FINANCE BILL.

HC Deb 06 June 1940 vol 361 cc1019-106

Considered in Committee.

[Sir DENNIS HERBERT in the Chair.]

The Chairman

There are a very large number of Clauses in this Bill and very few of them to which Amendments have been put down, and I ask the Committee therefore to assent to taking a course which has often been taken before. Instead of putting every Clause separately, I shall call the numbers of the Clauses to which no Amendment has been put down, and if any hon. or right hon. Gentleman wishes to speak on any of these Clauses I will ask him to stop me when the number of the Clause on which he wishes to speak is called; otherwise I shall put a number of Clauses so called en bloc. I hope that the Committee will agree to this course.

Clauses 1 and 2 ordered to stand part of the Bill.

CLAUSE 3.—(Tobacco.)

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

3.50 p.m.

Mr. Pethick-Lawrence (Edinburgh, East)

When the Resolution relating to the increased duty on tobacco was passing through the House, I raised the question of tobacco relief with the right hon. Gentleman's predecessor. I asked whether it would be possible to make any concession to soldiers serving in His Majesty's Forces while on duty in this country, and I think that idea was very widely supported in all parts of the House. The right hon. Gentleman's predecessor undertook to look into the matter and to see whether any proposal which was administratively possible would in any way meet this request. Now we have come to the stage dealing with this specific point, may I ask the present Chancellor of the Exchequer whether any decision has been reached as to whether any concession can be made?

3.52 p.m.

Sir Irving Albery (Gravesend)

I know it is felt among men serving in the Forces, especially those who have given up part of their income towards dependants' allowances, that this question of tobacco is, to some extent, a hard one. I understand there are administrative difficulties, but I have been wondering whether my right hon. Friend, in conjunction with heads of the Services, will consider the possibility of some small free ration. If that could be done, it seems to me that it would overcome the administrative difficulties. The men would not get a full supply of cigarettes; they would get only a few, which would be equivalent to relieving them of the extra tax on tobacco.

3.53 p.m.

The Chancellor of the Exchequer (Sir Kingsley Wood)

I have again looked into this matter, because on several occasions quite recently it has been thrust upon me. I quite understand the desire in all parts of the House that everything that can be done shall be done. The Committee will recall that in the case of wounded men who are in hospitals it has been possible to arrange for them to receive some duty-free tobacco, but I think there would be very considerable difficulty indeed directly you attempted to extend a provision of this kind. Quite frankly, a proposition of this kind would be open to serious abuse. My predecessor did say that any proposal made to him, by which this matter could be carried out with safeguards, would be gladly received, but I do not think any suggestion has been made so far except that made just now by my hon. Friend, which I will examine.

Mr. Pethick-Lawrence

A suggestion was made, and a distinct one, that soldiers in this country should have a certain ration which would enable a specific number to obtain coupons by means of which they could be provided with cigarettes at a cheaper rate.

Sir K. Wood

I will receive any proposition that is made to me. I have every sympathy in this matter, but I think my right hon. Freind will realise that there are many other difficulties.

Mr. MacLaren (Burslem)

Abolish the tax altogether.

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

CLAUSE 4.—(Matches.)

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

3.55 p.m.

Sir Herbert Williams (Croydon, South)

Can the Chancellor of the Exchequer tell us what is the position with regard to imported matches? Roughly speaking, half the matches consumed in this country have been made in this country and the other half have been imported. I always thought it a pity that we should not protect the manufacturers of this country, but I will not pursue that matter at this stage. The sources of our imported supply have been Finland, Sweden and Belgium, but I imagine that imports from these countries to-day are negligible, and I take it that the only tax which will be levied will be the Excise tax.

3.56 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

I am afraid that I have not got figures relating to the present position, but hon. Members know that, in regard to matches, there have been changes made in the numbers contained in booklets and in the increase of tax, which makes it easier to deal with the costing side of the matter. Another change which will probably please the hon. Gentleman is that there is a small increase in the margin between Customs and Excise duties. If matches are not now being imported, that is not a matter of great moment, but the opportunity has been taken to improve the margin, and when more normal times come this should be of lasting advantage to British manufacturers. If the hon. Member for South Croydon (Sir H. Williams) wants specific figures about the import position, he had better put down a Question to the President of the Board of Trade.

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

Clauses 5, 6 and 7 ordered to stand part of the Bill.

CLAUSE 8.—(Excise licences for vehicles belonging to members of Forces on leave.)

3.58 p.m.

Lieut.-Colonel Sir Thomas Moore (Ayr Burghs)

I beg to move, in page 5, line 37, to leave out paragraph (a).

In the absence of my hon. and gallant Friend the Member for South Paddington (Vice-Admiral Taylor), I move the Amendment standing in his name and the names of other hon. Members. The object of the Amendment is very simple. It is to ensure that a sailor, soldier or airman on leave from active service, who has a driving licence, may be allowed to drive a car or a motor cycle which is not registered in his name. It might seem that of all times in our numerous discussions on Finance Bills, this is probably the most appropriate time for such an Amendment to be moved. As the Committee and the country know, we have recently had returned to us about 250,000 of our men, who have been snatched from the jaws of death. These will presumably get a shortspell of leave, and one naturally wonders how they will seek to enjoy it. Obviously, they will wish to visit their wives, sweethearts and friends and to enjoy the beauty and peace of the countryside. That is what I think this Committee wants them to enjoy, but unfortunately, under the Clause as it now stands, very few indeed will get this very inadequate reward, which every one of us wants them to have. I cannot believe my right hon. Friend will permit this hardship, and I can only imagine that if he is unresponsive to my appeal, it must be because he has not had time to study the implications of the Clause and the benefits of the Amendment. I imagine that when he has had time to hear the appeal that I am making to him, and the appeals which will follow, his mind will be speedily convinced as to the justice, rightness and humanity of the Amendment.

The Clause as it stands gives a concession which is announced in Sub-section (1), where it says that a permit can be given to a Service man authorising the use of a vehicle notwithstanding that no licence is in force in respect of it. That is undoubtedly a concession, but he will pay 10s. for it. In paragraph (a), however, that concession is rendered practically valueless because of that one sentence which we seek to omit from the Clause. In fact, the Clause means that it allows a member of the Services on leave to use only his own car which is registered in his own name, and there is the further restriction, of course, of having a licence and paying 10s. for it. The alleged concession is, therefore, very restrictive because it comes down to the fact that the member of the Forces, before he was called up or volunteered, must have deliberately left his car fully registered in his own name. I can well imagine hundreds or it may be thousands of cases in which a young or middle aged man going off to join up will have said, "Heaven knows whether I shall come back or not, and I may as well throw in this car." Or he may have made it over to a friend or relative. He then gets back for a few days' leave, and he cannot use the car previously registered in his own name because of this Clause.

I cannot help thinking that it is not the intention of my right hon. Friend to put this very harsh restriction on the use of cars by officers or men on leave. Many of them will have only a short leave, and for many of them the leave may be their last, and it surely is not only an act of common humanity, but it is a just tribute that we in this Committee should be paying to those who have done so much for us that we should make this concession. In the present circumstances, if an officer or a soldier comes back on leave, he has to hire a car, and I do not think that is very reasonable. It is a very expensive business, because petrol is very difficult for a hired car, whereas if this Amendment were carried, owing to the fact that he would be able to get the loan of a friend's or relative's car, he would have the possibility of getting this little summer relaxation, which, as I have said, may be the last he will ever have. I am not only asking that this Amendment should be accepted—and I have such confidence in my right hon. Friend that I believe I am knocking at an open door—but I go further and ask that it should be put into operation forthwith, so that those hundreds of thousands of officers and men whom we have at present with us and who have been promised this short period of leave may have the benefit of this conces- sion. I know that this matter has caused a considerable amount of feeling among hon. Members in every quarter of the Committee, and I do not want to take out of their mouths words which I know they can utter more convincingly than I can, so I will content myself with moving the Amendment without any further comment.

4.5 p.m.

Captain Strickland (Coventry)

I rise to support the Amendment very briefly, though very sincerely, and mainly on the ground that officers and men who have gone overseas have been left often with very heavy liabilities on their hands, liabilities with which they have not been able to cope. They have been told to go to the War Services Advisory Grants Committee for help to meet liabilities, but when they have come before that Committee with any such heavy responsibility as the purchase of a car on the hire-purchase system the almost invariable reply has been the suggestion to them that they should come to terms with the person from whom they were purchasing the car on hire purchase and surrender their rights in that car. They are just the people who will be hit unless the Chancellor of the Exchequer is able to accept either this Amendment or something similar in its nature, and I would beg of him to view it very sympathetic ally indeed and to give these fellows a chance, when they come home, not only with regard to motor cars, but perhaps very largely, in the case of the rank and file, with regard to motor cycles also. I want to ask whether the Chancellor of the Exchequer is.sure that petrol will be available for the cars when permission is given to run them, because it will be of little use for a man to get permission to go out in a car unless he can secure the petrol for it, and I would like an assurance that that point has not been overlooked and that special arrangements will be made so that, without quibble and at once, as soon as an officer or man arrives in this country, he will be able to secure a fresh supply of petrol.

4.7 p.m.

Sir Frank Sanderson (Ealing)

I rise to support the Amendment. It seems to me that most Members of the Committee are desirous that some relaxation of this Clause should be made, and I hope sincerely that my right hon. Friend the Chancellor of the Exchequer will be able to accept the Amendment as it stands, but I would suggest to him that if it is not possible to go the whole of the way, at least he should extend the concession to any member of the family, that is to say, to a man's wife, or father, or mother, or brother, or sister, and that provided there is a car available within the family, my right hon. Friend should to that extent consider accepting the Amendment.

4.9 p.m.

Lieut.-Colonel Sir A. Lambert Ward (Hull, North West)

I think there is a point which should be considered before this Amendment is accepted. It is an open secret that the military authorities do not wish to have these large numbers of cars on the roads at the present time, because they consider that they constitute a tactical weakness. For example, the hon. and gallant Member who moved the Amendment referred to the hundreds of thousands of cars which would be used. Let us imagine for a few moments the scene at the South Coast towns during the summer, with hundreds of thousands of cars lying there. A descent by parachutists would place those cars abolutely at the disposal of those men. The cars would be full of petrol and ready to go anywhere—

Sir T. Moore

But I—

Sir A. Lambert Ward

The hon. and gallant Member has made his speech. Those cars would be at the disposal of the men who had either dropped from parachutes or come down in troop-carrying aeroplanes, and that is why the military authorities consider that the presence of all these cars on the roads ready to be used and full of petrol is a tactical weakness which they do not wish to encourage at the present time.

4.10 p.m.

Mr. Loftus (Lowestoft)

I think my hon. and gallant Friend who has just spoken has, quite unintentionally, misrepresented the attitude taken by my hon. and gallant Friend who moved the Amendment. His vision of hundreds of thousands of cars scattered over the roads on the South Coast because we wish to give a chance to a man home for a fortnight's leave to take out a car, is surely an exaggeration.

Sir A. Lambert Ward

That was the number to which the mover of the Amendment referred.

Mr. Loftus

He referred actually to the men back on leave to-day, but to assume that the whole of the 250,000 men will be on leave and that simultaneously each one will obtain a motor car, is surely a fantastic exercise of the imagination. My hon. Friend the Member for Ealing (Sir F. Sanderson) brought forward a most important point. He said that if the whole concession cannot be given, at least let the concession be given in respect of any car registered, not only in the name of the officer or private or other rank concerned, but in the names also of members of his family. If my right hon. Friend could give that concession, it would go a long way to meet the difficulty, for this reason. Suppose a man who joined up before 1st January owned a car. What happened on 1st January? The young man is in the Army, and obviously one of two things happened. The first alternative is that the licence was transferred to another member of the family, to a sister, brother, father or mother, and is in his or her name to-day, and if the young man comes home on leave from abroad, he cannot get this concession as it is at present because his own car has been transferred to some relative. The second alternative is that the car has been laid up, or it may have been sold, or again it may have been transferred for use during the war to an acquaintance in the neighbourhood. For these various reasons, I suggest to my right hon. Friend that out of every 100 young men who owned a car last September and who joined the Army before 1st January, not more than one or two left their cars registered in their own names, and that the other cars are registered in the names of their relations, friends and so on. I therefore beg that this concession may be given, otherwise I think the whole Clause is practically valueless.

4.12 p.m.

Sir H. Williams

I should like to support the Amendment, and I hope the Chancellor of the Exchequer will not be diverted from accepting it by the speech of caution which came from the right hon. and gallant Member for North-West Hull (Sir A. Lambert Ward). It may be in the opinion of the military authorities very undesirable that a large number of motor cars should be parked on the fronts at Eastbourne, Brighton or elsewhere, but if that is the view of the military authorities, I would suggest that they should put their own, shall I say, camp in order. If you want to see complete folly, if that is folly, the people who control His Majesty's Army show it to the limit at this moment.

4.13 p.m.

Sir Patrick Hannon (Birmingham, Moseley)

I also would like to support the Amendment, and possibly my right hon. Friend could modify the effect of paragraph (a) so as to make it apply to cars that were registered before the owner entered the Army. May I say, with great respect, in support of what my hon. Friend the Member for South Croydon (Sir H. Williams) has said, that there is an immense waste of petrol going on in this country at the present time, on which some restriction ought to be placed. I live on one of the banks of the Thames, where I spend an occasional Sunday, and I look across Runnymede, where scores of cars are parked every Sunday by pleasure-loving people, who are wasting petrol which ought to be applied for national defence in these critical days through which we are passing. I hope very much that the Chancellor of the Exchequer will consider giving the opportunity of a little pleasant recreation to men who come back to this country after going through the hell of the fighting, and bring these restrictions to bear on people who are using petrol for pleasure purposes.

4.15 p.m.

Sir K. Wood

Hon. Members have put forward a very powerful case with great persuasion, and naturally I am inclined to meet any request which is made on behalf of our Armed Forces if it is possible. But there are other considerations which I must put before the Committee. The hon. and gallant Member for Ayr Burghs (Sir T. Moore) talked about the harsh restrictions imposed by this Subsection. As a matter of fact, the whole of this Clause fulfils an undertaking given by Lord Simon when he was Chancellor of the Exchequer. In answer to a question by the hon. and gallant Member for South Paddington (Vice-Admiral Taylor), my Noble Friend said: I propose to include in the Finance Bill a Clause providing for the relaxation of the statutory provisions relating to motor licence duties so as to enable a member of His Majesty's Forces on short leave from service afloat or overseas to drive a motor car or motor cycle of which he has allowed the licence to expire but which is registered in his name."—[Official Report, 12th March, 1940; col. 1000, Vol. 358.] That was the undertaking, and the Clause in the Bill is in full compliance with it. Therefore, it is not right to say that there is any question of imposing any harsh restrictions. In fact, this concession was put into force immediately on 19th April, because it was naturally and, I am sure, rightly anticipated that Parliamentary approval would be given to it. The particular proposal in the Bill is in response to a request made by representatives of the Forces who are on service afloat or overseas who have laid up their cars. They represented that owing to the exigencies of their service they should have a concession of this kind. It was largely done not only because of a question of expense but to shorten the procedure which otherwise they would have to go through on their return. Now I am requested to put on one side the undertaking that was given that this concession should be applied to cars registered in the name of members of the Forces, and say that not only shall the concession apply in such cases, but that it shall be given in the very widest possible terms. The Amendment suggests that the concession should be available for any car. I would call the attention of hon. Members to the exact wording of this Clause in order to show the difficulty in which I am. The Clause says that the permit to be given is a permit authorising the use of a particular vehicle on the road. It is not a permit given to the individual soldier or sailor; the permit is attached to the vehicle. That is obviously necessary. If you put the permit on the car, you will have a permit so far as the actual personal side of the matter is concerned, that anybody can drive that car. What is to be the position if these permits are to be available for any car?

Sir H. Williams

That is laid up.

Sir K. Wood

I think it would be opening the door very wide indeed, and I should say it might lead to considerable abuse.

Sir H. Williams

A permit must be issued to each individual, and that would be a complete check.

Sir K. Wood

But no one knows how long it would remain with the individual.

Mr. Woodburn (Stirling, Clackmannan, and Eastern)

Is it not possible to arrange for anyone who has a car laid up and has a soldier home on leave, to pay the 10s. and the two to run the car?

Sir K. Wood

That is the difficulty. It must be borne in mind that an undertaking was given by the Government which is embodied in the Clause, and while I have the greatest possible anxiety to do everything I can for the soldier and sailor, I cannot in the circumstances ignore the primary purpose of the undertaking. I think the Amendment might lead to the greatest possible abuse.

Mr. Loftus

The right hon. Gentleman has not dealt with the case where a car is transferred to a near relative, a sister or brother, and then laid up.

Captain Strickland

The right hon. Gentleman has talked about opening the door wide. How can he open the door wider than by a permit authorising the use of a vehicle on the road? That is not what we have in mind. We want a concession given to the soldier home on leave. As long as the permit is given to the individual officer who is to drive himself or get someone else to drive him, that is the concession for which we ask.

Sir K. Wood

A driving licence is a different matter. If I accepted the suggestion of the hon. and gallant Member, there would be all sorts of difficulties, and, therefore, much as I dislike it, and much as I would like to do it, if it was reasonably possible, it seems to me that directly you go beyond the undertaking that was given you are opening the gates very wide indeed. In regard to the question of petrol, I cannot answer as to whether it would be available or not.

Sir F. Sanderson

May I ask whether the right hon. Gentleman would reconsider between now and the Report stage the very moderate suggestion which I advanced, namely, that it should include a car belonging to a relative, a father or mother, brother or sister or wife? I do not think he would find the difficulties insurmountable, and I think it would meet the general wish of hon. Members.

4.25 p.m.

