HC Deb 29 June 1943 vol 390 cc1489-516
The Attorney-General (Sir Donald Somervell)

I beg to move, in page 15, line 29, at the end, to insert and (ii) where any person has (apart from this section) obtained financial benefits as aforesaid but only by reason of the transfer by him of shares which he did not obtain under any such transaction as aforesaid and he has not, apart from that transfer, been concerned in any such transaction as aforesaid, the direction shall apportion the said sum so that there is apportioned to him no greater part thereof than is equal to the amount by which he is, under subsection (4) of this section, deemed to have (apart from this section) financially benefited. The general purpose of the Clause was discussed fairly fully in Committee, and I need therefore perhaps summarise very shortly the series of transactions against which it is directed. The example cited was that of a company owning a stock of whisky, the shares of which were bought by A at a price well above what those shares would have fetched but for the scheme, the details of which I will now shortly develop. The shares were sold by A to B, and possibly by B to C at increasingly enhanced prices. The whisky was then sold to C at the stock pre-war price£I think in the example cited it was about £20,000. The property having passed to C, it was then sold on his behalf it still actually remaining in the company—for some £270,000, C having paid for the shares something intermediate between what I may call the normal value and a sum representing the value which it was hoped to realise.

As the Committee will see, the whole point of the scheme was to avoid the liability to Excess Profits Tax, which would have fallen on the company if the whisky had been sold by the company instead of in the way I have described. The Clause provided that the original shareholders who sold the shares and the various people denoted by letters of the alphabet who took part in the subsequent transaction, should come under a joint and several liability for a sum representing, in effect, the Excess Profits Tax which would have become payable if the whisky had been sold by the company. There was a provision in the Clause that the Special Commissioners could apportion that sum among all or any of those who came under the joint and several liability in the words in the Clause. On the point which is dealt with in this Amendment, it was our intention that if an original shareholder had taken no part in the transaction except to sell his shares, that the power of apportionment should be used so as to apportion to him what is described in the Clause as the excess value—the Committee will follow what that means—leaving the rest of the sum to be recovered from the other persons who had taken their part, and also taken the profits in the later stages of the transaction.

It was, however, pointed out to my right hon. Friend that it might be reasonable—particularly having regard to the fact that some of the shareholders at any rate, might not have realised that there was any sinister scheme in the background—to make that intention of appor- tionment mandatory, and to provide that there should be an apportionment of the excess value to the original shareholders, or rather to any original shareholder who had not, in the words of the Amendment, "apart from that transfer"—that is the original transfer—"been concerned in the transaction." The effect of this Amendment is to provide that there shall be such an apportionment. It does not weaken the Clause, nor does it introduce any new principle. It simply makes mandatory that which it was my right hon. Friend's intention should be the procedure under the permissive power of apportionment.

Major Petherick (Penryn and Falmouth)

On a point of Order. During the Committee stage we discussed this matter generally, by taking several Amendments together. Would it be possible on this occasion to take the Amendments on this point together, and to discuss the general principle?

The Attorney-General

I am quite willing to follow that course, which perhaps I should have suggested to the Committee at the outset.

The Chairman

If it is the general feeling of the Committee, the Amendments can be taken together.

The Attorney-General

I will now pass to the second Amendment on the Paper, which is somewhat similar in its general effect to that which I have already explained. In the Committee discussion, it was pointed out that the necessarily wide words used in the Clause defining the persons who would come under the joint and several liability might cover professional persons and bankers whose part had merely been to give professional advice or to draw up documents or statements for the ordinary fees payable for such services. The case was mentioned, in particular, of a bank or banking institution which might have advanced money and which might have had no knowledge of the purpose for which the money was intended to be used, merely advancing it at whatever was the proper rate of interest or on the security which would normally be offered in a transaction of that kind. It was suggested it would be wrong to put such persons in jeopardy of a joint and several liability which, in some of these cases, might run into six figures when that was the only part which they had played in the transaction. Of course, it was never my right hon. Friend's intention that the Special Commissioners should use this drastic power of joint and several liability to bring in, as responsible for the major sum or any substantial proportion of it, persons of this kind. Those whom we want to get at are the people who have really shared in the excess sum.

Earl Winterton (Horsham and Worthing)

Before my right hon. and learned Friend leaves that point would he, in view of what he has just said, explain why in the previous discussion the Chancellor of the Exchequer used these words: Any banker must be an awful fool not to be, at any rate, put on his guard to make proper inquiries. … Anybody who has seen any of these transactions must have the greatest difficulty in finding any appearance of innocence."—[OFFICIAL REPORT, 22nd June, 1943; col. 322, Vol. 390.] I understand that my right hon. and learned Friend is now taking a diametrically opposite line of argument in saying that the banker may be quite innocent in the matter.

