HC Deb 08 August 1940 vol 364 cc477-91

5.22 p.m.

Mr. Woods (Finsbury)

I beg to move, in page 8, line 38, at the end, to insert: (iii) any mutual aid or insurance scheme to enable business, or industry, in the event of war damage, dislocation or other hindrance arising from the war, to continue to function, where such mutual aid or insurance scheme has the approval of the Treasury. While the ingenuity of people in another country is devoted to designing secret and other means of destroying this country, there are some unpatriotic people here who are so concerned about their financial interests as to apply ingenuity to the problem of evading Income Tax. Evidently, the higher the Income Tax, the greater becomes their ingenuity. Certain people want to exploit the present war condition by devising subtle schemes in connection with war risks which enable them to make profits out of the tragedy of war. I feel sure that the whole Committee is glad that a serious attempt is being made to prevent such ramps, but while everybody hopes that effort will be successful, it is well to remember that it is possible to destroy the good with the evil. One of the most remarkable demonstrations of the good will of the people of this country is the spirit of mutual aid and helpfulness which has been revealed by the contingencies of war. That applies to business life as well as to civilian and Army life. In the past it has been recognised by every Chancellor and every Government, I think, that wise insurance against definite risks should be encouraged, and there has been a willingness to recognise as a legitimate business expense provision against losses by fire, and so on. At the present time, the risks to certain businesses and industries are very considerable, and in certain areas there is greater danger of loss, not only of stocks but of the whole business, as a result of enemy action or other circumstances arising out of the war.

I agree that this position should not be exploited, but at the same time I feel that some provision should be made so that business and commercial interests may be able to make provision against such losses and treat the expense incurred as a definite business expense. Let me refer to the situation in which certain business interests will find themselves. In one area, there may be a considerable risk of destruction, as indeed in many areas there has already been some destruction of business; whereas in another area there may be far less risk. The risk to a business which has concentrated the whole of its assets in the first area is far greater than the risk to a business in the second area. In the case of a small private trader, his chief competitors will be multiple concerns, and while the small private trader will be in fear of losing everything, the big multiple concern will have within its ramifications an insurance scheme of its own, because if its business in one area is destroyed, it will be able immediately to bring stocks from other depots, and as a matter of fact, it will be able to exploit the position created by the destruction of a small competitor or competitors. I do not think the Government and the Chancellor would desire that such a position should be created.

The difficulty arises as to how the situation can be met. I suggest in the Amendment that the Chancellor should have complete power to control all such schemes. It may be asked what sort of conditions would have to be imposed before approval was given for such a scheme to be recognised by the Commissioners as being a valid expense. I will suggest a few conditions, from which I think the Chancellor will see that it is not my desire to rob him of any money, but rather to increase his revenue, probably. First, the Chancellor could lay down a condition that such schemes should be on a non-profit basis and that they should not be instituted to exploit the perils and anxieties of business people or commercial concerns. Secondly, he could provide that he would approve of a scheme only when he or his officials were satisfied with regard to the credentials to the board or trust administering the fund. This would give him complete control. Thirdly, he could further extend his control by saying that he would approve of no scheme where the contributions exceeded a certain percentage of the turnover of the business— say, one-half of 1 per cent.—and he could also lay down conditions with regard to the administrative costs of the scheme, so that there would be no chance of fat incomes for the directors, and there would be a very definite restriction on any remuneration and even on expenses attaching to the administration of the scheme.

Fourthly—and most important of all to the Chancellor, I think—he could say that the payments in such schemes must all go to him and that he would be the custodian of the funds. The right hon.

Gentleman knows that already certain schemes have been propounded which would add very considerably to his revenue if he laid down such a condition. There would have to be a special fund. As far as I know, the present loans would not be suitable, but if he made a special scheme of investment in which the rate of interest did not exceed 1½ per cent., for instance, he would be in a position to receive the bulk sums and make repayments in very much the same way as they are now made in connection with Saving Certificates. By these means, he could obtain a very considerable revenue and hold the money for the benefit of the people concerned. Incidentally, some of the concerns might say that the whole of the sum should be handed to the Chancellor, who would be acting as custodian, free of interest, or at any rate without a rigid adherence to the maximum interest, whatever it might be.