Sir Richard Acland (Barnstaple)

We have to take human nature as it is, and in a case of this kind I think we can take human nature as it is and rely on it not to cheat to any substantial extent. I presume that this concession is to be applied for on a certain form, and if that form contains an undertaking that the person is applying for the concession in order to enable him to have the use of the car while home on leave, I do not believe there is 1 per cent. who would swindle or try to get round the concession for any improper purpose. If the Chancellor of the Exchequer has such a low opinion of human nature as a whole that he assumes he is going to be swindled and that the whole of the Armed Forces will use this concession for all kinds of sharp practices, I regret it; and I think the Committee might very well decide to vote the Chancellor of the Exchequer down on that issue. If he takes that gloomy view of human nature, may I appeal to him on one other issue? Could he not see that this concession is restricted to cars which either are registered in the man's name or were registered at any time in 1939? It is perfectly easy to find out the name of the person previously registered; it is in the book. You have only to produce the book, and if it is in the name of Smith, he will say, "That is my brother-in-law; here is my own name." I hope the Chancellor of the Exchequer will be able to give us that concession. If not, I think we should take the matter into our own hands.

4.28 p.m.

Sir H. Williams

I do not think that the Chancellor of the Exchequer has been well advised in this matter. He says that if the Amendment is accepted, the dooris being opened too wide. Too wide to what? The only effect of opening the door wide is that he will get more money. There are in this country many hundreds of thousands of cars laid up. The only cars to which the Clause will apply, if the Amendment is carried, are those which are not licensed. What disadvantage does the Chancellor of the Exchequer suffer? He is not a petrol rationer, but a tax gatherer. As a tax gatherer, what disadvantage does he suffer if more soldiers licence a vehicle? They will each pay him 10s. If a door is opened wider, it is only the cashier's door on the pay-in side. It is not a great concession. You will have to pay £15 a year for the right to use a car for 21 days. It is not a very generous concession, and I think that the Chancellor of the Exchequer might have got better advice than he has on the matter.

4.30 p.m.

Sir K. Wood

Perhaps I can shorten the discussion by saying a few words. I do not propose to enter into any discussion of what has been said by my hon. Friend the Member for South Croydon (Sir H. Williams). I often wish that I could be as confident of being right as he is. I cannot give any undertaking to the Committee, but between now and the Report stage I will examine what has been said by my hon. Friends.

Sir T. Moore

In the circumstances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

4.31 p.m.

Colonel Gretton (Burton)

I wish to raise a point on Sub-section (2, d), which relates to members of the Royal Air Force and the Fleet Air Arm. I am somewhat mystified as to whom the concessions are to be made. Apparently, since the reference is to a member of an aircraft operational crew of the Royal Air Force, the concession is to those who fly in the machines, and it does not apply to the ground staff. There is also a reference to one of the flying personnel of a first line squadron of the Fleet Air Arm. Apparently, that means a fully trained member of a squadron of the Fleet Air Arm, and it would not include those who are on the ground, or are harbour operators, engineers or instructors. I should be glad of an explanation on this point so that we may know exactly to whom the concessions proposed in the Clause are to be granted.

4.33 p.m.

Captain Crookshank

I do not know whether I can explain this matter thoroughly, but I may say that the question of the various classes to whom the concession should apply was discussed with the appropriate Naval, Military and Air authorities. The original intention was that it should apply only to those on leave from the fighting front. However, in the case of the Royal Air Force and the Fleet Air Arm, there are some members of those Forces stationed in this country the nature of whose service is such that it approximates to their being on active service abroad. That is why the Clause contains a reference to the operational crews and not to the ground staff, because the operational crews are those engaged in active service outside this country. Those who actually go up in the air are engaged in air operations of a military nature over foreign countries, and, therefore, their position is analogous with that of soldiers coming back from theatres of war overseas. I think that is the explanation for which my right hon. and gallant Friend asked.

Colonel Gretton

My right hon. and gallant Friend is usually very clear in his explanations, but he has not conveyed to me exactly what he means, except that this concession is to apply to the men who fly the machines. Does it extend to anyone else? Does it extend to a man on the instructional staff who is a fully competent and a fully trained man?

Captain Crookshank

It applies to a fully trained man who is part of an operational crew on permanent active service. If my right hon. and gallant Friend would like me to obtain further details on this point, I will do so, and will let him know. It is a question of those who are in fighting crews, but happen to be stationed in this country for strategic reasons.

4.35 p.m.

Sir H. Williams

I should like to raise a practical issue in connection with this Clause. The local taxation authority would not normally be able to identify a member of an aircraft operational crew—

Sir K. Wood

They would not be the authority.

Sir H. Williams

Whoever they were, they would not identify him from the terms of the leave pass. Therefore, unless the pass is drawn in terms identical with those of the Bill, there will be some difficulty.

Mr. Charles Williams (Torquay)

Would the concession also apply to crews of aircraft engaged in long-distance flights in the nature of anti-submarine operations?

Captain Crookshank

I imagine that they would be flying personnel of a first line squadron of the Fleet Air Arm.

4.37 p.m.

Captain Sir William Brass (Clitheroe)

There are operational stations in this country and from those stations aircraft go to fight in different parts of Europe. Am I to understand that the permits will be given only to crews from operational stations, or will they be given to all those who fly to defend this country as well; that is to say, crews flying in this country as well as the crews that fly on the other side of the Channel?

Sir K. Wood

I do not think that there is any such limitation, but I will inquire further about this matter. If my hon. and gallant Friend will look at the provision, he will see that it reads: Leave from service as a member of an aircraft operational crew of the Royal Air Force or as one of the flying personnel of a first line squadron of the Fleet Air Arm. Practically every fighting member of this Force will qualify for this concession, and I do not think there will be any limitation of that kind, but I will inquire further and let my hon. Friend know.

Colonel Gretton

I am satisfied with the explanation which the Chancellor has given. Far from wanting to restrict the privileges given in this Clause, I want as far as possible to extend them to everyone who is actively fighting and engaged in conflict with the enemy.

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

Clauses 9 and 10 ordered to stand part of the Bill.

CLAUSE 11.—(Income Tax for 1940–41).

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

4.39 p.m.

Mr. Pethick-Lawrence

A few days ago, when the Finance Bill was before the House, the Chancellor made a statement with regard to the probability that further taxation would be necessary in the early future, and he said he thought it was desirable that the taxpayer should have a little rest from further burdens in view of the very onerous burden which is being put upon him by this Bill. As far as indirect taxation is concerned, I think that is a valid position, because every week of delay in the imposition of further taxation is a week in which the taxpayer, knowing his liabilities for the moment, will not have to bear additional liabilities on top of them. With regard to Income Tax, however, the position is slightly different. I have no wish to ask the Chancellor to anticipate the Budget which he expects to have to introduce at some early date and, indeed, I do not ask him to give any answer now to what I am saying; but I would point out that, in the matter of Income Tax, if the Chancelloris contemplating a further addition for the current year, it is not an advantage, but a disadvantage, to the taxpayer that that decision should be needlessly delayed. In the matter of Income Tax it is not a question of putting on a tax for the remaining period of the year. Whenever the tax is imposed, if it be imposed before April of next year, it will apply to the current year as a whole, and it is a definite inconvenience and disadvantage to the taxpayer that he should go on for part of the year—the longer the worse—thinking that the Income Tax for the year is to be at one rate and then have to pay at another rate determined later in the year. I would only say to the Chancellor that if he intends to alter the Income Tax for the current year—which in this Clause is imposed at the rate of 7s. 6d.—I think the sooner he does so the better it will be for the taxpayers and for everybody else.

4.41 p.m.

Mr. Woodburn

I should like to ask you, Sir Dennis, whether it would be in Order for me to raise a question which I raised the other day concerning certain people who are avoiding the charge which this Clause proposes to lay upon all incomes by consulting financial companies with a view to making a capital investment and getting a return of their income in capital appreciation and not by way of a regular income which is subject to the Income Tax of 7s. 6d.?

The Chairman

I am afraid the hon. Member would not be in Order in raising that matter on this Clause. I gather from what he has said that he has already raised the question, and there may be other opportunities of raising it, although I cannot at the moment say where they are in this lengthy Bill; but it would not be in Order on this Clause.

Sir K. Wood

Perhaps the hon. Member will allow me to look into that matter and I will communicate with him on it. I also note what was said by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence).

Mr. Levy (Elland)

Did I understand the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) to suggest that if a modification is made, it will automatically be retrospective?

4.43 p.m.

Mr. Pethick-Lawrence

I will explain that point. The hon. Member does not seem to remember what happened when the predecessor of the present Chancellor introduced the second Budget last year. On that occasion, in September, he altered the rate of Income Tax, not for a part of the year, but for the whole year 1938–39. Therefore, if the Chancellor intends to alter the tax for 1939–40, and does so at some later stage, it will not be in a sense retrospective, but it will make an alteration in the rate applying to the whole year.

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

Clause 12 ordered to stand part of the Bill.

CLAUSE 13.—(Application and interpretation of provisions as to rents and annual payments.)

4.44 p.m.

Sir W. Brass

I beg to move, in page 10, line 24, after the second "lease," to insert "granted."

This is a drafting Amendment. I think the Clause is not quite clear as it stands, since it might mean that this would apply only to a lease which had more than 50 years to run. I think the Amendment would make the Clause a little more clear.

The Solicitor-General (Sir William Jowitt)

I am prepared to accept the Amendment.

Amendment agreed to.

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

4.45 p.m.

Mr. Benson (Chesterfield)

I should like an explanation from the Solicitor-General of the wording of Sub-section (1, a) and of the proviso to Sub-section (1, b). The point which I fail to understand is how there can be two "immediate lessors" of the same property. Sub-section (1, a) defines "immediate lessor" but the proviso to Sub-section (1, b) appears to assume two immediate lessors one of whom has an interest which is reversionary on the interest of the other.

4.46 p.m.

The Solicitor-General

I do not at the moment appreciate the hon. Member's difficulty. If you have two or more lessors, A leasing to B, and B leasing to C, and C to D and so on all the way down, it is necessary to define, as is done here, the "immediate lessor." Where there is more than one lessor, Subsection (1, b) provides that one of those lessors shall be deemed to be the immediate lessor, whose estate or interest is not reversionary on the estate or interest of any of the others.

Mr. Benson

If the right hon. and learned Gentleman looks at Sub-section (1, a), he will find that according to it, "immediate lessor" means a lessor of the whole or any part of the premises, whose estate or interest extends to the entirety of the premises and is not subject immediately or mediately to a lease of the entirety. That is the "immediate lessor," but the proviso to Sub-section (1, b) says: If…there is more than one lessor satisfying the conditions set out in paragraph (a). That assumes more than one immediate lessor.

The Solicitor-General

I am sorry that I still do not appreciate the difficulty. Paragraphs (a) and (b) are different. Paragraph (a) deals with cases in which there are different parts of premises subject to separate tenancies, and it refers to the lessor of the whole or any part of the premises. Paragraph (b) deals with "any other case." I will gladly read what the hon. Member has said, and see whether the written word will convey to my mind what the spoken word has failed to do. If there is anything in the point which he has raised, I will see that it is put right.

Mr. Pethick-Lawrence

Perhaps it would be convenient at this stage and on this Clause for the Solicitor-General to give a short explanation of the object of this and the following five Clauses.

The Chairman

Probably it would be convenient, but the Committee will understand that there must be some limit on discussion. If the Solicitor-General's statement is to be made now, it may be necessary for other hon. Members to wait and deal later with specific points arising on the subsequent Clauses as we reach them. This Clause is the first Clause in that Part of the Bill which is headed "Rents and annual payments in respect of land," and obviously the statement must deal to some extent with the other Clauses which come under that heading.

The Solicitor-General

I will gladly, if it is in Order, make a short statement on the effect of Clauses 13 to 18. It has been said that words were given to us to conceal our thoughts and I am bound to say that anyone reading these Clauses might well come to the conclusion that those responsible for drafting them had very adequately concealed their thoughts. But the branch of Income Tax law with which we are here dealing, namely, that relating to Schedule A, is I think the most complicated branch of an exceedingly complicated subject and those who may be minded to criticise the drafting of any provisions of this kind, had better first try their own hands at such drafting and see what the result will be. Broadly, the object of this group of Clauses is to see that rents on property are adequately taxed in the future. It is notorious that Schedule A valuations on which the taxation of property is based, very often bear little or no relation to the rents actually received.

Without wishing to be reminiscent, I may recall that 10 years ago when I was Attorney-General, I argued a case which attracted some attention at the time. It was the case of Salisbury House in the city of London and that case really is the genesis of these provisions. There you had an estate company whose trade it was to let out offices. They let out offices in a block of buildings and the aggregate rent which they received, after making all allowances for repairs and all proper deductions, was far greater than the Schedule A assessment. If you were to tax them as an ordinary trading company, then, of course, you would bringin all these rents as part of the receipts and having made all proper allowances and deductions you would strike a balance, and impose taxation on that balance under Schedule D. I tried to contend that having got such tax as I could out of this company under Schedule A, I was entitled to resort to Schedule D, in order to get tax on the excess amount which was not taxed under Schedule A, but I was told by the highest tribunal in the land, that I must content myself with the Schedule A tax and, in consequence, the excess rents were not taxable at all.

A few years later another case came before the courts which showed how this system was working. A gentleman in the City of London bought a building site on which he proceeded to build. He had to pay in rent, in the year in question, a sum of £3,000. In that year, during which he was paying £3,000 rent, the only use that was being made of the site was for the purposes of a hoarding at a value of £100. He had to pay a rent of £3,000 but in the end the landlord who received that rent was not taxable in respect of it at all and had to pay tax only on the £100. A third anomaly which is very striking is this. Schedule A is a tax on property but the tax is levied on the occupier, in the first instance. It follows that if the property is unoccupied, there is no Schedule A tax. But there are many cases, particularly at the present time, in which property is unoccupied and; yet rents are being paid. Is there any reason why that rent which is being paid should not be made subject to tax? So, we state that in the event of the non-occupation of property—so long, always, as rent is being paid—there is no reason why tax should not be paid.

I may summarise, therefore, in broad outline, the effect of these Clauses in this way, sparing the Committee details which might take up a long time. First, these Clauses are designed to bring about the result that landlords are, in future to be liable to pay tax in respect of rents which are payable, even though the premises are unoccupied. Secondly, landlords cannot in the future as they did in the Salisbury House case, limit their tax liability to the amount of the Schedule A assessment, if they are receiving more in rent than that assessment, after making all proper allowances. Thirdly, in substance, these Clauses provide that rents payable under long leases—and in defining what is a long lease we have had to take the arbitrary figure of 50 years—are now to be collected by a machinery analogous to that of Schedule D. The Clauses also take care to distribute fairly as between landlord and tenant—the tenant may have what is known as a beneficial occupation—the burden of the tax. That, put briefly, is what we are trying to do by these Clauses.

Sir F. Sanderson

It is known that brewery companies and many multiple shop companies make a practice of forming holding companies which purchase properties and then let those properties to the parent companies at uneconomic rents. Is the Solicitor-General satisfied that these Clauses will cover that type of tax evasion?

The Solicitor-General

Clause 16 is designed to deal with that type of case.

4.57 p.m.

Sir W. Brass

The Solicitor-General has referred to cases in which property is assessed under Schedule A and a profit is made over and above the Schedule A assessment, because the Schedule A assessment is too low. Then, he says, Schedule D is to come into operation and tax will be chargeable on the amount of the difference. If that is the case, I wish to ask what is to happen in a case in which the Schedule A assessment is too high and in which, on the amount of rent to be received, with the amount of tax which is payable, there is not a profit but a loss? There are such cases. Another case about which I should like to ask the right hon. and learned Gentleman is this. He has referred to the City of London. Assume the case of offices in a building which cannot be let because the assessment is too high and the result of letting would be a loss. If the rest of the building consists of separate hereditaments separately assessed, could the whole property be brought into one scheme in order that a proper adjustment could be made? That is an important point because while the Chancellor is anxious to get the tax on any amount of profit over the Schedule A assessment, where that assessment is too low, it does not appear that he is making any allowance for the case where the Schedule A assessment is too high.

The Solicitor-General

Of course, this Clause depends entirely, as the whole of this branch of Income Tax depends entirely, on the Schedule A assessment being right. If the assessment is wrong, then you start your sum with a wrong figure and you are bound to go wrong in the end. What the taxpayer can do is to appeal against the Schedule A assessment.

Sir W. Brass

He cannot. That is the trouble.

The Solicitor-General

I think the hon. and gallant Gentleman will find that he is wrong.

Mr. MacLaren

He cannot appeal in London.

Sir W. Brass

As regards London, he cannot appeal. I know, because I have tried it myself. I am not speaking of places outside London but in London, once the Schedule A assessment is fixed, there is no appeal against it, even if it is too high.

The Solicitor-General

I have already stated my view, but I hesitate to put forward my view on a point of law against that of my hon. and gallant Friend. However, I have now been assured by those who know better than either of us that I was right. It is a mistake to confuse this with rates, and the taxpayer can appeal, even in London, against the Schedule A assessment.

5.1 p.m.

Sir Cyril Entwistle (Bolton)

The Solicitor-General, in his explanation, gave us three types of cases, one of which was the Salisbury House case. He said that these provisions were designed to meet that type of case—namely, where the owner of the premises let them out, and where the rents exceeded the Schedule A assessment. He said that tax would be charged on those rents subject to—to use his own words—"a deduction of proper allowances," and it is in regard to these allowances that I wish to ask whether they would include, in cases of ownership of leasehold premises on a fairly short term, any provision for amortisation of the price paid for that lease. Frequently a sum of money has to be paid to secure the lease when it is subject to a low rent or a ground rent. It might involve a considerable sum, and in the case of a business proposition you have to allow a sum for amortisation. I understand there is great difficulty in these matters in regard to obtaining an allowance for amortisation, but surely when the object of these proposals is to do equity, it would be right that in this case there should be allowance made for an amortisation charge. If this is not the case, I would ask the Solicitor-General to consider it and see whether some provision could not be made on the Report stage.