The Attorney-General

I will do my best to explain. It might well be that people who advanced money, whether banking institutions or otherwise, in connection with such a transaction would be found to be in the scheme, and, if so, they would not get the advantage of the Clause, Only if they can satisfy the Commissioners that in fact this was a loan for which they received nothing more than the normal rate of interest, will they get the advantage of the Clause. I am inclined to agree with what my right hon. Friend the Chancellor of the Exchequer said, that there may be no case in which a banking institution which has lent money will not have been getting something out of it larger than the normal rate of interest. I think that when the point was put perhaps as a somewhat theoretical possibility that a banking institution might have made a loan, receiving merely an ordinary rate of interest, it was difficult to resist a demand that the Clause should make clear that if it does exist, such a transaction should not bring the institution under this very drastic liability. I hope therefore that these two Amendments, which really make mandatory what was my right hon. Friend's intention as to how the Clause should be worked, will commend themselves to the Committee and will put an end to apprehensions which might have existed that there were cases in which the joint and several liabilities might theoretically be capable of being used oppressively in a way which the House would not desire.

The last two Amendments deal with points of procedure, and I think it might be more convenient to deal with them separately.

Mr. Woodburn (Stirling and Clachmannan, Eastern)

With regard to this question of bank interest, let us assume that a bank lent £1,000,000 for a fake transaction of this kind and drew interest on that fake transaction. Is not that interest equally culpable with the other parts of the profit?

The Attorney-General

I think they would not be able to satisfy the words of the Clause that a person who carries on a banking business shall not be treated as having obtained financial benefits by reason only that he received interest at not more than the normal rate on a loan made by him in connection with any such transaction.

Mr. Graham White (Birkenhead, East)

I am very glad indeed that the Government have moved these Amendments. So far as I understand the situation they go part of the way, if not the whole way, to remove the anxieties legitimately felt by those who have studied this Clause, and to which they have given expression in previous Debates. The Attorney-General said that as the Clause now stands it does not create any precedent or new position. I am a little doubtful about that. It seems to me there is in this Clause an instrument whereby some entirely innocent person may be made to suffer for a transaction of which he is entirely unaware. It seems that that remains. If that is so, I think it had better be acknowledged that that is the case, so that we know exactly where we stand with regard to the Clause.

I am bound to say that the more I look at the Clause the more difficult it seems to me to carry out. Take the case of two brothers who may have bought shares, quite unaware of any transaction of an illicit nature. One sells his shares and thereby may become liable to an apportionment. The other does not and is not so liable. One may have bought the shares attracted by the prospect of a profit, while the other may be thinking of the future and retains them as a permanent investment. It is not until the holder dies that my right hon. Friend comes in. Yet here is an increment due to this transaction. It does seem to be a most complicated business and unavailable business.

Having said that, there is one question I should like to ask, that is, whether the number of persons or professions for which protection is offered by this Clause is sufficiently wide. In addition to barristers, solicitors and accountants, there are a number of others who might be included, such as brokers who might, in the course of their legitimate business, find themselves within the scope of this Clause. I am not quite clear as to whether in line 9 words are not set out which would give some protection to persons who although not barristers, solicitors or accountants, nevertheless in the legitimate course of their business bring themselves within the scope of these transactions. I would be glad if the Attorney-General would clear up that point.

I would refer to an observation made by my right hon. Friend the Chancellor of the Exchequer in the course of the previous discussion. If I may do so without laying myself open to the charge of being a prig, I think it is most unseemly that the time of Parliament, the Chancellor of the Exchequer and the Board of Inland Revenue should be occupied by discussions of this kind in the middle of a war. Nobody likes this Clause, and I hope that the advertisement given to it by this discussion may lead to the fact that it may never have to be brought into operation. That would be the best thing. At all periods in our history we may have had pirates and people who preyed on the community, who stole ships and sailed the high seas and took other people's property or who took to the woods and sallied out on inoffensive travellers. In these days apparently the buccaneers go into the City and, by these nefarious transactions, seek to avoid the liabilities which the rest of the community in honour bound accept in war-time.