If there were millions paid into such a fund, the Chancellor could make arrangements whereby a redistribution to the contributors of the sums contributed would be minus Income Tax at the full rate. Such a scheme with these conditions could be available for all kinds of organisations. Nearly every industry has a national organisation, such as those of the drapers and grocers, and, I believe, such a scheme would be suitable for electricity undertakings. I suggest that by accepting this principle nothing would be given away. Up to the present the Government have accepted responsibility for insurance schemes in regard to stocks, but in the case of a drapery concern, in the event of enemy action the fittings, which are of considerable importance, and the premises may also be destroyed. Unless the Government are prepared to institute a wider scheme, I suggest that this would alleviate the situation for the time being, and I hope the Chancellor will give favourable consideration to it.

5.32 p.m.

Mr. Levy (Elland)

I wish to support this Amendment, but I want to approach it from a different angle, and to put one or two considerations before the Chancellor in regard to it. I am speaking for, and with the authority of, the Joint Committee of Electricity Supply Associations and the Joint Conference of the Public Utility Associations, which include electricity suppliers for the whole of the country. The Chancellor knows that they are formulating a scheme whereby, in the event of any damage being done by a bomb or anything else arising out of the war, such damage could be repaired during the war out of a pool, in view of the fact that any compensation for damage would not be recoverable from the Government, if, indeed, it were recoverable, until the end of the war. They are proposing by means of legislation to create a pool by a levy on the whole of the industry. Under this Clause, that levy, which ordinarily would form part of expenses and could be assumed in the same sense as an insurance premium against catastrophe, would be disallowed. I do not think that is the intention of my right hon. Friend. I am not asking him at this stage to make up his mind. What is suggested by the executives of these two large organisations is that he should receive a deputation which would explain to him the position with regard to this levy and how it is intended it should operate, and to see whether he could make it an expense in the form of an insurance premium instead of coming to the conclusion right away that it should be disallowed. In the circumstances the observations I have made in regard to these large electricity undertakings may meet the point of the hon. Member for Finsbury (Mr. Woods), but so far as I am concerned I would not take the matter to a Division.

All that I ask is that my right hon. Friend should consider it between now and the Report stage, and, in particular, that he should consider whether he will agree to receive a deputation from these large industrial organisations with regard to this matter. It would require legislation to give effect to it. The Treasury would have to give their approval with regard to the method of these levies and how they should be dealt with. In these circumstances it would still be under the control of my right hon. Friend. Perhaps these premiums, if I may call them so, could come within the categories of expenses of these undertakings instead of being disallowed.

5.34 p.m.

Sir Joseph Lamb (Stone)

I wish to support the Amendment and to ask a question in doing so. Agriculturists have a farmers' mutual insurance. Supposing they insure their cattle and stock against war risk, will they be allowed to deduct the premium from their accounts for Income Tax purposes? Will it be necessary for mutual insurance companies or any other companies to apply for specific powers from the Board of Trade, or will it be a charge automatically placed on the account?

5.35 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

I should like to disabuse the mind of the hon. Member for Finsbury (Mr. Woods). He believed this Clause dealt with evasions and ramps on the part of the taxpayer. That is not at all the reason for the Clause. I should like to say how it came about that this Clause is necessary. The hon. Member, in moving his Amendment, pointed out that Parliament had before now considered it right that there should be Income Tax allowances, to use his own words, "for insurance against definite risks." It is just because the kind of schemes which this Clause deals with are not in any way insurance against definite risks that the matter has arisen. These schemes which have been set up for some time past, perhaps rather more since the war than before it, are, as I understand it, schemes by people acting independently, or, as he suggested, particular types of business who pay premiums into a fund out of which there will be payments made according to the terms of the different prospectuses. Either there will be compensation at the time of the damage or else the "kitty" will be divided up when the war is over according to what has been put in up to the time of distribution. Claims could only be met to the extent that funds were available for the purpose. In other words, these schemes have nothing to do with insurance as such.