5.3 p.m.

The Solicitor-General

The hon. Member is quite right in saying that amortisation is not an allowable deduction. To make it an allowable deduction in this case would be to introduce an anomaly. It would have a very far-reaching effect, and I am quite confident that the Chancellor of the Exchequer could not possibly do it at the present time, or, indeed, even consider the matter between now and the Report stage. It raises a very wide question, which will have to be considered, perhaps on some other occasion, if at all.

5.4 p.m.

Sir W. Brass

I am sorry to refer again to the point made by the Solicitor-General. He says that he is informed that, in effect, an appeal may be made against an assessment in London. I would point out to him what actually happens in the City of London. The assessment is made including rates. Offices and property are let in the City of London with rates compounded, and the assessment is made by the local authority which includes rates and rents. The Solicitor-General now tells me that it is possible to separate these two items—I do not think he is right—andthat you can appeal about the rent, leaving out the rates. I would ask him to whom you can appeal. Is it the authority which has assessed the present assessment, which is the assessment which includes rates, or how are you to get that assessment altered?

5.6 p.m.

The Solicitor-General

Schedule A assessment is always made on the basis of the landlord doing the repairs and the tenant paying the rates.

Sir W. Brass

No, Sir.

The Solicitor-General

That is the basis on which Schedule A assessment is always made, and the actual rent paid for a house is not necessarily the criterion. However, I shall be glad to consult with the hon. and gallant Member, and perhaps we can together look at some rather elementary text books to see whether we cannot find out which of us is right and which of us is wrong without detaining the Committee on what is, after all, rather an academic point of law.

Sir W. Brass

I still contend that the assessments are made in the City of London with rates and rent compounded and that Schedule A is charged on that assessment including rates and rent.

Sir K. Wood

Perhaps my hon. and gallant Friend will let us look into that point.

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

CLAUSE 14.—(Modifications of relief from Schedule A in case of unoccupied houses.)

The Chairman

On this Clause there are two Amendments standing in the name of the hon. and gallant Member for Clitheroe (Sir W. Brass). They seem to me to be very much like all these Clauses—obscure both as to meaning and object. I think if I call the first Amendment, and the hon. and gallant Member can explain it in such a way that it can be understood, it may justify me in having called it; otherwise I shall have to withdraw it from the Committee.

5.8 p.m.

Sir W. Brass

I beg to move, in page 11, line 40, after "payable," to insert "and paid."

I think it is a very simple point and that the Solicitor-General will be able to understand it. My right hon. and gallant Friend the Financial Secretary to the Treasury during his speech on the Resolutions told us that there were cases where unoccupied premises on which rents were payable and paid should be subject to tax. I entirely agree that that should be so. This Amendment which I have put down is merely to make certain that the amount is paid and that the tax is to be charged only on rent which has been paid and not on rents which are payable and have not been paid.

5.9 p.m.

The Solicitor-General

Clause 14 applies only to short leases, I say that because it may save further discussion. I quite understand what the proposal of the hon. and gallant Member is. He wants to see that the landlord only pays his tax if in fact he is receiving the rent—that is to say the proof of the receipt or payment of the rent has to be given before tax is exigible. Our proposal is this. Income Tax is not, broadly speaking, conducted on a cash basis. We say that the landlord should pay his tax in respect of the rent which is payable but of course there has been for many years a provision made—and this perhaps will quieten the fears and alarms of the hon. and gallant Member—that if the rent is lost or irrecoverable the landlord, who has paid the tax in respect of rent which on this hypothesis he is not going to get, can make a claim on the grounds that the rent has proved to be irrecoverable. That has always been allowed but the landlord has to prove it—that is the "onus of proof" is on him. If the tax is paid in respect of rents which are payable and if the rafter the rent payable proves to be lost and irrecoverable (it never having been paid), then of course an appropriate allowance is made. This is in accordance with the general principle of the Income Tax Acts. I hope the hon. and gallant Gentleman will be satisfied with my assurance that an allowance in respect of rent lost or irrecoverable will certainly be given as heretofore.

Sir W. Brass

I take it that the Solicitor-General will not accept my Amendment, although I understand that there can be a claim made afterwards. I therefore beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

5.12 p.m.

Sir W. Brass

I beg to move, in page 12, line 9, after "Where," to insert "such."

I think that this also is a simple Amendment. I move it merely to link up Sub-section (2) with Sub-section (1). Sub- section (1) refers only to short leases and Sub-section(2) to short annual leases. The effect of the Amendment would be to confine it to short leases.

The Solicitor-General

My hon. and gallant Friend says that it is a simple Amendment. I can only tell him that I and my advisers have been puzzling our heads as to what its effect will be, and we have come to the conclusion that it has no effect at all. I can assure him that if he is anxious to see that Sub-section (2) of this Clause is to apply only to short leases, that is our intention. We shall consider, between now and the Report stage, whether there is any doubt at all, and if there is, we shall put in more appropriate words.

Sir W. Brass

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

5.13 p.m.

Mr. Benson

In the Finance Bill of 1930 this concession which under the Schedules applied only to houses and which has now been withdrawn as respects houses was applied to premises which were let on multiple tenancies. I think that the Solicitor-General was responsible for that concession to the taxpayer. I would like to ask why the one concession has been withdrawn and not the other?

The Solicitor-General

I will look into that matter.

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

CLAUSE 15.—(Taxation of excess rents of immediate lessors arising under certain short leases.)

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

5.14 p.m.

Sir W. Brass

The Financial Secretary during the Resolutions on the Budget told us that this was an extraordinarily complicated Clause, and I should like someone, if possible, to give an explanation of it and to assure us that there is no fear of double taxation.

5.15 p.m.

The Solicitor-General

Clause 15 deals with this case. The Schedule A valuation may be, say, £100. The rent may be £150, in each case, of course, proper allowances having been made. In such a case the excess rent, that is £50, is to be subject to tax under Schedule D, whereas under the present law it escapes tax altogether. The Clause provides—and this is the complicated part—the criteria for determining what the excess rent is. In the simple case I have put it is obviously £50. We might, however, have a case in which the Schedule A valuation may be £100 and the rent payable £150, but the landlord to whom that rent is payable might himself be under an obligation to some superior landlord to pay a rent of £120. In that case the excess for the purpose of the Clause is dealt with in this way. It is not taken as the difference between the £100 Schedule A valuation and the £150 rent payable. It is treated as £30, that is, the difference between the £150 and the £120. That is designed for the very object which the hon. and gallant Gentleman had in mind in asking the question, that is, to avoid double taxation. It would be unfair to make the landlord pay tax upon £50 when he is getting the benefit of only £30. That is the intention underlying the Clause.

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

CLAUSE 16.—(Taxation of excess rents arising under other short leases.)

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

Sir W. Brass

May we have a little explanation of this Clause? I am sorry to trouble the right hon. and learned Gentleman.

The Solicitor-General

I am here to be troubled, and I am glad to do what I can in these difficult matters. The Clause is intended to deal with a group of cases that do not come in Clause 15. The reason they do not come in Clause 15 is, broadly speaking, that they are not one unit of assessment. Clause 15 deals with one unit of assessment. Clause 16 deals with the following sort of case. You may have a number of shops or a number of public houses let at a composite rent which is very much in excess of the total of the Schedule A valuations. They are not one unit of assessment, but they are many units of assessment. The criteria for ascertaining the excess rent have to be different in this case. It is difficult in such cases to predicate any ideal Schedule A assessment. The matter is not easy to explain, because, unfortunately, as I think, we are not allowed in these Clauses to use algebraical formulae. It would be much simpler if we were. Let we use an algebraical formula to explain the type of case with which the Clause deals. The excess in that case equals the difference between what I will call A and the sum of B and C. A is the rent received, B the Schedule A assessments, and C various outlays. The difference between the rent on the one hand and the sum of the Schedule A assessments and the various outgoings, all of which are specified in the Clause, is the sum on which the tax is exigible as being the excess rent.

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

Clauses 17 and 18 ordered to stand part of the Bill.

CLAUSE.19.—(Extension of classes of income from foreign possessions taxable though not received in the United Kingdom.)

5.20 p.m.

Sir H. Williams

I beg to move, in page 16, line 24, at the end, to insert: Provided that this Sub-section shall not apply in respect of income arising from an irrevocable trust made by a person other than a British subject, and under the laws of a foreign country. I have a further Amendment down, to insert, at the end of line 24: (c) arises from any trust established prior to the fifth day of April, nineteen hundred and thirty. As I explained by letter to the Chancellor of the Exchequer, these are alternative methods to try and solve the same problem. The first Amendment is my own drafting, and the other was drafted by an expert. May I explain why I put the Amendments down? A friend came to see me to explain the depressing effect, as it seemed to him, that Clause 19 would have on him. As a result of my putting down the Amendment, I have heard of a considerable number of other cases. I understand there was a decision given on 15th December, 1930, known as the Archer-Shee case, which declared what the law was. As a sequel, a number of people came to the conclusion that they could avoid taxation legally by creating trusts in other countries, possibly in the United States of America, with the result that whenever they went to spend a holiday there they could pay for it out of money which had not paid British Income Tax or Surtax. It has been declared by the courts that every human being is entitled to regulate his circumstances so as to attract the minimum of taxation. In other words, avoidance is not acrime but evasion is, and everybody tries to adapt themselves to what is the most convenient way in which to live. There are two lots of people—those who created these trusts or made these arrangements for the purpose of avoiding taxation, and those who are not in that position because the trust concerned existed before the case and had nothing to do with tax evasion at all.

I will describe the particular case as the result of which I drafted the first Amendment. My friend married an American lady who was fortunate to be the grand-daughter of a wealthy man. She owns a house in the United States which she visits once a year, and she has three children who are American citizens, but who may become British when they reach 21. Two of them are in the United States, where they were holidaying when the war broke out, and for a variety of reasons they remained. This lady, therefore, has certain financial obligations in the United States which are discharged out of income which arises there out of a trust, which, I understand, was created by her grandfather many years ago. He was an American citizen, and the trust is under American law. My friend assures me that the effect of this Clause will be disastrous to him and his family, because they may very well be called upon to pay more tax in this country than the income received, from the United States, because there are obligations which they have to meet out there. They have no control over the capital in the trust, and they cannot dispose of the American securities and bring the money here so as to avoid double taxation. They will have to bear the burden of American taxation, which is rising, and the burden of taxation at this end as well; and it looks as if they will be called upon to pay in British taxation a sum in excess of the income they will draw from the United States.

Superficially, that seems to me to be carrying matters too far, and I have tried to solve the problem in the terms of my first Amendment, in which I have tried to describe the circumstances of the case I have mentioned and to indicate that it was a case in which the object was not tax evasion. Somebody better informed in these matters than I am submitted an alternative draft, which is my second Amendment. That excludes from the operation of Clause 19 all those trusts which existed prior to the declaration of the law as a result of the judgment of the court. It therefore brings under the operative effect of the Clause all those people who made trusts for the purpose of tax evasion and leaves out those whose trusts came into being for other reasons. I do not know whether my solution is the right one or not, but there is a substantial number of cases. The number must be substantial in political circles, because those who rise high in the councils of this nation seem to have a great predilection for marrying American wives. I know a number of Members of this House and of the other place who have done that. Therefore, legislators may be severely penalised under Clause 19 if they have had the fortune to marry American heiresses who draw incomes from trusts over the capital of which they exercise no control. If mine is not the right solution, I hope that the Chancellor will indicate some way in which these cases of hardship can be dealt with.

5.37 p.m.

The Attorney-General (Sir Donald Somervell)

I do not think that my hon. Friend has appreciated the purpose behind this Clause. The general condition of the law is this. If anyone has securities, stocks and shares in a foreign country he pays on the income arising from them irrespective of whether he brings the income here or not. That seems perfectly fair. He has got the money, and if he wants to spend it in America, it is because he has some need in America which he wishes to satisfy, but that does not alter his position that this is income of which he has the disposal. There were two Archer-Shee cases. They arose in relation to someone in this country who had a beneficial interest in property held in trust in America. That property consisted, I think, of stocks and shares. If no trust intervened, Income Tax would have been exigible on income arising, irrespective of whether it was brought here. In the first Archer-Shee case, which proceded on the basis that the American trust law was the same as ours, it was held that although a trust intervened the cestui que trust had a sufficient property in and right to the dividends on the stocks and shares to make Income Tax exigible exactly as if he held them himself.

However, there was a second Archer-Shee case, in which the taxpayer produced evidence as to the American law. That evidence was to the effect that American trust law was different from ours and that a cestui que trust, under American trust law, had no property, legal or equitable, in the trust property or the dividends or income arising from it. The only right the beneficiary had was a right to have the trust administered. The effect of that was this, that the House of Lords said, "As under this trust law these are not your stocks and shares at all, because the trust imposees an impenetrable screen, and we cannot look behind the trust to what is inside, therefore the income falls under foreign possessions which are taxed not on the extent of the income arising but simply on the amount remitted here."

It seemed to various people, including the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) who has brought up this matter before, to be an anomaly that whereas the holder of stocks and shares has to pay Income Tax on the income arising, if his interest is in stocks and shares held in trust then he does not have to pay tax on the income arising in spite of the distinction which my hon. Friend pointed out, that he may be unable to control the capital, may be unable to induce the trustees to change the security. This has been represented as an anomaly, and my right hon. Friend the Chancellor of the Exchequer has agreed that it is an anomaly, and the purpose of this Clause is to put those who have interests in trust property on the same basis as those who own property direct. This Amendment would really cut across that principle. The obvious basis of my hon. Friend's second Amendment was that we are here directing ourselves to tax avoiders or evaders—I am not sure that I realise the difference—but that is not so. It is true that since the Archer-Shee case there may be more trusts than there would have been, but most of those, I think, have probably been hit by other Clauses in earlier Finance Acts. This Clause is not directed against tax evasion, but is to correct what is felt to be an anomaly, namely, that where a trust is interposed a man should not be in a better position than if he owned the securities himself.

My hon. Friend said there was a point here, and that he hoped my right hon. Friend would be able to deal with it. I agree that in certain cases, of which the case he put may well be one, there is a point here, but the point is not one which could be or should be dealt with by accepting this Amendment, and I doubt whether it can be dealt with in this year 1940. The real problem is the problem of double taxation as between different countries. I think that is a real problem which in happier days, when countries are at peace with each other, might well be dealt with on more satisfactory lines than exist at present. Already we have arrangements with our Dominions, and I think, possibly, certain arrangements with other countries, but obviously this is not the moment to ask countries to take up that matter. Apart from that, on the broad issue I can see no particular reason why a person who is subject to our tax laws should pay less tax than his neighbour because his income comes from a foreign trust and because his circumstances are such that he desires to educate his children in America or to use his income abroad rather than here. I agree that there may be cases in which hardship results from double taxation, but I cannot advise the Committee to accept these Amendments, because the purpose of this Clause is to correct what we feel to be an existing anomaly.

Sir H. Williams

The learned Attorney-General has mentioned the case of people who choose to have their children educated in America. Let us take the particular case I mentioned. The children were already there when war broke out; they are legally American citizens; they cannot come here, President Roosevelt will not let them; and it may well be the case that in circumstances which are completely outside the control of the taxpayer the amount of money received from the United States will be less than the sum which the tax collector here will demand.

The Attorney-General

Yes, but in fact that person is getting his or her children educated in America as part of the expenditure of income. The normal person who has his or her children here has to pay Income Tax before paying the school bills. The only result of this Clause is that in this case the person will have to pay Income Tax before the school bills in America are paid. Apart from the question of double taxation I do not see any hardship in the matter, and I think it is quite impossible to deal with that at the moment.

Sir H. Williams

I take it that the learned Attorney-General sees that the solution open to the taxpayer is to leave the country, in which case the Chancellor of the Exchequer will get nothing.

Amendment negatived.

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

5.37 p.m.

Mr. Benson (Chesterfield)

I was extremely heartened by some words used by the learned Attorney-General in reply to my hon. Friend the Member for South Croydon (Sir H. Williams), in which he said that he saw no reason why a citizen should pay less tax than his neighbour because he was utilising his income abroad, and so I feel sure that he will realise that this Clause as drafted does perpetuate a very serious anomaly in our tax law in that it allows the income arising from any trade or profession carried on alone or in partnership which remains abroad to remain untaxed. I can see no reason why a man should be allowed to be a partner in a foreign business and to accumulate profits in that foreign business and should avoid tax upon those profits if he does not remit them to this country. The basis of our Income Tax system is that we pay a rate of tax according to our total income, and it is a fundamental anomaly that a man should be allowed to accumulate profits abroad and not pay Income Tax on them unless he brings them here.

I raised this matter on the Financial Resolution, and the Financial Secretary replied that one of the reasons for the existing state of things was that it was felt desirable that we should build up reserves abroad. That is no reason, but merely a departmental excuse, and a very bad one. If reserves are desirable abroad reserves are equally desirable in this country, and there is no particular reason why we should not remit taxation upon all forms of income which are put to reserve. This Clause as drafted provides innumerable loopholes for tax evasion and tax avoidance. It is the simplest thing on earth to bring back to this country income from abroad and to avoid taxation. It may be difficult nowadays to transfer assets abroad, but it is a perfectly simple thing to transfer assets from abroad to this country and avoid taxation. I will give one or two instances to the Committee.

Sir F. Sanderson

Why tell the country how to do it?

Mr. Benson

It is perfectly simple. If I can find out, anybody who is a lawyer can find out. You can accumulate your capital abroad and spend capital here, and on balance your position is exactly the same. If you accumulate £10,000 in reserves abroad you can spend £10,000 of your capital here. You have not reduced your capital, you are actually spending the same amount that you save in a different country. Then, you can accumulate capital abroad and allow your heir to inherit. This is an important point, because a very large number of wealthy persons are very much concerned about the provision for their heirs, and it is a very simple matter to accumulate abroad income which, when it is inherited by the heir, becomes capital and can be brought back without any taxation except possibly Death Duties.

