given? The reason was because experience had shown that there were, not a large number, but a definite number of people, and some of them very rich, who were determined to seek, by artificial devices, to evade the quite clear intentions of Parliament, as expressed in its legislation. In 1937 Parliament dealt with one of the devices which have been used to get round the letter of the law, and that was the device of inserting a dummy company in between the person really interested, the tax avoider, and the company in which he put his assets and investments; and Parliament quite clearly showed that that cloak of a dummy company was one which was to be of no avail in dealing with this general subject.

I will not weary the Committee with the details of the various provisions which Parliament found necessary in dealing with this class of individual, but, as my hon. Friend has said, the device which was adopted to get round the letter of the law of 1936 was a device which Parliament had expressly disapproved of in 1927, namely, the device of inserting a dummy company in between the company holding the assets and investments and the person really interested. But there was a gap. If anybody is responsible for it I am, but, in dealing with the com- plexities of this Clause I must point out that its complexity is due to the artificial devices which have been adopted to get round the letter of the law— the dummy shareholder, dummy companies, dummy loans by persons who have no intention to lend money, and a whole host of artificial devices, which necessarily involve complexity if they are to be dealt with.

I can assure hon. Members that no one will be hit by the retrospective provisions of this Clause except the people who try to get round what they knew must have been an accidental omission, and what they must have known to be contrary to the intention of Parliament. As to how far this goes back, and why we are now asking Parliament to go back to the Surtax determined by the Session of 1936-37, that is to say the Surtax due on 1st January, 1938 and 1939, the first decision which disclosed this gap in the 1936 legislation was a decision of the Commissioners in March of last year. One reason for the interval between the legislation and that decision was the very complexity of the devices which had been adopted to get round it. In one case a gentleman who was hit by the 1936 legislation and at that time had six companies, subsequently took to himself seven other companies and, by a series of devices, disappeared through this gap with his 13 companies. So I can assure my hon. Friends that there is no question of opening any settled assessment previous to that date in March of last year because no assessments were settled on this basis, except subsequently to March of last year.

The suggestion has been made that some of these people are dead. As far as I know they are all in good health, but if in the unlikely case of a company being dissolved and a distribution made to beneficiaries, then I give the assurance that there will be no question of pursuing the matter. I ask the Committee to implement the warning given by the Chancellor of the Exchequer in 1936. It is a very important matter not only that retrospective legislation should be carefully scrutinised— I do not complain of that in the least— but that these people who have resorted to these devices should no longer consider, as they have in the past, that after three years they will have a free run. For these reasons and with the assurance that this retrospective pro- vision will affect only those who have tried to get round the intentions of Parliament, I hope the hon. and gallant Member will not press the Amendment.

Captain Cazalet

Are we to understand that the Government dislike the principle of retrospective legislation? We have not had a word on that matter. Do we understand that it is to apply only in these exceptional cases, and that there is great repugnance on the part of the Government to introduce retrospective legislation in the future? Although the Government cannot accept the Amendment, do I understand that in practice they intend to apply the provision that no cases of assessment are to be opened up which were settled before March, 1938? If I understood the Attorney-General correctly I am prepared to withdraw the Amendment.

The Attorney-General

I thought that in the words I used in welcoming the scrutiny of retrospective legislation] implied the repugnance for which the hon. Member asks. What I said about certain cases since March does not, of course, mean that it will not apply to the Surtax payable on the 1st January, 1938. It means that no settlements of assessment will be reopened except assessments settled since March of last year.

Captain Cazalet

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn. Clause ordered to stand part of the Bill.