The Committee will remember that this matter has been before Parliament several times, and the decision the Government have taken is that within the limits which may arise they will pay compensation for war damage. There is a White Paper about it and we have had Debates on the subject. Therefore, the nation has assumed the burden. Here mutual indemnity companies or associations set out to find what their position is under the existing law with regard to Income Tax, and we are advised that unless an amendment to the law is made, as is proposed, payments by individuals to such indemnity funds are permissible as deductions for Income Tax. That is the law, and it is because we do not think in present circumstances that it is right that we are proposing this Clause to the Committee.

Let me give the reasons why. It is admitted by the hon. Member for Fins-bury, and in this I am speaking a little wide of his Amendment, that these schemes—and of course his Amendment specifically deals with a plan to enable businesses to continue to function, and it is inherent in that that compensation will be paid to the individual business to enable it to function—have nothing to do with insurance. Then we get to the position that the State agreed, and the announcement was made in the House, and in the White Paper it was reaffirmed that all the insurance world considered war damage was not an insurable risk. Therefore straight away we are outside the field of insurance. But we have now a 100 per cent. Excess Profits Tax, and if we allow these payments to be deductible we may get to a stage where a group of firms, possibly in one particular industry, could make a mutual indemnity scheme and vote out of their own incomes whatever they liked into that fund. Because it would be deductible, if we did not have this and the other Clause in the Bill, it would in fact be done at the expense of the State. Therefore those particular undertakings which took advantage of that provision would first of all be getting the advantage of not having to pay Income Tax because these premiums were deductible, and, secondly, they would also share as part of the community in whatever scheme there was for compensation in respect of war damage to property at the end of the war. And so they would obtain a double benefit.

Mr. Woods

I do not wish to see the time of the Committee wasted. We are entirely agreed on this point and on these difficulties. If these businesses go out of business the Chancellor will get nothing from them, but if the power is given to the Treasury he can lay down conditions whereby all these clever dodges suggested by the Financial Secretary to rob us collectively could be avoided.

Captain Crookshank

I am sorry if I have been too long in giving the reasons for this Clause, but it is the same point as that of the hon. Member. I was trying to prove that none of these schemes should get any advantage, in the taxation field. The hon. Member tells us about credentials, and the Chancellor of the Exchequer holding contributions, that the scheme should be on a non-profit basis, and that the Treasury should give its approval to its being taken out of this-Clause and given the same exemption as we give to insurance schemes. But this would be an extraordinary power for this House to give to the Treasury. It would be a dispensing power that the Treasury should decide, on any particular mutual scheme, whether or not it came within such ideas as the Treasury has and whether or not it should get taxation benefit. That would be a power which most hon. Members on reflection would be unwilling to give to the Treasury, and, to do my right hon. Friend justice, it is not a power which he wishes to have.

Mr. Levy

I have put it in this way. The Treasury are the taxing authority, and since a scheme, such as I outlined, which is being inaugurated, would require legislation and the approval of the Treasury, surely it is not outside the wisdom of the Treasury before they decide on what is being asked in the Amendment to receive a deputation instead of turning it down straight away.