There are even more simple ways in which you can enjoy the benefit of your income abroad. This has been done and been held to be legal. You accumulate income abroad and you spend in this country money which you get on overdraft from a bank. As security for the overdraft you pledge your investments abroad. When your overdraft in this country has become as large as the investments abroad which you have pledged, obviously you cancel the overdraft. There are two ways of doing that. You can bring the assets which are the security to this country, in which case you are taxed, or you can send your overdraft abroad. [Hon. Members: "What is the address?"] It has been held by the Commissioners themselves in the case of Hall v. Marians that a man who accumulates income abroad and runs up an overdraft in this country, and then sends his overdraft to swallow up, as it were, the accumulated income, has not brought assets to this country. When there are loopholes as large as that I think it is time the Board of Inland Revenue took steps to stop them up. In the first case there is no justification for allowing income to be accumulated abroad and to be tax free, and there is less justification for allowing it if it can be brought back by such simple subterfuges.

I see the hon. and learned Member for Ashford (Mr. Spens) is here. In raising a matter in the House a little while ago he used a curious word, the word "hardship." He spoke of the hardship of Income Tax payers and Surtax payers who found that by the purchase of their dollar assets under the Defence Regulations, payment for them being made here, they had had this untaxed income brought back and therefore made liable to taxation. Where is the hardship in paying Income Tax or Surtax upon income, not income that you need but upon income that you can afford to accumulate abroad? In view of the statement of the learned Attorney-General that he objected to people avoiding tax by accumulating their income abroad, I hope that he will apply the law fully and widely and see that this indefensible anomaly is wiped out sooner or later.

5.44 p.m.

The Attorney-General

In putting this Clause forward my right hon. Friend was not, as I explained, seeking to alter the general basis of the distinction between "arising" and "remitted." He was seeking to correct an anomaly, and therefore the wider issue does not really arise. There are those who think that the "arising" basis has gone too far, and people like the hon. Member opposite who think it has not gone far enough; but that point does not really come up on this Clause, and I do not think the Committee will want a long disquisition from me upon it. So far as tax avoidance is concerned, we always keep an alert eye upon it. I do not propose to deal with the various devices which the hon. Gentleman has put to the Committee, but I think it is true to say that very effective steps are taken to prevent tax avoidance by the use of companies abroad and devices of that kind. If any further methods come to our notice we are ready to deal with them.

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

Clauses 20 to 25 ordered to stand part of the Bill.

CLAUSE 26.—(Provisions to replace s. 13 (7) of Finance (No. 2) Act, 1939.)

5.46 p.m.

Mr. Levy

I beg to move, in page 25, line 14, to leave out Sub-section (5).

Since the 100 per cent. Excess Profits Tax is being placed upon the taxpayer, it becomes incumbent to fix a proper standard before the extra assessment comes into operation. My right hon. Friend, very properly, is fixing all those standards from a hardship point of view, and Sub-section (2) gives the right of appeal to any firm or firms who feel that any one of the three years does not in itself constitute a proper and fair standard. They are to have the right of stating their case before a Board of Referees. After the case has been considered, and in the light of all the evidence and facts adduced, the Board shall have power to determine what the standard shall be. I think everybody agrees that, in the circumstances I have described, it would be unjust and unfair to fetter the judgment of the Board of Referees, and that they ought to have the right to give judgment in accordance with the facts submitted to them.

To a very great extent Sub-section (5) takes away the benefits given under Subsections (2) and (4), inasmuch as it gives the Board of Referees a ceiling beyond which they shall not go. I can visualise evidence being submitted by a particular firm in order that the Board shall establish a standard. The Board may well decide that £x is fair and equitable, but, on turning to Sub-section (5), they find they are not allowed to give judgment for that standard. They will be forced to fix a standard which is unjust and inequitable because of the ceiling, laid down as 6 per cent. in this Measure. I am sure everybody will appreciate that the last thing anybody would accuse my right hon. Friend of wanting to do is of being a party to anything unfair. I think he will find in this case that the Sub-section would operate harshly and unfairly and would fetter the judgment of the Board of Referees, and he is the person to put the matter right. Therefore, I am putting it to him that he should leave out this Sub-section, and, if he cannot do so, that he should raise the ceiling in order to give the Board of Referees an increase of discretion. I suggest that it should certainly be anything up to 8 per cent. or 10 per cent. If my right hon. Friend cannot leave out the Sub-section I would ask him to reconsider its phrasing with a view to increasing the ceiling to something which would be less unfair.

5.49 p.m.

Mr. Spens (Ashford)

May I add one less general appeal to that which has just been made by my hon. Friend, and on two grounds? Now that the 100 per cent. standard has been brought in, the standard profits allowed become the limit to the amount of profits that any company may distribute. Anything in excess of the standard profits has to go to the Government. I hate looking a gift-horse in the mouth in any shape or form. As I said on the Second Reading, everyone should be very grateful for the form Clause26 now takes, compared with the Sub-section in the Finance Bill (No. 2) 1939. There seem to me to be two classes of company which require very special additional consideration. There are, first of all, companies where a tremendous amount of capital has to be expended over a long period of years in order to get the business going at all. The capital is unremunerative for a long period. We have at present in the country numbers of industries that are very valuable from the national point of view being brought into existence, and they will not be in the profit-producing stage until a number of years after they have been started. When they have reached that stage, the maximum that can then be made available of the profits is 6 per cent. of the average capital employed in the business in the standard year.

It appears that such a standard would be extraordinarily low compared with the risk and effort which those who organise such companies have to accept. After the organisers have got those companies started, and in view of the long period before they get to the profits at all, the provisions of this Sub-section might seriously hinder the development of companies of that type. I therefore ask my right hon. Friend to consider whether, if a ceiling be necessary, some latitude might not be given to that type of company.

The second type of company is that which often starts by being a company of the first class, where the object of the industry is mining in some form. The work has the effect year by year of reducing the capital assets of the business. I refer to those industries that are engaged in operations concerned with wasting assets. You have to have a very large expenditure of capital and effort before you can start producing, and as you do produce you are, in fact, getting rid of the capital assets. We have to ask whether it is fair to such a company that the maximum standard should be such as is laid down in the Sub-section. In times past, the reason why substantial dividends have been paid, and constantly paid, by mining companies is, as everybody knows perfectly well, that the life of a mine decreases by every year that it is mined. One expects to get, year by year, something for the capital that is, year by year, becoming less valuable. Those are very important classes of British industry which, I suggest, require special consideration, and I hope that my right hon. Friend will give them that consideration.

5.54 p.m.

Sir Cyril Entwistle (Bolton)

I hope that the Chancellor of the Exchequer will consider the representations that have been made to him about this Sub-section. Everyone is pleased, in the existing circumstances of the country, with the 100 per cent. Excess Profits Tax, provided that it is a tax on excess profits as commonly understood and that they are due to the war. That is what, in the popular mind, excess profits are. If that be the case, nobody will have the slightest objection to 100 per cent. Excess Profits Tax. Under the complicated provisions of this legislation, the Excess Profits Tax bears, in many cases, no resemblance to war profits, because the definition and calculation of excess profits is artificial and arbitrary—very arbitrary—in character. One would have thought that, in order to make sure that the excess profits were due to the war, the year 1938 would be included as a standard year. We are told that the reason why that cannot be done is the difficulty of differentiating between armament firms and those not making armaments, and that, during 1938, profits were made, not out of war, but out of preparation for war.

The perfectly simple way of getting over that difficulty is by putting a provision in this Clause to enable the referees, on clear evidence, satisfactory to them, that the profits in an accounting period which, under these provisions, would be subject to tax, should not be regarded as excess profits if it were proved that they were not in any way due to war conditions or to preparations for war. That has not been done. It has been put to the Chancellor and his predecessor, and their officials, and they have insisted that that would be like putting the power of taxation in the hands of an outside body. They insisted that there must be this absolute limit called the ceiling. It would be all right if that were a fair limit, but, from the speech we have just heard it is clear that there are two cases where the ceiling limit is grossly unfair. To take 6 per cent., either of the share capital or of the capital assets employed in the business, is grossly inadequate in the case of a business which has been built up in the course of many years and which has had no return during that period, and it is also grossly unfair to companies such as mining companies where the assets are always wasting assets.

I know of a mining company which was losing so much money in carrying on one part of its business that it sold the unprofitable side of the business to another company. I believe that the turnover at the moment is something like £300,000. The company that previously carried on that business has lost as much as £60,000 a year in building up that business. This new company has taken on this gamble and under these provisions as they now stand the company is allowed to make a profit of £3,000, and that is all. They have taken on a business which has hitherto lost as much as £60,000 in a year; they have acquired the assets, naturally at a very low figure in view of this past record, and if they can earn any profits and run these very heavy risks they are allowed to make a profit of only £3,000.

I know of another company which has spent as much as its share capital in new machinery since the company started, and has spent in advertising a far larger sum than the sum spent on machinery. Yet under these provisions they are liable to 100 per cent. taxation on more than half the profits they earned in the year 1938—eight months before the war started. These examples show that the Excess Profits Tax is not a tax on war profits, that these arbitrary impositions produce gross inequity, and there ought to be a wider discretion to the Referees than these particular provisions now provide. It would not be going too far, where the Board of Referees have evidence that satisfies them—I am asking it only on that ground—that the profits in an accountable period are in no way due to war conditions or to preparations for war—in order to include all the armament firms—to give them a higher standard without restricting them to what is an absurdly low ceiling, in the case of companies to which I have referred. I hope the Chancellor, even at this late hour, will consider whether this Clause is not unduly restrictive.

6.4 p.m.

Sir Reginald Clarry (Newport)

I would like to add my voice to the strong appeals which have been made in asking the Chancellor to reconsider this point about the ceiling. The Amendment as set down gives no limit to the amount. My hon. Friend the Member for Elland (Mr. Levy) suggested that if that was going too far, surely the 6 per cent. could be raised, because there are numbers of cases where it will amount to a hardship if after an investigation has taken place one is faced with a limit of 6 per cent. It might be entirely unjust and unsatisfactory. There is no reason why the country and the national effort should lose in consequence of that. If this low ceiling is maintained, it will very seriously prejudice the position of industry and those undertakings who sink capital and are prepared to receive no remuneration for many years in the hope of getting it back at a later stage in larger lumps.

I hope the Chancellor will consider this position very carefully and give us some hope at any rate of a raised ceiling, if not of taking the ceiling away altogether. If these restrictions are carried too far, and if the companies are prepared to accept this 100 per cent. Excess Profit Tax, then, as the previous speaker rightly said, it would come down to a basis of what is a standard period and what is taken into account in that standard period. By putting these restrictions on in all directions you tend to kill the goose that is laying the golden egg.

6.6 p.m.

Sir K. Wood

I am indebted to hon. Members for their contributions to this Debate, and I recognise that in certain circumstances this provision may operate hardly in some cases. However, I do not think the hon. Member for Elland (Mr. Levy) has visualised the extent of the provisions which we are making in this Clause and which, I may say, has received a fairly general acceptance. It is true that there may be other cases here and there, but from the various associations and institutions with whom we have been talking on this matter I know that they generally regard this as a very considerable contribution towards solving the difficulties which undoubtedly face us in this connection. I would like hon. Members to appreciate that this Clause operates in the case of those companies where there are no profits in the standard period or where profits are so low as not to constitute a just standard. If that fact is established in the first instance the Commissioners of Inland Revenue or the Board of Referees, as the case may be, may fix such a standard as they think just, subject to certain limitations which have been described this evening as ceilings. It has been said, unwittingly I think, that there are no ceilings so far as the first two types of cases are concerned; but in fact in both those cases a ceiling is provided. It is true that in the third case, the case of the depressed industry, there is no ceiling peculiar to that type, but, as has been pointed out this afternoon by other speakers, in all three types there is the over-riding limitation which my hon. Friend is seeking to remove from the Bill.

In the first type of case a company may apply to the Commissioners of Inland Revenue for a just standard. The ceiling in this case is an amount equal to the notional dividend paid on the paid-up ordinary share capital—6 per cent.—and also the fixed rate of dividend paid on other paid-up share capital. The second case is where a company may apply to the Board of Referees direct on the ground that the paid up share capital did not fully represent the net value of the trading assets employed in the business. The ceiling in this case is 6 per cent., or 8 per cent. in the case of director controlled companies on the value of trading assets valued as assets of a going concern. Now we come to the third type of case, to which some hon. Members have referred, and that is where people can apply to the Board of Referees and can satisfy the Board of Referees that the business belongs to a class of industry which was depressed in the standard year. In that case if the Board are so satisfied they may fix such standard as they think just, ignoring the ceiling of the net value of trading assets. But there is this over-riding limitation, it is perfectly true, which is applicable to all three types of cases, that any substituted standard is not to exceed 6 per cent., or8 per cent. in the case of director controlled companies, of the capital of the company as computed in accordance with the general provisions applicable to the computation of capital for Excess Profits Tax purposes. Hon. Members will remember my reference to wear and tear and depreciation. It is also provided that in the case of any assets so included, if they have permanently lost the whole or any part of their value, the value of the assets can be reduced by the amount so lost.

There have been two contentions this afternoon. The first, by my hon. Friend who moved this Amendment, was that there should be no limitation at all. I could not accept that proposition for a moment. That would, in fact, leave the Board of Referees in the position to fix exactly what they like so far as this class of depressed industry is concerned. In other words you would leave to the Board the power to make a decision on a matter which it must be the duty of this Committee to decide upon, so far as limitation is concerned. It must be realised that you could not leave the Board of Referees to decide a case of that kind exactly as they think fit. That would be an impossible proposition. A number of cases have been cited. My hon. Friend the Member for Ashford (Mr. Spens) made, as he always does, a considerable contribution to the Debate and gave two instances. One was of a company whose capital has been expended over a number of years with little or no remuneration. I would like to study that case, because when I heard it I thought that it might be met by one or other of the provisions in this Clause.

I was more impressed with the case that has been put to me by deputations during the last few days, the case of companies with wasting assets. There I think there is a case to be considered, especially that of a company which is now making considerable efforts in response to the national appeal and which by that means is accelerating its wasting assets. As regards that particular case, I will undertake to examine the position between now and the Report stage to see whether I am satisfied that it is right to make some further provision by way perhaps of allowing it extra percentage. I feel, and I hope the Committee will support me, that we should not leave a matter of that sort to a Board of Referees without any directions from Parliament. I hope that the undertaking which I have given to the Committee this afternoon will help them to see, as I think industry as a whole recognises, that the contribution which we have made in this Clause has been not an inconsiderable effort to deal with the situation. I recognise that it is necessary, and desirable that Parliament should be just in their consideration of this matter.

6.14 p.m.

Mr. Levy

I believe that my right hon. Friend the Chancellor of the Exchequer misunderstood me, and if he did I am sure it was my fault. If he is unable to accept the deletion of the Sub-section I suggest with great respect that he should increase the height of what I have described as the ceiling, to 8 per cent. or10 per cent. My argument was not confined to the question of leaving out the Sub-section. I am asking whether my right hon. Friend will give the matter consideration.

Sir K. Wood

Of course, I will give the matter consideration.

Amendment, by leave, withdrawn.

6.16 p.m.

Sir K. Wood

I beg to move, in page 26, line 15, to leave out "made after," and to insert entertained unless notice thereof is given in writing to the inspector of taxes before. The Committee may recall that Sub-section (7) at present provides that an application under this Section shall not be made after the end of the year 1940 unless the appropriate body allows a longer period. This Amendment, which is brought forward in response to representations that have been made, provides, in effect, that notice of an application given by that date shall preserve the taxpayer's right to have the application heard. It is a matter of procedure.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 27 ordered to stand part of the Bill.

CLAUSE 28.—(Investments held by members of groups of bodies corporate.)

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

6.18 p.m.

Mr. Hely-Hutchinson (Hastings)

A point arises as to the interpretation to be put on the words in line 12, "the co-ordinating body corporate." I can bring to my right hon. Friend's notice cases where a company is one of a group of companies which together act as co-ordinating bodies corporate, but where any one of them could not be described as being the co-ordinating body corporate. I have in mind a company which is one of a group of three, and which itself owns 65 per cent. of the shares of a subsidiary company, which is itself subject to Excess Profits Tax. That shareholding is practically this company's sole asset. It is, therefore, deriving practically all its income from dividends from a company which has borne Excess Profits Tax at the rate of 100 per cent. Owing to the circumstances that that subsidiary company was conservative during the standard period, and is now able to pay a larger dividend than it paid during the standard period, the parent company has a larger income than it had during the standard period, and is itself in the position of having to pay Excess Profits Tax on that income. I think there is a case of inequity there, if the holding company does not come strictly within the definition of a co-ordinating body corporate. Even assuming that the words "co-ordinating body corporate" are interpreted in a sense favourable to that company, there is also the question whether the Clause is retroactive to 1939, when the Excess Profits Tax was at the rate of 60 per cent.

Sir K. Wood

Perhaps my hon. Friend will allow me time to consider the complicated question he has raised.

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

Clauses 29 to 41 ordered to stand part of the Bill.

CLAUSE 42.—(Purchases of annuities, etc., from relatives.)

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

6.21 p.m.