I think it is entirely wrong that so much time of the Board of Inland Revenue should be taken up with this kind of thing. It is entirely wrong that so much time should be spent by the Treasury and the Board of Inland Revenue finding out what the facts are about this and other business accounts. It is not to the Finance Bill that we should look for the remedy for this kind of thing, but perhaps by an Amendment of the company laws and arrangements for greater publicity of accounts. It would be a great help to business and everybody in this country if all the cards of our commercial transactions could be put upon the table face upwards. These difficulties would disappear. I hope attention may be given to this aspect of the matter. I hope the publicity which has been given to this question will rouse public attention and will have touched the consciences of those who have thought it proper to indulge in despicable practices of this kind.

Mr. Craik Henderson (Leeds, North-East)

I think the whole Committee will welcome the Amendments by the Chancellor of the Exchequer, which have gone a long way to remedying the legitimate fears of the effect of this Clause. I can speak frankly on this, because I was one of the persons who originally drew the Chancellor's attention to this particular ramp. Like all other Members I am anxious to see the wrongdoer punished, and punished severely, and my only regret about this Clause as it now stands is that I am still afraid that the real wrongdoer will escape and will not be sufficiently punished. I would like also to be assured that the innocent party will not suffer, because to my mind it still appears that under the Clause, even with these Amendments, he may be penalised.

I would like to clear up a point and find out whether the Chancellor or the learned Attorney-General agrees. The point is that in all these transactions there is normally an innocent party. The Solicitor-General, in the Committee stage reported in the OFFICIAL REPORT of 2nd June, 1943, at cols. 307 and 308, referred to particulars of a case which I have identified. The learned Solicitor-General said that the purpose was clearly the avoidance of liability to tax. That was true of some of the subsequent purchasers, but according to the Special Commissioners was not true of the original vendor. In that particular case, in the opinion of the Special Commissioners, there were some people engaged far down the line who were out to evade Excess Profits Tax, but the original vendors were absolutely innocent. In the Report, the Special Commissioners say: Having heard the evidence, we are satisfied that so far as the Rosses and Ross and Coulter are concerned the sale by them of their shares in the Company to Mr. Hogg was a bonâfide sale unconnected with any consideration of evading Excess Profits Tax and that they know nothing of the other persons involved in the subsequent transaction. These people were innocent, but some subsequent purchasers undoubtedly were carrying out the scheme with the intention of evading Excess Profits Tax. I want to be satisfied that people who have no guilty intention will not be punished, but that people who have a guilty intention will be severely punished. I may be wrong, but as I read Clause 23, in certain circumstances, which I do not need to detail, the Commissioners may direct that such sum as may be specified in the direction, being the sum which, in the opinion of the Commissioners, is equal to the full tax, shall be chargeable by way of excess profits tax … Under Sub-section 4 (b) it is provided— and this is the crux of the whole matter: the persons transferring the shares be deemed to have financially benefited if they did not obtain the shares under any such transaction as aforesaid, to the extent by which the consideration which they obtained for the shares is greater than it might have been expected to be if the stock had been sold by the company immediately before the transfer in such circumstances that the full tax became payable by or in respect of the company. Now the effect of these two provisions is to penalise an innocent vendor by treating the stock as if it had all been sold immediately before the transfer instead of over a period of years. Let me give an example. Let us say that an innocent vendor owns practically the whole capital of a company, amounting to £100,000. The company have on their books a certain quantity of whisky, valued in the books at £20,000, but possessing a market value at the moment of £100,000. Someone offers to buy the shares of the company. The shares are sold for £100,000, the vendor knowing nothing of the course which is to be taken five or six stages down. That whisky in the normal course would not have been sold in one year, but the sale would have been spread over three, four, or five years. But someone well down the line proceeds to sell the whisky at below the market price, and immediately the whole transaction comes within the Act. Under Clause 23 a direction can be given for the full amount of the E.P.T. on the assumption that it was all sold in one year. Suppose the standard of £20,000. There may be a tremendous excess. That it was all sold in one year is not a fair assumption to make in the circumstances. The man was selling his whisky in a perfectly normal way. He may have got slightly more because of the circumstances, but because of Clause 23 he is found liable for a sum greatly in excess of any financial gain he may have made.