Captain Crookshank

I cannot answer two hon. Gentlemen at once. I was answering the hon. Member for Finsbury (Mr. Woods). I was saying that the effect of this proposal would be to give the Treasury dispensing powers to decide whether a scheme fell within certain standards which the Treasury would lay down, and, if they so decided, that scheme would get a benefit over other schemes in the taxation field. I am sure that hon. Gentlemen would not wish the Treasury to have that power and my right hon. Friend himself would not wish to have it. The hon. Member for Elland (Mr. Levy) asked about a particular scheme dealing with the electricity industry. As I understand from the information that we have, this scheme has not yet been formulated. It is, therefore, difficult, in fact impossible, to say how it might or might not be affected by this Clause. If the scheme which was outlined at a discussion which took place a little time ago is now formulated on the lines then proposed it certainly would constitute an arrangement such as we are trying to exclude from taxation advantages by this Clause and payments under that scheme would not be allowable for taxation purposes. The scheme may have been modified since then, so that I cannot make a pronouncement about it. With regard to the question of my hon. Friend the Member for Stone (Sir J. Lamb), I again hesitate to give an ex cathedra statement about a particular scheme. As I understood it from his description, it did not seem to me to be one from which you could deduct premiums for taxation purposes.

Sir J. Lamb

It is not a scheme which it is proposed to bring forward, but an insurance company which has existed for a long time and is confined to agriculture. I want to know whether, if a person insures his stocks, crops and buildings against war risks he can secure tax deduction in respect of the premium.

Captain Crookshank

I cannot answer off-hand about one particular scheme. Fundamentally, the point at issue is whether the scheme is a real insurance scheme or whether it is a mutual indemnity scheme. There always has been provision for dealing with regular insurance schemes which deal with insurable risks, but it does not matter whether the plan is in existence now or is to come into existence, because this Clause is designed to catch some which have grown up in the last few months. They are not insurance schemes in the accepted sense of the word because they do not deal with insurable risks.

5.50 p.m.

Mr. Barnes (East Ham, South)

With regard to the comment of the Financial Secretary about the power which this Amendment might place in the hands of the Treasury, I would like to point out that the Amendment has been submitted for the purpose of raising a discussion on an important problem which has developed and is in its initial stages. If we can make out a case for consideration, I hope that the Chancellor and the Financial Secretary will not decide the issue to-night on the words of the Amendment, but will listen sympathetically to the problem we wish to submit to them. The Financial Secretary denies that the Clause is to deal with evasion of tax, but the only illustration he used dealt with that issue, in so far as he pointed out that now that Excess Profits Tax is levied at the rate of 100 per cent., it would be possible, unless the Chancellor were armed with powers of this description, for a group of firms to get together and devise some scheme of mutual assistance and use it as a means to put sums into reserve and fix premiums at a heavy rate for the purpose of escaping taxation.

I want to make it plain that those of us who are raising this issue have no desire to weaken the powers of the Chancellor in that regard. We feel that the Treasury and the Government are justified in protecting themselves against any movement of that description. I do not believe that in present circumstances reputable and public organisations, whose accounts are subject to public audit, could get away with that, and we on our side would not support any provision in the Finance Bill that would lead to-evasion of legitimate taxation obligations. I trust that the Committee will not discuss this problem from that angle, but will view the problem in its wider aspects. It is connected with the decisions of the House in the early stages of the war. When we were discussing legislation to cover war risks I urged that we should follow the procedure of the last war, under which the Government assumed the responsibility of a compulsory system of insurance covering all property. The President of the Board of Trade argued that it was impossible to assess the damage that might arise from aerial warfare, and that any premium would be so heavy and the risks so incalculable that it was not comparable with the circumstances of the 1914–18 war. Everyone recognised the force of that argument, but my own view was that it would have been wise for industry and property owners to have accepted a heavy premium rather than face the impossible position which exists now, in which persons who-have their property, shops or businesses destroyed should wait to see what the compensation would be after the war.

That means that any compensation after the war is exceedingly indefinite, and the longer the war goes on the greater the problem will be of dealing with compensation, whether for the individual or the business after the war. What situation is that creating in a large number of related bodies or organisations? Although for the moment we are putting this forward as a problem of the Cooperative movement, it is not limited to that organisation. There are to-day bodies of people associated together in business and other interests which develop a common concern for what happens in one part of the business. The thing works out very inequitably. In a common responsibility of this description, if it is in an organisation that has a centralised machinery of control, it can deal with this problem easily and adequately; but in an organisation in which there is a measure of local autonomy in an area affected by war restrictions, war zoning or aerial attack, the principle of pooling the risk cannot operate.