Mr. Benson (Chesterfield)

This is one of a series of Clauses dealing with the avoidance of Death Duties. In Sub-section (4) of this Clause there seems to be a loophole. The Sub-section relates to any disposition applied by the deceased in favour of a company of which one of his relatives is a member; that being, of course, in order to prevent the relative, inheriting through the company. But it is not necessary that the relative whom the deceased wishes to benefit should be a member of a company. There is no reason why he should not be an employéof the company. You may have one of these fictitious companies; and, under this Clause, the heir, in order to benefit, might be a manager, or an employé in any other capacity, with an agreement which will enable him to take all, or a substantial part, of the revenue or income of the company, or to throw the company into liquidation and claim all the assets. It is no use limiting legislation merely to members of companies when the object can be achieved by making a person an employé of a company. I suggest that the Solicitor-General should look into this point, because, while I may be wrong, there seems to me to be a very obvious loophole.

The Solicitor-General

I am grateful to my hon. Friend for calling attention to this point, and I can assure him that the matter will receive attention.

Mr. Benson

I once received a promise, in all good faith, from the Attorney-General, that a matter should be looked into between the Committee and Report stages, and it was impossible for anything to be done about it on Report. The trouble is that you cannot increase a charge on Report. In order to do that, you must recommit. If this is a loophole, and if it is to be closed, this Clause will have to be recommitted.

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

Clauses 43 to 52 ordered to stand part of the Bill.

CLAUSE 53.—(Valuation for estate duty of shares and debentures of certain companies.)

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

6.25 p.m.

Mr. Benson

Here, again, is a point relating to provisions for dealing with Death Duty avoidance. This Clause refers to a company of which the deceased had control at any time within three years of his death. Sub-section (1, b) refers to the deceased having an income amounting to more than one half of the total amount of such dividends and interest. It seems to me that it would be safer if, instead of using that formula, we provided that companies should be under the control of not fewer than five persons. It is very simple for one or two people who wish to utilise these companies to join together.

6.26 p.m.

The Attorney-General

This is a Clause of general application, dealing with the case where the shares, if you take the market value, would not represent the interest in the assets. The ordinary case, where there has been a transfer to a company for the purpose of avoiding Death Duties, is dealt with in the earlier Clause which we have passed. I think that that covered most of the cases in which this use of artificial share rights has come to our notice. This is a general Clause, made irrespective of the companies which are hit by the earlier Clause. One can adopt this new method of valuing shares in cases where one of three conditions is fulfilled. Control is one of these conditions; the second is that the deceased is entitled to more than half the dividends or interest; and the third, that he is entitled to more than half the capital. I think that those three conditions would probably cover the cases. I will certainly look into the question as to whether the control ought to be more clearly or more widely defined.

Mr. Benson

Perhaps I did not make myself clear. I had not expected that we should have got quite so far to-day. My point is that all these three criteria are in themselves different phases of the same beneficial ownership; but if you limit beneficial ownership to one man only, it is very simple to form a company which shall obviate that difficulty of having more than half, by allowing two or three or more people to form a company which shall be, as it were, a joint concern for tax avoidance.

The Attorney-General

I appreciate that point, and I will look into it; but I think it will probably be met by the alternative conditions. If a man does resort to an artificial rate, we shall then see whether he has, in fact, more than 50 per cent. share either in the dividends or in the interest or in the capital.

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

Clauses 54 to 60 ordered to stand part of the Bill.

CLAUSE 61.—(Suspension of enactments relating to Post Office Fund.)

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

6.31 p.m.

Mr. Ammon (Camber well, North)

I merely want to ask the Chancellor of the Exchequer whether he will give the Committee an explanation of this Clause. He will know, having been Postmaster-General, that it will have a very serious effect as far as Post Office organisation and development are concerned. He will recall, no doubt, as I believe it happened during his time, that the Bridgeman Committee was appointed in order to get over the difficulty that arose owing to the whole of the surplus revenue of the Post Office going into the Treasury. It was difficult to find money for Post Office development and also to meet the demands that arose from time to time from the staff. It occasioned a good deal of trouble to the Department, and used to take up a considerable amount of the time of this House. On the recommendation of the Bridgeman Committee it was agreed that a sum of some £10,000,000 should be paid over to the Exchequer each year and that the residue should be left to the Post Office to meet the cost of development and other purposes that I have mentioned.

The right hon. Gentleman was congratulated during his tenure of office as Postmaster-General for using these new powers to a considerable extent for further development in the Post Office. It looks now that the passage of this Clause will mean that all that sort of thing will be wiped out and that we shall be back again to the ante-Bridgeman Committee position. It will mean that there will be a hold-up in Post Office development which may be very serious when we come, after, I hope, not too long a period, to times of peace and require to rebuild our economic organisation. It is bound once more to bring back upon the Floor of this House a considerable amount of agitation and many claims on behalf of the staff, which, owing to the new arrangement, has not been necessary for a number of years. It has resulted in very harmonious relations between the staff and the Department. All this now appears to have been upset, if my reading of the Clause is correct, and perhaps the Chancellor of the Exchequer will explain what is likely to be the effect of the Clause.

6.35 p.m.

Sir K. Wood

The hon. Member has stated the position correctly. I remember very well when this new arrangement was first made. I had the privilege of negotiating it with the Chancellor of the Exchequer of that day, and we looked forward with the greatest confidence to the new arrangement, which provided for a fixed contribution to the Exchequer of £10,750,000 per annum for three years, and if the Post Office exceeded the £10,750,000, the excess was to be paid into the Post Office Fund. That fund was to be utilised for purely Post Office purposes. Unfortunately, as the hon. Gentleman has said, after a short period the working arrangements and conditions got worse, and then the war came, which, together with the adverse conditions, has rendered, I regret to say, the whole of the machinery of the Post Office Fund inappropriate. An essential part of the machinery was to secure that some part of the profit from Post Office customers should be returned in the form of reduced rates and lower charges, and in the present circumstances I am afraid that that has to give way to the more important needs of the Exchequer in financing the war.

In the second place, we must remember that the Post Office to-day undoubtedly forms a vitally important part of the war-time machinery, and its services must be extended or contracted according to the needs of defence in a way which makes it impossible to administer it on a commercial basis. That is the important consideration, and, therefore, under the present Clause, it is proposed that the operation of the fund should be suspended until such time as Parliament may determine, and that in the meantime the relationship of the Post Office to the Exchequer shall revert to that which obtained before 1933, so that in fact the whole of the Post Office revenue will accrue to the benefit of the Exchequer. I share the hope of the hon. Member that the time will come when we may go back to the previous arrangement.

6.38 p.m.

Mr. Pethick-Lawrence

. The Committee will be aware that in the last few years the surplus revenue of the Post Office has not been sufficient to meet the £10,750,000, but, on the other hand, the new taxation which has been put on in the Budget has put the finances of the Post Office in a very much better position. Therefore, so far from not reaching the surplus revenue of £10,750,000, there is every prospect that the surplus will far exceed that amount. That is a point that ought not to be glossed over when dealing with this question. The Chancellor of the Exchequer speaks sympathetically of this as being a temporary suspension, and I hope, although he cannot pledge his successors, and this House of Commons cannot pledge a future House of Commons, at any rate he will give us the assurance that it is the intention of the Government, in so far as they are concerned, that, when the war comes to an end, the control of the Post Office over the revenue will be restored to it in the form in which it was carried through by this House on the recommendation of the Bridgeman Committee.

Sir K. Wood

As the right hon. Gentleman has said, it is impossible to pledge future Governments, and no one can foresee exactly what financial arrangements there may be after the war, but for my own part I have always thought of the possibility of going back to the other arrangement.

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

CLAUSE 62.—(Remission of death duties in cases of members of the crews of vessels killed in war.)

6.40 p.m.

Sir K. Wood

I beg to move, in page 70, line 21, at the end, to insert: (2) In the case of deaths from such causes as are mentioned in the said Section thirty-eight arising during the period of the present emergency of persons to whom that Section applies, and of deaths from such causes as are mentioned in the preceding Sub-section arising during that period of persons to whom that Sub-section applies, where the Commissioners of Inland Revenue are satisfied that estate duty has become chargeable on any property passing on such a death and that subsequently estate duty has again become chargeable on the same property or any part thereof on another such death, being the death of a person to whom that property or that part thereof passed on the earlier death, the whole of the death duties payable on the later death on that property or that part thereof shall be remitted or, if paid, shall be repaid, and that property or that part thereof shall not be aggregated with any other property passing on the later death for the purpose of determining the rate of estate duty. This Sub-section revives for the period of the present war the relief which was given under Section 2 of the Death Duties (Killed in the War) Act, 1914. That Section, which lapsed at the end of the war, provided that where property passed on successive deaths of officers and men killed in the last war Estate Duty would not be payable in respect of the second or subsequent deaths whatever its value or to whomsoever it passed, and this relief was subsequently extended to cover Legacy and Succession Duties. The new Sub-section follows closely the lines of the 1914 legislation, but it makes it more clear. It only applies to property which passes on death. There is a new Clause which has been placed upon the Paper by certain of my hon. Friends dealing with the same matter, and I am sure that the Committee will be glad to confirm this proposal.

6.41 p.m.

Mr. McCorquodale (Sowerby)

I and some of my Friends have put down a new Clause for the remission of Estate Duty in respect of the estates of all members of His Majesty's Navy, Army or Air Force, or of the Merchant Service who are killed in action or who die of wounds incurred on active service. We are very glad this new Sub-section has been moved by the Chancellor of the Exchequer, but I would like to see him go much further and exempt these estates altogether. I should also like him to give us the exact position in regard to these estates. In an answer to a Question this afternoon—I regret that I was not in the House at the time—I believe he was understood to say that the first £1,000 of any estate would be exempt and that after that there is to be a new arrangement. I would like him to tell us what that arrangement may be.

I want to offer one or two observations upon my own Clause, which, I understand, it is convenient to discuss at the present time. If Estate Duty is charged at all in these cases, the State will be getting a financial advantage out of the sacrifice of these lives on our behalf, and I suggest that that is repugnant to everyone of us. Death Duties are generally calculated to fall on a family approximately three times in a century. If owing to casualties occurring in war the mortality rate rises to four instead of three, the State secures a windfall; it makes a profit out of these losses, which, I think, is intolerable. Moreover, the widow of a young soldier, sailor or airman, or merchant seaman is left very often with young children without the earning capacity of the breadwinner of the family who has sacrificed his life in our service. In bringing up her family, therefore, she finds herself doubly penalised. Instead of the husband's earning capacity and a full income from the estate, she loses the earning capacity and also loses a portion of the income from the estate. Therefore she finds herself doubly penalised in bringing up her family. It may be said that a concession of this nature would upset the Budget revenue. This would not be so, in my submission. I will endeavour to show that the revenue in this case is in the nature of a tragic windfall, and one which no Chancellor of the Exchequer could have taken into his calculations in estimating the yield from death duties for the ensuing year. Therefore I would urge the Chancellor of the Exchequer to consider carefully whether he could not during this war exempt from duty estates of these young soldiers, sailors, airmen, and merchant seamen who are so gallantly offering themselves on behalf of the State and ourselves.

6.44 p.m.

Commander Sir Archibald Southby (Epsom)

I would like to support what my hon. Friend the Member for Sowerby (Mr. McCorquodale) has just said. I am glad that the Chancellor of the Exchequer has seen his way to go back to the practice of the last war, but in the remarks which he has made to the Committee I gather that there are some slight differences between the proposals to-day and the proposals which were carried into effect during the last war. It would be to the advantage of the Committee if he would explain whether the differences, however slight they may be, are to the advantage or disadvantage of someone who was killed during the war. Death Duties are levied in respect of the average expectation of life. In the conditions of to-day we are asking people to volunteer for service in the Forces of the Crown; indeed, we are conscripting people for that purpose. We are asking men to lay down their lives in defence of this State, and it seems to me wrong that at this time we should penalise their property as well as ask them to make the supreme sacrifice.

In the case of a man killed in the last war, presumably, when his estate passed on to his son, the first £5,000 was exempted, and subsequently, I believe, it paid at a lower rate. But supposing the son of a man who was killed in the last war is killed in this war, it seems to me that in equity the estate should not be made to pay any Death Duties at all. Presumably in the case of a man killed in this war, whose father's estate paid a lesser rate of duty as a result of his death in the last war, his estate will have to pay duty. If a man is killed in this war and his son is also killed, no Death Duties in the case of the son's death will pass at all. There is a case here which, I think, should be looked into. Where death has been occasioned by war wounds in the last war, and the son has succeeded, no Death Duty should be payable in the event of his being killed in the present war. It is wrong that he should be put in a worse position than father and son who are killed in this war. If the Amendment is passed, that effect will arise. I ask my right hon. Friend to consider this matter and, perhaps, put if right on the Report stage. Would he let us know also exactly what are the rates payable on estates where a man is killed during the war?

6.48 p.m.

Lieut.-Colonel Heneage (Louth)

I would not like the discussion to close without protesting against the last two speeches to which we have just listened. After all, a man who owns nothing and is killed in this war gives all. Take the case mentioned by the first speaker, that of a widow with children. She, at any rate, would get something from the State, through the Ministry of Pensions. I think it is wrong that we should think of this war in terms of the last war. We shall want all our resources. I think the Chancellor has gone as far as anybody could expect him to go in making the concession he has just made, but to say that no Death Duties should be levied is, to my mind, absolutely wrong in our present situation. I speak with considerable feeling on this subject, because I come from a landowning family, and I know what the breaking-up of an estate involves. I also know that there is considerable difficulty in dealing with land as compared with stocks and shares. But I say quite frankly that in the circumstances through which we are passing at present land as well as stocks and shares must share the burden.

A point that I would suggest to the Chancellor is that you may have difficulty in recovering, in Death Duties of this kind, money from land. I believe he has power under previous Acts to take over land, and, if that is so, I think it would be worth while looking into the question of whether he could not accept part of the land of an estate in payment instead of cash. As I said before, I should not like as a member of a family which has owned and farmed land for hundreds of years, to see special consideration given to landowners at the present time.

6.51 p.m.

Mr. Garro Jones (Aberdeen, North)

At first sight it seems a plausible request to make to the Chancellor that sailors, soldiers and others who are cut off in the prime of life should be absolved from responsibility from paying Death Duties. Nevertheless, I hope the Chancellor will turn a deaf ear to the appeal, for the reason that if we once begin to measure comparative sacrifices made by people dying prematurely on active service, we shall be compelled to consider, not only those who suffer depredations in their unearned incomes, but the hardship of those who earned large sums in peace-time. It is impossible to begin to make comparative sacrifices. The greatest sacrifice of all is made by the dependants of a breadwinner who have nothing but the wages and support of that breadwinner to look forward to for sustenance and support in later years. Although we must all sympathise with those who lose large capital sums, and those dependants who lose the earning capacity of their breadwinner, we cannot distinguish between these sacrifices.

I would like to mention one point that has come to my notice in connection with the phrase "arising out of the operations of war." I notice that the actual Clause in the Bill deals with members of the crews of ships and fishing boats. I know many of these people, and I think few of them will benefit by the Chancellor's generosity on account of the fact that they do not reach the necessary minimum sum. But two cases have come to my notice in which a ship has been sunk without trace off the East coast of Scotland and the Ministry of Shipping has declined to recognise, until evidence has been brought forward, that these losses were due to the operations of war. They refuse to accept the presumption that as the ships were sunk without trace they were sunk by the operations of war. They called for evidence, and when it was not forthcoming the dependants were deprived of certain benefit which they would have received had the presumption been accepted and I ask that in a case where a ship is sunk or lost without trace the presumption shall be that the loss was due to the war. There may not be many cases, but if there are, serious injustices may arise.

6.55 p.m.

Captain Crookshank

We have had an interesting discussion on the points of view which have been sympathetically expressed on both sides, although I agree with the hon. Gentleman who has just spoken that this is not a matter in which, one can with any decency try to assess sacrifice. It is certainly not to be valued in terms of money. The Debate has gone a little far from Clause 62, which merely seeks to bring under the existing law the crews of merchant vessels and fishing boats. Under the Clause itself the Treasury will act on the recommendation of the Ministry of Shipping in those cases, whereas it will be for the Service Departments to act in other cases. The hon. Gentleman opposite asked that the Minister of Shipping should presume that where ships have been sunk without trace it was due to the operations of war. I cannot give an answer offhand on that particular point, but as I listened it struck me that that might be going too far. It is conceivable that a ship might be lost without trace in some part of the world where the presumption would be the other way and that it had nothing to do with the war at all. It might, therefore, not be quite so simple as the hon. Gentleman put it. However, this is a matter to be dealt with on the advice of the Ministry of Shipping, and I have no doubt that notice will be taken of what he said.

As the Clause stands, we have inserted an Amendment, moved by my right hon. Friend, which was itself a considerable concession to the line of thought to which two hon. Members have addressed themselves. The hon. and gallant Member for Epsom (Sir A. Southby) suggested that some sort of provision should be introduced to link up cases where a man was killed in the last war and his son is killed in this war. I think it will be a little difficult to link up two wars, which have been separated by a period of over 20 years, for the purposes of this kind of concession. On reflection I do not think that hon. Members would feel that that would be a desirable way of dealing with the problem. By reference to the main Act we give merchant vessels' crews the same concession as is given to soldiers, sailors and airmen. Under Section 38 of the Finance Act, 1924, remission of duty is given in the case of a member of the Forces who is killed or who dies within three years from wounds inflicted, accidents occurring, or disease contracted while on active service against an enemy, or on service which is of a warlike nature, or which, in the opinion of the Treasury, otherwise involves the same risks as active service. The extent of the relief is this: Remission applies only to duties on property passing to the widow, lineal descendants, lineal ancestors, brothers and sisters, and descendants of brothers and sisters of the deceased. Where the value of the property passing to the specified relatives does not exceed £5,000, the whole of the duties thereon may be remitted. Where the value is above £5,000, remission extends to the whole of the duties on the first £5,000, and a part of the duties on the excess value, equivalent to discount— at 3 per cent. compound interest with half-yearly rests—for the period of the normal expectation of life of a person of the age of the deceased at the time of his death, calculated under the Tables of Mortality of Government Life Annuitants, 1912. The first £5,000 is excluded from aggregation, and, in effect, is wholly ignored. That is the existing provision for members of the Armed Forces, and by this Clause similar relief is being extended, very properly, as I am sure all Members will agree, to the Mercantile Marine. On the main issue, namely, that we should go further, I am afraid it is my unfortunate duty to say that my right hon. Friend does not see his way to do so. My right hon. Friend has to-day inserted a provision the details of which I have described, and I hope that the Committee will find it right to leave it there.