I would particularly ask the Chancellor and the Attorney-General to keep in view the very serious problem which would arise for trustees. Trustees for the deceased holder of a large block of shares in a company have to raise money to pay Estate Duty. They have no option but to sell. If someone, a way down the line, enters into a transaction with the objection of evading taxation, the trustees will automatically be found liable for a considerable sum, for which I submit there is no moral justification. May I give an example of a case? I do not know the facts personally, but the correspondent who gave them to me is a very reliable professional man. This is the case of a whisky concern, the shares of which were practically all owned by a very old man of 74 years of age, in a very precarious state of health. He was left alone to manage his business, his son having been on war service since the outbreak of war. Most of his staff were called up. About 18 months ago an offer was received for the shares of the company. He consented to sell, with one proviso, that the company's customers would be continued. He had no knowledge of any ramp or anything of that kind; he was simply an old man who could not carry on because his son was on service and his staff had been called up. It was only after everything was signed that he got some inkling of what was happening. He then tried to get out of the transaction, but was held to the contract. This man will be penalised very considerably. Is this fair?

Earl Winterton

On the last occasion when we discussed this Clause a certain amount of heat was engendered, for which I and my hon. Friend the Member for South Croydon (Sir H. Williams) were partly responsible. I want to make it quite clear that I make no charge against any of my hon. Friends opposite of having any sympathy with illegal transactions. The same applies to my hon. Friend the Member for East Birkenhead (Mr. Graham White). No one who knows his parliamentary career will have any idea that he has any such sympathies. But I am still more convinced than I was before that my hon. Friends do not realise the seriousness of the situation, to which the Chancellor gave full expression in the last Debate. I hope that the hon. Member for North East Leeds (Mr. Craik Henderson) will not think there is the slightest personal reference when I say that for a long time past in certain business circles it has been a matter of notoriety that persons in the whisky trade have been making profits at the expense of the Chancellor of the Exchequer.

Mr. Craik Henderson

rose—

Earl Winterton

No; let me finish what I was going to say. That has been a matter of notoriety for a long time past. I am sure that no one in this House would have the slightest sympathy with such people, but it was the case of a whisky firm that was given by the hon. Gentleman. On the last occasion there was considerable support for this Clause, and some opposition to it. My right hon. Friend—probably, I hope I may say without conceit, encouraged by the strong support he had from several of us, irrespective of party—made one of the strongest speeches he has made in support of any Clause of the whole Bill. He said: I am bound to say that I hope these observations of mine will not foster any hopes that I may deal with this Clause in such a way as to show any weakening in the Government's attitude. This concerns— I ask the Committee to note this— not only one transaction. I regret to say there have been a number of transactions of this kind. It is, I think, a disgrace that people should, at this time of all others, lend themselves to transactions of this character. I am surprised that more members of the Committee have not got up to suggest that instead of a civil penalty some criminal penalty should be imposed. Those were the Chancellor's words on that occasion. Now, not only does he bring forward no proposals for a criminal penalty, but he has, I submit, decreased the chances of a civil penalty being imposed. He went on to say: There is a great deal to be said for that, because this is very much akin to a black market offence. It is an endeavour to make money in a way that I think must be abhorrent to all. It would be unfair if I did not quote his next sentence: Equally we must not be led away by our feelings to do anything unfair or anything calculated to bring misfortune on innocent people."—[OFFICIAL REPORT, 2nd June, 1943; cols. 321–2, Vol. 390.] With that we are all in agreement. [HON. MEMBERS: "Oh!"] Certainly we are all in agreement. [Interruption.] I am not going to give way. Hon. Members who have just come into the House seem to think that Debates can be carried on by getting up and interrupting. The hon. Member can speak afterwards. I have said that 1 do not accuse anyone opposite of being in any way sympathetic to this transaction. I assert that those of us who supported the Clause as it stood, equally do not want to harm innocent persons. Where we differ is as to what constitutes an innocent person. Do not let us think, because there is only a handful of people in the Committee, and because this is a recommitted Clause, that there is not considerable interest taken in it outside. There is considerable interest in it from the point of view of people who will say "Has not there been undue tenderness shown to certain people?" And from the point of view of people who think they may be regarded as innocent people. I confess that I was astonished to see the new Amendment. I took part in no discussions on the matter. I deliberately refrained from taking part in such discussions because, although it may be an odd line to take these days, when everybody's idea is to be as matey as possible, when I reach a conclusion I usually stick to it. I took no part in discussions on the matter because I had every reason to think that the Chancellor meant what he said and would not give way. I think the Attorney-General will be in rather a difficulty, because the Chancellor has receded very much from the position he took up last time.