1 will give an illustration. I have two Co-operative organisations in mind. One is a large organisation, part of whose area of operations is a zone affected by the Defence restrictions. Nearly 75 per cent, of the trade of the town has disappeared, owing to people leaving and a variety of other circumstances. Because that town forms part of a larger organisation, the organisation is able to bear the impact of that situation. I know a similar organisation in a seaport town which is autonomous to that town. Its prosperity and financial stability have been practically destroyed. That applies to individual businesses as well. There might be a retail trader in that town whose business is destroyed, but the branch of a company organisation which is destroyed can absorb the shock of that dislocation and loss. In circumstances of this kind, when the House and the Government have not accepted the responsibility of a national insurance scheme, related organisations are developing an admirable spirit. It is part of the strength of this nation at the moment that there is a desire to spread burdens so that any person or business struck down should not be left isolated. If the Government are not prepared to carry the responsibility of a national insurance scheme, this Committee, through the Treasury, ought to be prepared to devise some machinery whereby co-operative efforts—co-operative in the wider sense— can be brought into operation in order to avoid the disaster which falls on a large section of the community through no fault of their own. I ask the Chancellor to admit the justice, equity and moral foundation of our case and to recognise that what we ask him to do will strengthen the fibre of resistance in the community.

I should like to quote another case. In certain restricted areas a number of garages have been closed down compulsorily for military reasons, not from the point of view of the danger in aerial bombardment, and there has been no compensation. Many individuals have put their life work into building up those little businesses. It is all very well for the Financial Secretary to say that these cases will be treated from the point of view of compensation in a "by and large" way after the war is over. Meantime the trade has been compelled to develop voluntarily a system of compensating the owners of those closed garages on the basis of the amount of petrol sold in the appointed garages which have been left. That has been done on a voluntary basis and, I understand, has received the approval of the authorities. Surely it should not be beyond the capacity of the very able persons in the Inland Revenue, who can be so astute in extracting taxes from us, to devise ways and means of ensuring that funds of this kind shall serve only certain definite ends. First, they should be used only for the purpose of compensating injured parties. Secondly, if the funds accumulate more money than is necessary for compensation those accumulated funds should become an investment factor and be used to assist the general finances of the country and so help to avoid inflation. I think the Chancellor would admit that the more money we can divert into national investments the better it will be. Funds of that kind cannot be treated as long-term investments, but if, as we all hope, they may not be needed for compensation purposes, I see no insuperable difficulty in the way of their being used to assist the general financial effort of the community. Thirdly, the Chancellor, in any steps he takes to supervise these funds, should ensure that ultimately they are not used for the purpose of evading tax. I submit that those three governing principles are perfectly sound and would meet the problem of the possible evasion of tax, and I earnestly appeal to the Chancellor not to dismiss our suggestions but to give us an assurance that they shall have a further and a thorough examination.

6.5 p.m.

Sir Herbert Williams (Croydon, South)

A good deal of what I had intended to say has been kindly said on my behalf, I understand, by my hon. Friend the Member for Elland (Mr. Levy), whom I asked to speak because I knew that my attendance at a Select Committee would prevent my being here at the start. The discussion up to now has been carried on upon the assumption that insurance is always based on the principle of payment of premiums before the event. I have been asked to raise this matter by Mr. Simpson, the secretary of the Incorporated Electricity Supply Association, who is also secretary of the Joint Committee of Electricity Supply Associations, which brings in the companies as well. They have for some time been considering the difficult problem which would arise in the event of serious air-raid damage to a large power station. It is conceivable that the amount which would be required for the repair of that station might be a sum outside the capacity of the undertaking. The idea was that the whole electricity industry of the country should devise a system of mutual aid, which would be very much in the public interest, because the restoration of the service would be an urgent necessity. After much discussion I think the scheme has developed upon these lines; that there will be no premium payable in advance, but a liability to pay a levy to meet the interest and sinking fund on any capital sum which may have to be raised to meet the damage. Those levies would continue for years after the war, when Excess Profits Tax had gone—because we assume that after the war is over that tax will come to an end. The justification for the attitude of the Financial Secretary to the Treasury is that under this scheme the Government would, in fact, be paying the premiums, but that would only be the case during such time as the levy was being paid and the Excess Profits Tax was also in force, and that is a consideration which deserves attention.