7.3 p.m.

Sir A. South by

The Financial Secretary has said that it is difficult to link up this war and the last war. May I submit that what we are considering is the principle that a man who is killed in the service of his country in action or dies from wounds should have special consideration because of the manner of his death? If you are going to allow, and quite properly, that a father and son killed in this war should have special consideration, it seems to me that the principle demands that you should extend the same treatment to father and son who are killed in the service of the country in a case where the father was killed in the last war and the son is killed in this war. It is not a question of linking up this war and the last but of maintaining one principle. A son killed in the service of his country now is at a disadvantage compared with a man who was killed in the last war and his son is killed in this war.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 63 ordered to stand part of the Bill.

NEW CLAUSE.—(Raising of rate of Excess Profits Tax.)

1. (1) Section twelve of the Finance (No. 2) Act, 1939 (which charges Excess Profits Tax) shall, in relation to an excess of profits arising in any chargeable accounting period beginning on or after the first day of April, nineteen hundred and forty, have effect as if, in Sub-section (1) thereof, for the words "equal to 1075 three-fifths of the excess," there were substituted the words "equal to the excess."
2. (2) Notwithstanding anything in Sub-section (2) of Section fifteen of the said Act, a deficiency of profits occurring in a chargeable accounting period beginning on or after the first day of April, nineteen hundred and forty, shall first be applied so as to reduce profits chargeable to tax arising in another chargeable accounting period beginning on or after the said first day of April, and a deficiency of profits occurring in a chargeable accounting period ending on or before the last day of March, nineteen hundred and forty, shall first be applied so as to reduce profits chargeable to tax arising in another chargeable accounting period ending on or before the said last day of March; and where owing to an insufficiency of profits for chargeable accounting periods ending on or before the said last day of March, or, as the case may be, beginning on or after the said first day of April, the whole or any part of a deficiency is applied otherwise than as aforesaid—
   1. (a) application shall, either wholly or to such extent as the Commissioners think appropriate, be treated as provisional only; and
   2. (b) If it thereafter appears that there is no longer such an insufficiency as aforesaid, such adjustments shall be made as the Commissioners may direct.
3. (3) Where a chargeable accounting period falls partly before and partly after the end of March, nineteen hundred and forty, the foregoing provisions of this section shall apply as if so much of that chargeable accounting period as falls before, and so much of that chargeable accounting period as falls after, the said end of March, were each a separate chargeable accounting period, and as if the profits or losses of that separate chargeable accounting period were an apportioned part of the profits or losses arising in the whole period.

Any apportionment required to be made by this Sub-section shall be made by reference to the number of months or fractions of months in each of the parts of the whole chargeable accounting period.—(Sir K. Wood.)

Brought up, and read the First time.

7.4 p.m.

Sir K. Wood

I beg to move, "That the Clause be read a Second time." This new Clause deals with the raising of the rate of the Excess Profits Tax from 60 per cent. to 100 per cent., and makes the necessary consequential provisions regarding the cases where there is a deficiency of profit or where they fall short of the standard profit. I have so recently explained this matter that I do not think I need go over it again. It received the general acceptance of the House yesterday.

Question put, and agreed to.

Clause read a Second time, and added to the Bill.

NEW CLAUSE.—(Disallowance, in computing profits, of certain expenses.)

1. (1) In computing the profits of any trade or business for any accounting period, no deduction shall be allowed in respect of expenses in excess of the amount which the Commissioners consider reasonable and necessary, having regard to the requirements of the trade or business, and, in the case of directors' fees or other payments for services, to the actual services rendered by the person concerned.
2. (2) Any person who is dissatisfied with a decision of the Commissioners under this Section may appeal to the Board of Referees.—[Sir K. Wood.]

Brought up, and read the First time.

Sir K. Wood

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

This Clause endeavours to meet the situation which hon. Members have pointed out with regard to the danger of extravagance and waste. Under it the Commissioners of Inland Revenue will have to consider whether certain expenses, are reasonable and necessary for the requirement of the trade or business, and any person dissatisfied with the decision will have a right of appeal to the Board of Referees. We discussed this matter last night, and again I do not think I need enter into any detail.

7.6 p.m.

Mr. Benson

It can hardly be said that we discussed this matter last night because although we made an attempt we were ruled out of order. Frankly, the raising of the rate to 100 per cent. is a step which I am not at all convinced is a wise one from many point of view, but having done so we must realise that certain grave difficulties will arise. As I said last night the Chancellor of the Exchequer seems to rely on the patriotism of manufacturers to exercise the maximum economy. I do not believe that you are going to get that maximum economy exercised day in day out unless there is an ever present motive. The right hon. Gentleman has said to-day that we must take the world as it is. If we do we must not expect the same care, economy and careful balancing as to whether an expenditure should or should not be made if that expenditure does not come out of the pocket of the person who is making the expenditure but comes out of the pocket of the State to the extent of 100 per cent. Under the new Clause it is perfectly true that certain gross abuses can be dealt with. The Chancellor of the Exchequer last night instanced two, where a young son getting £200 a year was suddenly increased to £2,000, and where a manager without any apparent or adequate reason was given a bonus of £5,000. Those cases can be dealt with, but it is not that form of difficulty that we have to meet. I do not think for a moment that there is going to be any gross, direct or intentional extravagance simply and solely because it does not matter. What we are going to get is a discussion as to whether this sum shall be or shall not be spent and people saying, "Well, we might as well." That is where your money is going to go. There will be a general slackening of control, and in such cases the Board of Inland Revenue cannot exercise the requisite control or have the requisite information.

A case was put to me on Monday last. It is not a very bad case although it is a difficult one to check. A landlord had been pressed for some time to do some repairs to premises. They were not essential, although they were desirable, and he had always refused. The repair would have cost £150. The tenant had put up with things for two years, but last week, immediately the announcement was made with regard to the Excess Profits Tax, the tenant rang up the landlord and asked, "Will you give me permission to do that repair?" The landlord asked why, and the tenant replied, "Well, why not? There is an Excess Profits Tax of 100 per cent. and we are on war work." That is the sort of thing which will cause small but steady leakages all the time. I do not know how the problem can be dealt with. The Government might be able to swear in all the chartered accountants and make them, for this purpose, servants of the State, but that would be a very doubtful form of supervision, because the chartered accountant always signs his certificate to the effect that he has been satisfied by the information given him.

The only possible information as to whether or not the expenditure is extravagant rests with the individual who makes the expenditure, and there is to be taken away from him the incentive of economy. If the 100 per cent. Excess Profits Tax is not ultimately to cost the Government more in price rises, the only method I can see of dealing with the problem over a broad field is to make it rather difficult for the manufacturer to achieve his standard years. That would mean wiping out the Excess Profits Tax as far as the production of revenue is concerned but gaining the advantage by enforcing economy and efficiency throughout industry. The Government being the biggest purchasers and absorbing, as they will have to do, half the national income, they would gain an advantage from that method. The only method, as far as I can see, is that the Government should rigorously and ruthlessly fix prices at a level at which nothing but rigid economy and efficiency would enable industry to make profits up to the maximum standard year. That could be done easily with regard to firms that are working on Government account, but it could not be done quite as easily with regard to general industry. In the case of firms working on Government account, there is no reason why, for example, the Government should not say to an aircraft manufacturing firm, "Those may be the calculated costs, but we are going to take 25 per cent. off the price of the aeroplanes, and it is up to you to make that good by increased efficiency." Unless the Government control prices throughout industry, I do not see how the effect of this increase in the Excess Profits Tax will mean anything except a widespread slackening of effort.

7.13 p.m.

Mr. Hely-Hutchinson

This seems to me to be the most important Clause in the whole Bill, and that circumstance alone is my justification for saying again, perhaps in different words, what I have said at other stages of the Bill. The Clause has to be considered in the light of what my right hon. Friend the Chancellor of the Exchequer was good enough to say yesterday, in response to a request which I had previously made to him for terms of reference to directors. The general tenor of the terms of reference which he laid down were motives of patriotism. Those are motives to which all those with whom I have any business connection and I myself most gladly and wholeheartedly subscribe. Indeed, if I should find myself in the position, in any company with which I am connected, of having to pay Excess Profits Tax, I should sign the cheque with the greatest enthusiasm—albeit it would be the shareholders' money—and I should feel as I did so, Caesar be still, I killed not thee with half so good a will. But the words of my right hon. Friend contained in them no sanctions. For the sanctions we must look to this Clause, and in considering these sanctions, may I recall to my right hon. Friend three short passages from speeches that were made in yesterday's Debate? One is from the speech of the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), when he said that: We must recognise that there is a good deal of the old Adam in human nature."—[Official Report, 5th June, 1940, col. 954, Vol. 361.] Again, the hon. Member for Central Leeds (Mr. Denman) said: So long as we are in our present peril there will be no thought of excess profits."—[OFFICIAL REPORT, 5th June, 1940; col. 961, Vol. 361.] Then, the hon. Member for Chesterfield (Mr. Benson) said, with regard to patriotism: That is a desirable aspiration, but does anybody really believe that that motive…is the kind of motive which works in season and out of season when a man is at a desk?"—[OFFICIAL REPORT, 5th June, 1940; col. 962, Vol. 361.] Those are the aspects of the situation against which we have to guard, and those are the aspects which make it necessary to put teeth into the sanctions. As I look at the actual Clause with which my right hon. Friend proposes to put teeth into the sanctions, I must say that, from a practical point of view, these teeth will close down too late, because when auditors come along or when one looks at accounts after a year has elapsed, it is extremely hard to counter the arguments produced by the managing director or the departmental manager who authorised the expenditure at the time.

Mr. Benson

These are not teeth; they are dentures.

Mr. Hely-Hutchinson

That may be so. I venture to remind my right hon. Friend that in increasing the rate of Excess Profits Tax to 100 per cent., he is appointing 20,000 potential spending authorities for Government money. The amount they will have available to spend will be the amount which would otherwise be the Excess Profits Tax. The motive they will have in spending will be the central motive that any man can advantage himself in a thousand and one different ways by spending money. And what politician is there who does not know how deep are the springs of man's generosity when he is spending the money of somebody else? I could mention a very few out of the myriad directions in which money could be spent. I heard the other day of a company which was considering taking offices in the country for the greater security and continuity of its business, and it was negotiating for a rent of £250. On Thursday, when the landlord of the house heard that the Excess Profits Tax was to be 100 per cent., then, knowing that the company in question was in the excess profits category, he said, "Why should you not pay me £500 a year? It will cost you nothing; it will come out of the Government." Then, suppose that one had to paint one's office or one's factory, would one try to do it—conceiving that this was a legitimate charge against revenue—in a year in which the tax was 100 per cent. or a year in which it was, say, only 25 per cent.? The answer is a simple one. Then there are the expenses of salesmen and travellers, the employment of experts, such questions as depreciation, depletion, the valuation of work in progress, and, even more important, the very strong incentive that a man has in some way or other to get dependants and protegés on to the pay-roll. I ask my right hon. Friend to give full rein to his imagination in considering these matters. There are many ways in which those who are not well-disposed to the State, or perhaps I might say those who are more well-disposed towards themselves than towards the State, may seek to evade or avoid the payment of this tax.

I may mention, from another point of view, the case of a group of companies, mostly copper companies in Rhodesia, which owing to the incidence of Dominion relief, and the fact that certain taxes are not allowed in Rhodesia as deductions from income for the purposes of tax, are in the position of having to pay, as a result of this new tax, 105 per cent. of their net profits in taxation. They are already selling copper to the Government at £20 below the market. If the Government do not want to take more copper from them, they will be under a strong incentive to sell that copper abroad away below the market and below the cost of production, in order to save money. I do not say that that is going to happen, but there will be the tremendous pressure of not one or two, but thousands of influences of this kind, which are operating and must necessarily operate on the minds of men and will operate with greater force upon those who are not conscientious than upon those who are.

With those thoughts in mind I support the Clause. In the first place, I may say that I am glad that my right hon. Friend has introduced it. In the second place, I say to him that it is good as a start. But I feel that I must go further. Realising the enormous difficulties with which my right hon. Friend is faced in trying to frame this Clause, and in my anxiety to help him to do so, I feel that I must speak of the Clause in the terms of the epitaph which was written on the grave of a poker-player in the Far West who died as the result of an unfortunate accident, through having sought to convince his opponents that a pair of two's was a better hand than four aces and a king. The epitaph was: Life ain't so much in holding good hands as in playing a bad hand well.

7.23 p.m.

Mr. Garro Jones (North Aberdeen)

The hon. Member who has just spoken has thrown a lurid light on the magnitude and meaning of this Clause and I feel that were it not for the gravity of the times, there would be a much larger attendance of Members in the Committee to hear this discussion. What the Clause means, in effect, is that the Chancellor of the Exchequer is taking full control over every business which is liable to Excess Profits Tax for the period for which it is so liable.

Mr. Hely-Hutchinson

Or may be liable.

Mr. Garro Jones

Or may be liable. The right hon. Gentleman can veto or can allow any expenditure. When I consider the invidious burden which is being laid on the Commissioners of Inland Revenue, I feel extremely sorry for them. Something should be done to lighten that burden. Some body should be set up to define the principles upon which the Commissioners are to operate. I realise that such principles could hardly be embodied in the Finance Bill. They would cover an enormous range of financial operations—salaries, directors' fees, the appropriate proportions to be allocated for advertising and depreciation, and every other kind of expense. Indeed, business men themselves will be placed in an extremely difficult position when contemplating any expenditure if they are not to be apprised in advance of the allowances or the principles governing the allowances which will be made by the Commissioners. I suggest, therefore, that the right hon. Gentleman should immediately transfer from the shoulders of the Commissioners of Inland Revenue to some other competent body the task of devising the principles upon which the Commissioners are to operate. Otherwise this means imposing upon them a task which it will be almost impossible to discharge.

7.26 p.m.

Mr. Loftus (Lowestoft)

The hon. Member for North Aberdeen (Mr. Garro Jones) seemed to take the view that the Commissioners could veto any expenditure but that is hardly accurate. The Commissioners after the expenditure has been incurred, can investigate it and decide whether it is to be allowed or not. But the expenditure has been incurred without any control by them. It has been suggested that there are various methods by which the purpose of the Clause can be evaded. The hon. Member for Hastings (Mr. Hely-Hutchinson) and the last speaker both mentioned the word "depreciation." Depreciation is rigidly fixed to-day. There is a standard allowance for various types of plant and any attempt by boards of directors or auditors to charge depreciation above the standard, would not be allowed. The hon. Member for Chesterfield (Mr. Benson) suggested the possibility of evasion under the head of repairs and expressed some doubt about the capacity of the Inland Revenue officials to deal with it. I assure him from experience that the Inland Revenue are not only extremely capable but extremely strong and definite and indeed hard in investigating repairs expenditure. They raise small points about small sums. In that respect also therefore there is a check, just as there is a check on directors' fees, bonuses to managers and so forth.

In this connection I wish to ask my right hon. Friend a question on a small point. The Clause dealing with disallowances provides that in the case of directors' fees and other payments for services the Commissioners must have regard to the actual services rendered. If a director of a company is called up for service in the Army and his colleagues on the board decide to continue payment of his director's fees to his family, I take it that such payments would not be disallowed. Finally, I would say that the great difficulty in connection with this Clause will be the question of wages. There will be a temptation to raise wages. When an application is made to a board of directors, it will be said "An increase of wages will not cost us anything; let us put them as high as we can." That has been the big difficulty in connection with the cost plus percentage contracts which have proved so disastrous.

7.29 p.m.

Mr. Spens (Ashford)

May I offer congratulations to the Chancellor of the Exchequer on this attempt to control an Excess Profits Tax of 100 per cent. Until I saw the Clause I had not the slightest idea of how that attempt was to be made. That there is anything wrong in this Clause I strongly dispute. The moment the House of Commons approves of a 100 per cent. Excess Profits Tax, then every penny which a company makes above the standard profit becomes the money of His Majesty's Government and while those who are in charge of businesses may be the agents through whom the money is paid, they become trustees for the State of the amount of that excess profit. Therefore, it cannot be wrong that, for the first time in our history, we should try to put the Government in a position of saying how the money of companies and trading firms is to be spent. As an old-fashioned Tory I admit that right of the Government in the circumstances of this war. I believe those circumstances are so entirely different from the circumstances of the last war that only a comparatively small number of concerns in this country will even have the opportunity to use their spending power so as to deprive the Government of what the Government ought to have. On that minority this House ought to be as severe as it is possible to be.

Where £2,000 a year is given for the first time to a young director of a company who has had no business experience, that is a perfectly easy thing to deal with; but, where a contract has been entered into for doing up business premises, factories or plants, to say that all in fact that is required at the present moment is an expenditure of £200, when the board has decided to spend thousands of pounds, is a very much more difficult problem. There are masses of practical difficulties of the very first magnitude involved in this attempt. But, that we have to attempt to do something, I have no doubt whatever in my own mind. One realises that the right of the Commissioners or the Board of Referees, to disallow certain expenditure for Excess Profits Tax purposes is a very strong power, and, unless directors of companies and managers of firms realise what it will mean for their firms, they will find themselves in very serious financial difficulties within a year or two. Let us take the position where, without realising the injury they are doing to the State, a board of directors or managers authorise expenditure of £20,000, £30,000 or £100,000 more than is absolutely necessary, and they then find that it is disallowed. It will create a most uncomfortable debt to His Majesty's Government on behalf of such a company or firm, and they will have to find, out of their future earnings or profits, means with which to foot the bill.

It has been suggested in some quarters that this Clause ought to be stronger. It has been suggested, too, that if a payment is disallowed on the grounds put forward in this Clause firms or companies should be able to recover it from those who, in fact, received the money. I think that that is entirely impracticable. You cannot possibly get it even from your own servants or your own employés, managers or directors. On the other hand, I hope that the business community will realise that if this Clause is operated, as I hope it will be operated, in cases where it ought to be severely used, it will create a very serious inconvenience, to put it at its very lowest. It will be much more than an inconvenience. It will make people realise that those who have the power to spend have now a responsibility in the spending of every penny in the future. I believe that the attitude of the country to-day is such that that responsibility will be realised. I would like to end, as I began, by congratulating my right hon. Friend in having attempted to do something to prevent this tax suffering from all the abuses of the old E.P.D. of the last war. It may be only a start, but I believe it is a start which responsible members in industry will recognise, and I believe it should achieve its purpose.

7.34 p.m.

Mr. Garro Jones

I wish to put forward a suggestion. With regard to the persons who wish to evade the Excess Profits Tax we have, of course, no sympathy. But with regard to those who desire to operate this tax in a proper way, I think that we should help them out of their difficulties. Could not there be some machinery set up by which those in doubt could submit in advance any proposed schemes of expenditure, and ask before it is made whether that expenditure is likely to be sanctioned or not? In order to be effective that machinery should operate independently, because it is no use putting it through the ordinary grinding machinery of the Inland Revenue, although, of course, they can deal with questions speedily in certain cases.

7.36 p.m.

Sir Patrick Hannon (Birmingham, Moseley)

I think I ought to say that there is a good deal of unnecessary alarm in this House on the part manufacturers will play in industry in attempting to evade the tax. I believe that the patriotism of industry as a whole can be submitted to the severest test, and I anticipate that the Chancellor of the Exchequer will collect the full quantum of this tax. But, in relation to the incidence of this tax, the question of wages becomes of very vital consideration. Take, for example, a large industry with which I am associated. I had a calculation made on the wage increase in view of the extra work which is now being done. I am the last person to suggest that there should not be adequate wages for the workers. The morale of our workpeople stands as high as at any time in our history, and I would pay the highest tribute to them. When a calculation is made of the wages, beginning with the unskilled man at 1s. an hour, then the semi-skilled man at 1s. 6d., and then the skilled man at 2s., it is found that the extra wages at the end of the week are almost doubled. The extra wages at the end of the week are almost equal to the wages paid for a 48-hour week. I am perfectly confident that the country will do all that is possible in the embarrassing and terrible times with which we are faced, but this question of the immense increase in wages will have to be dealt with in some way so that the continuous increases will bear some proportion to the burdens which industry itself has to carry. I submit that to the Chancellor of the Exchequer. He knows how it is working out in many large enterprises. I hope, above all, that hon. Members will not have in their minds the idea that organised industry has no desire to support the country with all its organisation, money and other means, and to give the fullest contribution in the efforts to meet the stresses and strains which face us to-day.

7.39 p.m.

Sir K. Wood

I will, of course, consider the suggestions made during the Debate. I am very glad that the discussion has taken place, because I think everyone engaged in trade and industry who reads our Debate to-morrow will see that throughout there is a determination and, I think, a direction to the Chancellor of the Exchequer and to the Treasury, to take every possible step they can to act with vigour and strictness, to prevent as far as they can the improper payment and the taking of undue advantage of the situation. So far as this particular Clause is concerned, when it is on the Statute Book, it will be then, of course, known to large numbers of directors, and particularly to their professional advisers, and they will, I think, hesitate a good deal before they embark on payments of a large nature. I can very well imagine that before a particular payment is made by a board of directors they will be reminded of this provision, and I think it will have its effect in that way. I should be only too glad to consider any further suggestions that are made to me by which further steps can be taken, because I recognise the weight of the arguments that have been addressed to me. At the same time, my conclusion like that of the rest of the Committee, is that this is a thing we must do for the general good of the country. I also share the view of my hon. Friend the Member for Moseley (Sir P. Hannon) that trade and industry in this country are only too anxious to play their part.

Question, "That the Clause be read a Second time, put, and agreed to.

Clause read a Second time, and added to the Bill.

NEW CLAUSE.—(Reduction of duty on gas-propelled vehicles.)

1. (1) As from the first day of January nineteen hundred and forty-one the rate of duty chargeable under the Second Schedule to the Finance Act,1920, as amended by any subsequent enactment in respect of mechanically-propelled vehicles shall be reduced in the case of any gas-propelled vehicle to one-half of the duty which would, but for the passing of this Act, have been chargeable in respect of such vehicle.
2. (2) For the purposes of this Section the expression 'gas-propelled vehicle' means a vehicle propelled by any fuel which is wholly gaseous at a temperature of sixty degrees Fahrenheit under a pressure of thirty inches of mercury, and includes avehicle in which the plant for producing such gas is carried on the vehicle or in a trailer drawn by the vehicle.—[Captain Strickland.]

Brought up, and read the First time.

7.42 p.m.

Captain Strickland (Coventry)

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

I do not move this Clause with any idea of embarrassing the Chancellor or the Budget or to quibble over an unnecessary piece of legislation. I do so rather to draw the attention of the Committee to the genuine concern which is felt, and which ought to be felt increasingly, at the position in which road transport now finds itself. We realise the great necessity in these days for the limitation of the space occupied in our shipping and for the restriction and protection of our foreign exchange. We beg leave, however, to bring to the attention of the Committee the great part that is played by road transport in our national economy and we desire to ascertain the Government's reaction to the proposal made in this new Clause. We have to realise that this year something like 750,000 road vehicles have come off the roads and that they have done so for two main reasons. The first is the heavy taxation which has been placed upon them, and the second is the great restriction of the motive power which was formerly available for them. We realise that petrol consumption has to be cut down and that its use must be more and more devoted to essential State services.

Therefore, it might be presumed that the Government, if they cared for this great road industry, would welcome any proposal by which these vehicles could be kept and maintained from some alternative source. There is a natural inclina- tion on the part of the road industry to seek for some substitute fuel and there is a genuine desire to help and not to hinder the national economy. There are, however, certain reasons that stand out for the long delay in the conversion of vehicles from petrol to other fuels. They are the great cost of the alteration of the engine, the reduced efficiency which follows the substitute fuels that are at hand, the great fear that journeys undertaken on contract will break down because of the uncertainty of the availability of fuel, and the uncertainty of how the engines will stand up to the alteration. Last, and by no means least, there is the fear that there will be an inadequate fuel supply. I say deliberately that the Government do not appear prepared to help in any one of these directions, and that is why we are moving this Clause.

France has realised the great value of the conversion from the use of imported fuel to the use of home-produced fuel, and has practically remitted the whole of the taxation on vehicles which have been turned over to the use of some other fuel. In this country road transport has been working in vain for a considerable time to have a similar privilege extended to it. In France in 1938 there were some 4,000 producer-gas vehicles in use. In reply to a Question I put in the House recently it was stated with a good deal of diffidence that there were 190 producer-gas vehicles in this country. In addition, there was an indefinite number of public service vehicles, and I was told that there were producer-gas units in course of manufacture 10 times that number. The Minister of Mines said he had good reason to believe that that was so, but the figure was not given as definite. I hope the Committee will contrast the difference between our 190 vehicles, or if it is multiplied by 10, our 1,900 potential vehicles in the near future, with the figure of4,000 vehicles actually running in France.

There are some 500,000 goods and public service vehicles which ought to be available and are not available in this country, the loss of which may be a serious factor if this country is invaded. Road transport is called upon to carry the whole burden in this matter. The State is not prepared to help in any way. Except in such things as the extra weight which would be carried by a vehicle through installing the producer-gas apparatus, the State gives no advantage to road transport. It is called upon to carry the whole burden—not just the burden of additional taxation which might be justified in times such as this, but on top of the heavy taxation imposed on motor vehicles there is this uncertainty with regard to fuel and what the Government are prepared to do. Take, for instance, the ordinary coal gas which might be used by motor vehicles. There are some 70 filling points in greater London. The price of the gas is to be 11d. per therm. It takes 1¼ to 1½s therms of gas to equal one gallon of petrol, and the equivalent cost of gas, including the charge for filling, works out at 1s. 8d. to 2s. as compared with 1s. 11d. per gallon for petrol.

It is no use the Government saying in a complacent sort of way, "You will reap an enormous advantage, by making the turnover, in the decreased cost of the fuel you will be using." Compare Diesel oil, which is in somewhat larger use in the country, and producer-gas. At the Scottish Transport Conference last week it was estimated that vehicles run on heavy Diesel oil cost something like 1.23d. per mile and on producer-gas 1.47d. per mile. That shows that from the fuel point of view there is no great advantage coming to the road transport user in making the change-over. But the other feature which is so very disturbing in this matter is that there is no certainty. The Government appointed a committee in 1937, and it sat for nearly three years before it produced its report, and even then there was no finality, no certainty, nothing in the report that could give any encouragement to the road transport people to make the change-over. The cost of gas fuel has risen from 75s. per ton to 122s 6d. per ton quite recently, which in itself shows that there is no security for road transport from that point of view. The report says that those who make the change-over must be prepared to face at least a 60 per cent. reduction in power output, that they must have specially designed engines, and that with producer-gas they will be at least one gear worse off than before. Why cannot the Government encourage road transport and be helpful instead of adopting a niggling attitude? Why are they always trying to hinder this development?

I have spoken generally of goods and passenger vehicles, but I should like to say a word about private car conversion. Private cars have recently had a 70 per cent. increase of taxation placed upon them, with greatly reduced opportunities for using their vehicles and with an increase in the price of petrol. If those vehicles are to be changed over to run upon ordinary coal gas it means that the gas will have to be stored in a bag, and the cost of that installation, plus the cost of the necessary alterations to the engine, would equal at least the amount of the car licence for 12 months. Then there would be the inconvenience of having to fill up every 25 miles, though that might be overcome. The cost of conversion in the case of goods vehicles would be £100 to £120.

It may be said that all the relevant features which I have mentioned will be considered by the new committee which has been set up. But we have had experience of committees. I have referred to the committee which sat for three years before it reported. We have now got an instruction given to this main committee that it must be divided up into six subcommittees to consider different points. In the face of such uncertainty and the prospect of additional expense do the Government expect that vehicles will be changed over? In an emergency like the present, when it is essential to keep our vehicles on the road, the utmost encouragement should be given to road transport, and if this new Clause could be accepted it would do much to encourage road transport people to change over to one of the new systems. I feel strongly that it is time the Government faced up to its responsibility, or the time will come when these vehicles will be wanted and they will not be there.

7.55 p.m.

Sir R. Clarry

I wish to support this new Clause. The Mover of it has covered so many points that I have little more to say on the technical aspect of it, but I should like to make this point. For nine years, in season and out of season, in this House and out of it, we have impressed upon the Government the desirability of adopting this proposal from the national economy point of view; but those efforts met with no response until the war started, when it was too late for anything to be done which could be effected during the present emergency. In the case of town gas, for example, it is difficult now to get the requisite facilities provided. If a start had been made four or five years ago we should have been ready now, and the pressure upon our shipping resources would have been relieved. Still, it is not too late to make the concession now.

7.56 p.m.

Lieut.-Colonel H. Guest (Plymouth, Drake)

I should like to draw the attention of the Chancellor of the Exchequer to two points. The first is that many of us, looking into the future, think that it may not be easy for this country always to buy its commercial spirit from abroad. Finance may prove a difficulty, we may want to conserve our resources, and, again, we may want to use our coal, which is a great asset of this country. If we could make use of that coal for gas-producer engines or for steam engines it would be a great advantage both from the financial point of view and from the point of view of our collieries. Colliery companies have been looking into this matter with great attention. They foresee that they may have a very great outlet for their coal if this system of mechanical propulsion expands, and I think the question ought to be considered carefully and to receive some encouragement from the Chancellor.

7.57 p.m.

Mr. J. J. Davidson (Glasgow, Maryhill)

I do not know whether I strengthened this Clause by allowing my name to be attached to it along with that of the other hon. Members, but having listened to their arguments and having been interested in road transport in Scotland for a considerable number of years I do want to put one or two points in order that the position I have taken up may be made perfectly clear. The position in which many small business people find themselves through the shortage of petrol and their patriotic action in not trying to obtain more than their ration of petrol makes it desirable that the Government should encourage the use of any alternative fuel which can be produced cheaply. That would enable many of these small businesses to cut down costs and get back a little of the trade which they have lost in war conditions, and it would also reduce their demands upon petrol which may be required for the national effort. Another point is that I have received circulars from Scottish transport concerns and from certain firms complaining that the provinces have suffered by comparison with London in regard to petrol allowances. The firms concerned do not do a big trade but run taxi-cabs and provide vehicles for funerals and weddings. Those firms have been very severely hit by the allowances which have been made to the provinces.

If an alternative could be supported, it would assist them and would encourage the small man. Let us not forget that the more small men we put out of business the more we kill potential taxation of the future. Every encouragement should be given to reasonable proposals for these substitutes in order to conserve that great national necessity, petrol, to assist small businesses in at least maintaining what trade they have, and giving provincial firms assistance in establishing this change-over. Once the Government recognise this factor in transport and agree to give facilities to it, I believe that many improvements and perfections will take place and that road transport will be much better in the future than it has been hitherto.

8.2 p.m.

Captain Crookshank

I am not competent to know whether all the very technical points which my hon. and gallant Friend the Member for Coventry (Captain Strickland) made could or could not be controverted, but I have only a very short answer to give to him now. It is that my right hon. Friend cannot accept the proposed new Clause, for the very simple reason that a few weeks ago a committee was set up by the Secretary for Mines under the chairmanship of Viscount Ridley for the very purpose of considering and reporting on the best means of encouraging and developing the use of home-produced fuels in internal combustion engines, under wartime conditions. That committee is now working hard, trying to form its own views as to what help could or could not be given in the case of such vehicles as my hon. and gallant Friend has in mind. There is nothing to prevent the committee from making proposals dealing with the taxation aspect. If it should do so, its recommendations would have to be considered by my right hon. Friend. The committee is not estopped by its terms of reference from making any suggestions at all for the purpose in view.

Hon. Members will realise that this committee having been set up by one Minister, it would be very wrong for my right hon. Friend to attempt to anticipate its decisions by making concessions here and now on the very subject which is being investigated. Perhaps I might suggest to my hon. and gallant Friend, in view of what he said in such detail and out of such knowledge, that perhaps it would be a good plan if he sent to the committee a copy of the Official Report containing his speech. He would then be quite sure that they were apprised of his views, that is, unless it has already asked my hon. and gallant Friend to give evidence.

Mr. Davidson

Might it not be better if the Minister sent to the committee a copy of the hon. and gallant Member's remarks, with a recommendation?

8.5 p.m.

Lieut.-Colonel Moore-Brabazon (Wallasey)

It may be right and good to have recommendations from a committee, however exalted it may be, but what one wants to-day is to encourage the ordinary man to get along in private enterprise and to make a machine which will work. The Chancellor of the Exchequer has inherited from his predecessor some very curious policies in regard to road vehicles. First of all, his predecessor tried to tax road vehicle owners out of existence; then, having beggared them to pay the taxation, he stopped their petrol allowance so that they could not run the vehicles when they had paid the tax. The poor motorist in this country is unable to look to the Minister of Transport. One can quite religiously say that there is an anti-motorist point of view. Do the Government want to suppress all forms of road transport in any and every way? If they do not allow encouragement of this sort, that is what is meant by their policy. That is quite clear.

It is well known to everybody that the trade and munition-making of this country are very seriously handicapped by lack of road transport. If we do not want to spend money on dollars for the importation of petrol, the Chancellor of the Exchequer—I impress it upon him—must remember that this country is a coal country. When coal is prosperous, England is prosperous, and England is never prosperous when coal is not. All the fortunes that have been made in coal have never been put back into the industry. If they had, one might well have been spared every year the vast bill we pay outside this country for fuel. Oil has eaten into the very vitals of this country. We can see it used in every form of prime mover, such as in boilers, and in ships. It is used wherever coal was used. It has been advocated in many walks of life that we should change our coal into oil and then burn the oil. But that is not economic.

What we ask here is that we should turn hard coal into energy without going through the process of turning it first into oil and then into transport. We want to encourage, as much as we can, not only a short-term policy but a long-term policy, so that when the war is over and we want to keep our miners employed and the prosperity of coal-bearing England, we shall be able to look to a huge market in transport for the use of our coal.

Captain Strickland

May I ask the Minister whether it is possible for the committee, mentioned by the Financial Secretary to the Treasury, to envisage a reduction in taxation? If so, will it be possible for the Treasury to bring in a short Bill to meet that point in the current year, or will it be necessary to carry on this taxation, if we agree to it to-night, until the next Finance Bill is introduced?

Sir K. Wood

I thank my hon. and gallant Friend for his question, but I shall have to look into the matter.

Captain Strickland

In view of the explanation that has been given—and I am indeed grateful for what has been said, because it means that these things will be looked into—I beg to ask leave to withdraw the Motion and the proposed new Clause.

Motion and Clause, by leave, withdrawn.

NEW CLAUSE.—(Income Tax reduction in respect of refugees.)

For the purpose of ascertaining the amount of assessable income of an individual for the purpose of Income Tax, there shall be deducted the sum of £50 a year where the claimant proves he is maintaining an alien who is a refugee from enemy persecution.—[Sir H. Williams.]

Brought up, and read the First time.

8.8 p.m.