The scheme proposed could not be carried out without legislation, and I do not think a Bill to promote a mutual insurance scheme for public utility concerns could include a proposal that taxation should be remitted, and therefore I feel that the Finance Bill provides the right occasion for dealing with the matter. We shall have other Finance Bills, the next one, I presume, before Christmas, and by then I imagine the scheme to which I have referred will have reached its final stage. As what has been proposed by the electricity industry may be copied by other public utility concerns, I would ask the Chancellor of the Exchequer not to close his mind to certain problems. I think he is right to stop people from inventing an insurance fund in which they can "park" a lot of money on which they have not paid tax and share it out after the war, but if it is a legitimate scheme designed to meet what may be an urgent public need, designed far more in the public interest than in the interests of the insured, he should give the matter some further consideration.

Another problem was raised by the hon. Member for East Ham, South (Mr. Barnes). The evacuation of people from certain areas for military reasons has brought many electricity undertakings, both company and municipal, into a parlous condition. In many coast towns electricity undertakings will incur heavy losses. Though I am not familiar with any of the details of it, there is under consideration a proposal by which undertakings in the more prosperous areas, some of whom have been made more prosperous by what has occurred, should come to the aid of those which may be distressed. That proposal is only in the most tentative stage, but I think it would be unfortunate if it were to be destroyed because the Chancellor should say that any such expenses could not be regarded as expenses to be chargeable against revenue.

6.9 p.m.

Sir K. Wood

I have only one or two observations to offer on this subject, because, as the Committee knows, we have a lot of business to do. I dare say that my hon. Friend knows that I have given a good deal of personal consideration to the position of the co-operative societies in this matter, and that at the Treasury we have endeavoured to see whether we could help them in some way in connection with any scheme, and I need hardly say that we shall continue to do so. I shall also examine any other proposals which may be put forward by industry, but I must be frank and tell the Committee that I cannot assent to any pro posals which would make any large change in the legislation which we have already embarked upon because, as is known, we are in agreement about that. Those connected with co-operative societies will know the difficulty there would be in keeping any scheme of that kind within the terms of the legislation which I hope soon to see upon the Statute Book. My concern is that what is done should not be at the expense of the State, and I think the Committee will agree that it is essential that the particular provision of the Bill which is before us should be on the Statute Book. As to the Amendment, I know that it was put down really for the purpose of raising the question and not with the idea of pressing it. It would be putting too much of a burden on the Treasury to decide, for example, what would be the proper premium to meet war risks. I dare say that my hon. Friends will be content with having put forward this Amendment and getting an opportunity to submit their case, and I need hardly say that anything I can do to assist the end they have in view I will gladly do as long as I can preserve the interests of the taxpayers.

6.12 p.m.

Mr. Woods

One of the major reasons for putting forward this Amendment was that such schemes as have been suggested in various quarters have had to be drawn up because of the failure of the Government to provide a comprehensive scheme to cover the whole business community. While the Financial Secretary held out some vague hopes—his words were "by and large"—that sufferers would get some indemnification, there is no guarantee that many of the businesses which are now suffering will survive until after the war. It will not be a question with them of being treated "by and large" but of their having been "given the go-by." It would be more helpful if the Chancellor would face up to the issue of providing a national scheme to meet the problems which we have been considering, because there is a very real risk to many businesses throughout the country. With the permission of the Committee I propose to withdraw the Amendment.

Amendment, by leave, withdrawn.

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