Sir H. Williams

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

This matter has been brought to my notice more than once by constituents of mine who are maintaining refugees. The number of refugees who are being so maintained is increasing. I agree there are certain novelties about the proposal, but there are also possible advantages to the State. I do not at the moment know the total number of refugees who have come into this country, but the number must be very substantial. Private individuals are less well able to maintain them than they expected a year ago to be, and we cannot blind ourselves to the fact that many trades and industries are enduring such a measure of taxation that many individuals who are willing to maintain refugees may find it increasingly difficult. If, in the long run, these individuals are not able to do so, the burden will be cast upon the whole community, and the charge upon the State will be greater than if individuals were encouraged to perform this work by the State making a contribution of 7s. 6d. in the £ towards the cost of maintaining the refugees.

The answer is clear; it would cost a certain amount of money, but I would ask the Chancellor of the Exchequer to bear in mind that, on balance, the cost may be nothing. If the refugees are cast upon the Unemployment Assistance Board, or whatever board may ultimately be charged with the duty of maintaining them, the State may pay more in the long run than if private individuals were encouraged by means of my proposed new Clause.

8.10 p.m.

Mr. Edmund Harvey (Combined English Universities)

I hope that the Chancellor of the Exchequer may see his way to make some concession along the lines indicated in the Clause that has been moved so convincingly by the hon. Member for South Croydon (Sir H. Williams). There is a great number of people of very modest means who during the last two or three years have undertaken to entertain refugees from oppression, and in a number of cases their circumstances make it very difficult for them now to bear this burden. As has been pointed out, if they are not able to do that the refugees will have to fall back either on the central committees or on public assistance. The central committees have already had to receive very substantial help from the Treasury because of the burden that is beyond their resources, and that difficulty will recur if they have to come to the assistance of these householders who are no longer able without some little help to maintain the refugees whom they are really desirous of helping.

I wish that the Clause could be framed a little wider so as to cover not only refugees from oppression but also refugees who have come to this country in consequence of the war. There is a number of cases where people have offered hospitality to refugeees from Holland and Belgium and who do not make a charge to the Government and do not wish to accept the financial aid that is offered for maintaining them, but they would be greatly helped if they could have some small allowance in regard to Income Tax in respect of these refugees. I do not think it need be even as great as is suggested in this Clause, but if the Chancellor of the Exchequer could see his way to make some concession of this kind, it would be a great help to a number of citizens and would ultimately ease the burden on the country itself.

8.13 p.m.

Captain Crookshank

I am afraid that my right hon. Friend cannot accept this Clause. I shall not discuss it from the drafting point of view, as to what kind of refugees are here envisaged, because I think that by and large it means refugees. The proposal which has been made is that there should be a special Income Tax allowance of £50 to taxpayers who maintain alien refugees. I would say, in the first place, that anybody who has undertaken the obligation of looking after refugees, as have so many of our fellow citizens, has done a most praiseworthy act for which everybody would wish to express gratitude.

Having said that, it is quite another thing to change the structure of Income Tax allowances as a means of Parliament's indicating their appreciation of this generous action. Broadly speaking, the ordinary Income Tax allowances are given in respect of married persons, of children and of dependent relatives; and if there is an underlying principle, it is our recognition of the cost of the taxpayer's own subsistence, and of the financial responsibilities which a very large part of the community have representing expenditure arising from the obligations of family life. It is another matter when you consider hospitality extended to other people, like alien refugees. And in so far as the hon. Gentleman suggests that the relief should be £50, I might add that the existing relief in respect of a dependent relative is only £25, and there straight away we should be getting into a very anomalous position.

Sir H. Williams

I will reduce it to £25 then.

Captain Crookshank

Let us take it that the hon. Gentleman is entertaining a foreign refugee in his house. If his proposition were agreed, he would get £50 allowance on his Income Tax assessment. Let us suppose, on the other hand, that the hon. Gentleman who seconded the proposition is living in a house where, because of the number of people in that house, he is unable to take in a refugee, but in his generosity he sends to the refugee fund £50 which is deposited with the other hon. Gentleman for putting a refugee in his house. That does not sound a very good line of demarcation, put in that way. Therefore, the Committee will not be surprised to hear that my right hon. Friend bases himself on the strict principles of Income Tax allowances as we know them.

Every time we have a Finance Bill it falls to my lot to have to contest some suggestion of relief, even in regard to such people as the blind. We have come to this stage in the general framework of Income Tax law, that the allowances are stabilised in respect of relatives and dependants, and, praiseworthy as is the action of those who entertain and look after these refugees, it is not along these lines that my right hon. Friend can see his way to give them any assistance.

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

NEW CLAUSE.—(Allowances for undue wear and tear in relation to assessment for excess profit tax.)

Where, as a result of the present war, there is undue wear and tear of machinery plant due to overtime, night-shifts or the employment of unskilled labour, the Commissioners of Inland Revenue may allow special allowances in respect of such undue wear and tear.—[Sir H. Williams.]

Brought up, and read the First time.

8.17 p.m.

Sir H. Williams

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

I hope I may be a little luckier this time. The Clause deals with allowances for undue wear and tear of machinery. I believe that my luck is a little better, even though the Clause is ultimately withdrawn. In the minds of many people there is doubt as to whether under the present Excess Profits Tax they will be entitled to claim this allowance, to which during the war 1914–18 they were entitled, on the ground that their plant and machinery will undergo such heavy wear and tear due to the circumstances prevailing. Those who have had an opportunity of studying the results of the last war know that in some cases the wear and tear was almost astronomical. People who thought that they were well treated when in the pre-war days they got 7½ per cent. found in some cases that as much as 25 per cent. was necessary to compensate them for the abnormal wear and tear which arose from the causes which I have mentioned in the Clause, namely, overtime, night shifts and the employment of unskilled labour.

There is also a very important factor which must be taken into account, namely, that when machinery is being worked day and night, Saturdays and sometimes Sundays, the opportunities for normal maintenance are very much restricted. It is a factor of great importance, and I hope that it is not being overlooked at the present time when factories are being asked to work 24 hours a day and seven days a week. You may have a crash of material just as you may have a crash of personnel when you are overworking. There is a doubt as to whether this point is covered by the law which was applicable during the years 1914–18. I hope that this point is already covered, but I am not sure if that is the proper linkage between the provisions of the Excess Profits Tax as they already exist in the Act of last October and as they will exist in the Clauses of the Bill which we are now discussing. I know that a large number of people in industry, large and small, would be relieved if we could have the acceptance of this Clause or an appropriate Clause, or a clear statement that the matter is already covered under the existing law.

8.20 p.m.

Captain Crookshank

I do not know whether my hon. Friend will again be disappointed when I say that I cannot accept this new Clause, but the reason will be, from his point of view, perhaps more satisfactory. The fact is that the proposed Clause is quite unnecessary. My hon. Friend said that there was some doubt about the position in the case of extra wear and tear caused by the war. Those who choose to look up the Official Report of 6th February will have their doubts removed by reading the reply which the then Chancellor gave to the hon. Member for Oldham (Mr. Dodd). I do not think it is necessary for me to read the reply, and have it in the Official Report again; but it was made quite clear in a careful statement on the point by Lord Simon that there is existing statutory provision under which appropriate relief can be allowed in respect of unduly heavy wear and tear, either for the purpose of computing Excess Profits Tax or of Income Tax. I might add, as it is cognate to this matter, that further provision is made for allowance to be claimed in respect of exceptional depreciation of buildings, plant or machinery provided since the 1st January, 1937, for purposes of rearmament or the war. That, I think, completely answers the hon. Gentleman's point.

8.22 p.m.

Sir H. Williams

I am very grateful to my right hon. and gallant Friend for what he has said. It is true that I ought to be familiar with what was said on 6th February; but I was discussing this matter the other day with an accountant who is regarded as rather eminent by his colleagues, and I expressed the view that it was all right. He was very much surprised. It is quite evident that the news of what is said in this House does not go round as well as it did before the war, because the newspapers—and I do not blame them—do not report what is said as fully as they used to do. I hope that the statement of my right hon. and gallant Friend will remove any anxiety on this point. I beg to ask leave to withdraw the Clause.

Motion and Clause, by leave, withdrawn.

First, Second, Third and Fourth Schedules agreed to.

FIFTH SCHEDULE.—(Provisions as to Excess Profits Tax and National Defence Contribution in the case of interconnected companies.)

8.23 p.m.

Sir K. Wood

I beg to move, in page 79, line 13, to leave out paragraphs 3 and 4.

I should like to say a word or two about this Schedule, because, at first sight, it appears complicated—as, in truth, it is. I should say that the alterations in this Schedule consist entirely of alterations in machinery. They effect no alteration in principle. I am sure that they constitute, in fact, a simplification of the original proposals. Some of the provisions are consequential upon the increase of the Excess Profits Tax to 100 per cent. They have been agreed upon in consultation with certain of the principal organisations of the country, subject to the approval of Parliament.

The actual provisions are very technical, but I may summarise their main features as follows. The National Defence Contribution is to be allowed as a direct set-off against the Excess Profits Tax. Provision is also made for the allocation of the total tax paid between the parent company and its subsidiaries, which attain the desired result more directly than in the original. Finally, the allocation so made provides a ready basis for deciding the amount of the Excess Profits Tax to be deducted in computing profits of the various companies in the group for Income Tax purposes, and also on parallel lines for deciding what amount of Excess Profits Tax is to be deducted in computing capital.

Amendment agreed to.

Further Amendments made:

In page 85, line 42, leave out from the beginning to "unless," in line 45, and insert:

"( ) An application with respect to a new subsidiary under the first Section of Part III of this Act, as applied by sub-paragraph (1) of this paragraph shall be made by the principal company and not otherwise and where a new subsidiary became a member of the group after the end of March, nineteen hundred and thirty-nine, and the standard profits thereof for any chargeable accounting period ending before it became a member of the group fall to be computed by reference to a direction given with respect to it under the said first Section, that direction shall not have effect as respects the period during which it is a member of the group."

In page 86, line 1, after "application," insert "for the confirmation of a direction."

In page 89, line 27, leave out paragraph 4.

In page 90, line 12, leave out from the beginning to "shall," in line 13, and insert: The foregoing provisions of this Part of this Schedule.

In line 21, leave out "such of the said provisions as aforesaid," and insert "the said provisions."

In page 91, line 2, leave out "cannot be," and insert "is not."

In line 10, leave out "subsequent."

In line 16, leave out sub-paragraph (3).

In line 33, leave out sub-paragraphs (5) and (6).

In page 92, line 7, at the end, insert:

1. "8.—
   1. (1) Neither Section nineteen of the Finance (No. 2) Act, 1939 (which contains provisions as to the relation of Excess Profits Tax and the National Defence Contribution) nor the Sixth Schedule to this Act shall apply in the case of any body corporate as respects any period during which it is a member of a group of companies, and the national defence contribution shall be charged in respect of any profits of the trade or business of the body corporate arising during that period as if there were no excess profits tax.
   2. (2) The Commissioners shall from time to time make—
      1. (a) such reductions, if any, of excess profits tax chargeable in respect of the trades or businesses of the members of a group of companies; and
      2. (b) such repayments, if any, of the excess profits tax paid in respect of those trades or businesses,
      as appear to the Commissioners to be such as will secure that over the whole period during which both excess profits tax and the national defence contribution are in operation the total sum payable by way of excess profits tax in respect of the trades or businesses of all the members of the group does not exceed the excess, if any, of—
      • (i) the total amount of excess profits tax which would be chargeable in respect of those trades or businesses over that period if the national defence contribution were disregarded except in computing capital,
      over,—
      • (ii) the total amount of the national defence contribution chargeable in respect of those trades or businesses over the said period.
      1102 In this sub-paragraph, the references to amounts payable in respect of the trades or businesses of members of a group of companies shall be construed as references to the sums payable in respect of the trades or businesses of all bodies corporate who were members of the group at any time during the period or part of the period in question, being sums payable in respect of profits arising while they were members of that group, and for the purposes of this sub-paragraph a group of companies shall be deemed to be the same group notwithstanding any changes in the members thereof so long as, and only so long as, the same body corporate remains the principal company of the group.
2. 9.—
   1. (1) For each subsidiary member of a group of companies, there shall, in the case of each chargeable accounting period, be computed the total excess profits tax which would have been chargeable for that period and for any previous chargeable accounting periods during which it was a member of the group if—
      1. (a) all deficiencies of profits occurring in its own trade or business in those periods, and no deficiencies occurring otherwise, had been applied in reducing its profits chargeable with excess profits tax; and
      2. (b) any credit to be given under the last preceding paragraph in respect of the payment of the national defence contribution had been given in respect of all the national defence contribution chargeable for those periods in respect of its own trade or business, and no credit had been given for any national defence contribution chargeable otherwise.
   2. (2) The principal company may demand that the subsidiary member shall pay to it the whole or any part—
      1. (a) in the case of the first chargeable accounting period in which the subsidiary member is a member of the group, of the amount calculated for that period under sub-paragraph (1) of this paragraph;
      2. (b) in the case of any subsequent accounting period, of the excess, if any, of the amount so computed for that period over the amount computed for the last preceding chargeable accounting period in which it was a member of the group;
      and the subsidiary member shall comply with the demand.
      • Provided that if any excess profits tax charged on the principal company in respect of the trade or business of the subsidiary member has not been paid, that member may, to the extent that the tax remains unpaid, make payment in respect of the sum demanded to the Commissioners instead of to the principal company.
   3. (3) If, in the case of any chargeable accounting period, the total amount of excess profits tax computed therefor falls short of the amount computed for the last preceding chargeable accounting period in which the subsidiary member was a member of the group, the amount of the difference shall, in so far as it exceeds any amount which could 1103 have been, but was not, demanded by the principal company under the last preceding sub-paragraph from that member, be paid by the principal company to that member.
   4. (4) For the purposes of this paragraph a group of companies shall be deemed to be the same group notwithstanding any changes in the members thereof so long as, and only so long as, the same body corporate remains the principal company of the group."

In page 92, line 13, leave out "So much of."

In line 15, leave out "as is not borne by that member."

In line 25, leave out from "profits," to the end of line 16, on page 93, and insert: or any liability to the national defence contribution of any member of the group occurring in any chargeable accounting period—

1. (a) the amount of the deduction provided for by Sub-section (1) of the said Section eighteen or by the last preceding sub-paragraph shall not be altered; but
2. (b) the amount of the relief shall be taken into account in computing for the purposes of income tax the profits and gains arising from the trade or business of the principal company as if it were a profit of that trade or business arising—
   1. (i) on the last day of the chargeable accounting period from excess profits tax for which relief is given, or
   2. (ii) on the last day of the chargeable accounting period in which the deficiency of profits occurred or for which the liability to the national defence contribution arose,
   whichever day is the later.

1. (4) Where in the case of any chargeable accounting period of a subsidiary member an amount falls to be paid by the subsidiary member to the principal company or the Commissioners under sub-paragraph (2) of the last preceding paragraph, that amount—
   1. (a) shall be deducted in computing for the purposes of income tax the profits and gains arising from the trade or business of the subsidiary member as an expense incurred in that chargeable accounting period; and
   2. (b) shall be taken into account in computing for those purposes the profits and gains arising from the trade or business of the principal company as if it were a profit of that trade or business arising on the last day of the said chargeable accounting period.
2. (5) Where, in the case of a chargeable accounting period of a subsidiary member, an amount falls to be paid by the principal company to the subsidiary member under sub-paragraph (3) of the last preceding paragraph, that amount—
   1. (a) shall be deducted in computing for the purposes of Income Tax the profits and gains arising from the trade or business of 1104 the principal company as an expense incurred on the last day of the said chargeable accounting period; and
   2. (b) shall be taken into account in computing for the said purposes the profits and gains arising from the trade or business of the subsidiary member as if it were a profit of the trade or business arising in the said chargeable accounting period.
3. (6) If—
   1. (a) in any such case as is mentioned in sub-paragraph (3) or paragraph (b) of sub-paragraph (4) of this paragraph, the trade or business of the principal company; or
   2. (b) in any such case as is mentioned in paragraph (b) of sub-paragraph (5) of this paragraph, the trade or business of the subsidiary member."

In page 93, line 19, leave out "paragraphs," and insert "provisions."

In line 22, leave out "first mentioned member," and insert "principal company."

In line 22, leave out "principal company," and insert "subsidiary member."

In line 25, leave out sub-paragraph (4).

In page 94, line 3, after "deemed," insert: for the purposes of paragraph (2) of the said Part II—

1. (a) to be a debt of the principal company and not of any other company; and
2. (b)"

In page 94, leave out lines 6 to 12.

In line 18, leave out from "reduced," to the end of line 7, on page 95, and insert: by reason of any relief given as the result of any deficiency of profits or any liability to the national defence contribution of any member of the group occurring in any chargeable accounting period, but the amount of the relief shall be treated as having become an asset of the trade or business of the principal company on—

1. (a) the first day after the end of the chargeable accounting period from Excess Profits Tax for which relief is given; or
2. (b) the first day after the end of the chargeable accounting period in which the deficiency of profits occurred or for which the liability to the national defence contribution arose,

whichever day is the later.

• (4) If, in relation to any chargeable accounting period of a subsidiary member, an amount becomes payable under sub-paragraph (2) or sub-paragraph (3) of the last but one preceding paragraph from the subsidiary member or the principal company, that amount shall, for the purpose of computing the capital of the principal company and the subsidiary member, be deemed— 1105
  1. (a) to be a debt which became due from the subsidiary member or the principal company, as the case maybe, on the first day after the end of that chargeable accounting period; and
  2. (b) to have become an asset of the principal company or the subsidiary member, as the case may be, on that day."—[Sir K. Wood.]

Question, "That this Schedule, as amended, be the Fifth Schedule to the Bill," put, and agreed to.

Sixth, Seventh and Eighth Schedules agreed to.

Bill reported, with Amendments; as amended, to be considered upon Tuesday next, and to be printed [Bill 60].

The remaining Orders were read, and postponed.