Let us consider the case of the alleged innocent person. I do not wish to oppose the Clause in a Division. I am satisfied that the decision which the right hon. Gentleman has made is because he is now convinced he was wrong in the first instance, and that what he said on the Committee stage really did not conform to what he meant. As I understand the position — and the learned Attorney-General will contradict me if I am wrong—any solicitor, accountant, barrister or banker who takes part in these transactions without knowing that they are of a character intended to defraud the Revenue—I wish we could use the words "criminal character" because by any meaning of the word "criminal" they are criminal transactions. Any man in this country who seeks to defraud the Revenue is committing a criminal act, and if any hon. Members deny that, let them get up and say so. They will not be returned at the next election if they do. It is indeed a criminal act in the general sense of the term. As I understand the Amendment, any solicitor, barrister, accountant or banker who takes part in these transactions and who does not know that they are of a criminal character will not have to pay any penalty of any sort. That as it stands may seem reasonable enough, but is it reasonable enough when you come to think about it? I prefer to stick to the words which I have already quoted when the Attorney-General was good enough to give way. Any banker must be an awful fool"— It is no use hon. Members shaking their heads. This is what the Chancellor said: Any banker must be an awful fool not to be, at any rate, put on his guard to make proper inquiries."—[OFFICIAL, REPORT, 2nd June, 1943; col. 322, vol. 390.] But there is nothing in the new Amendment to say that he must make proper inquiries. I understand that provided he does not make any more than the normal inquiries, and is not actually acquainted with the fact that the transactions are calculated to defraud the Revenue, he gets off scot free. There may be technical reasons for this. It may be that the right hon. Gentleman's advisers have told him that that is so, and it may be right, but I hope that he has riot done it because of any pressure from any person either inside or outside this House. It may be that his technical advisers have told him that he has sufficient power to deal with these people—auditors, solicitors, accountants and the rest of them—if they act wrongly. I hope that that is so, but I am very much afraid that it will enable the continuance of a system that everyone knows exists at the present time. I quoted that on the last occasion. I have not had a single letter contradicting that fact. It was fairly well reported in the Press in several of the popular newspapers. I said that there was a class of person, very few in proportion to their general numbers, who disgraced three honourable professions — barristers, solicitors and accountants, who spent their time encouraging tax dodgers or assisting them to evade taxation. Nobody has denied that because nobody can deny it. We all know that it exists. These people will be greatly encouraged by what was said both by the Attorney-General and the hon. Gentleman. Of course they will not be such fools as to make inquiries. A man comes along and says, "I am having transactions in whisky." They do not inquire. If a prosecution takes place, provided they have no actual knowledge of the transaction, as I understand it—and the Attorney-General will correct me if I am wrong—and provided they do not get more than the normal rate of interest or remuneration they can carry on as before. The Chancellor of the Exchequer knows Treasury business best. If he does not want to deal with these people I have no more to say. I hope that he will keep a close watch on the situation.

I would say to the right hon. Gentleman that feel—one must not attribute motives in this matter—that he has allowed his mind to be entirely influenced in this matter. I believe his original statement. I do not think that any hardship would be caused to any innocent person. I expect that he thinks that it would be so. I hope that he is not being subjected to pressure either outside or anywhere else. I have a good deal of support here and outside when I say that, if it should be found that the Clause, as amended, is weakened and is not sufficient to deal with these transactions which the Chancellor of the Exchequer has told us, with all the authority at his disposal, are by no means single and that there has been a great number, I hope that next year, when the Finance Bill comes up in Committee, he will not say that so-and-so is going to be hit. A few people have to be hit in war time—you cannot help it—and it is better that a few should suffer than that the criminal should defraud the Revenue. There will always be some people who will say, "I will not inquire into these transactions. Do not tell me anything, I will assume that they are perfectly legitimate."

Mr. Woodburn

I would like to follow up the point I put in a question which was very well argued by the Noble Lord the Member for Horsham and Worthing (Earl Winterton). It appears that there is not sufficient precaution taken in this Amendment to avoid making such a wide net for a very large number of people who apparently innocently, but in reality have corruptly assisted these transactions. These speculators in this type of black market depend very largely sometimes for their money to carry out these transactions upon loans. If they borrow the money from some lender on the pretext that it is an innocent transaction, the lender himself may make a very big profit out of what is clearly a criminal transaction. It would be monstrous if these, what might be called sitters behind the scenes, were to get away with profits while the more innocent are to be punished. The most guilty person is the one who facilitates the crime, even more so than the person who commits it. If these people investigate the purposes for which loans are granted do not carry out a legitimate investigation and then pretend to be innocent, they appear, according to this Amendment, to escape free. There ought to be something put into the Amendment to say that for the purposes of the Section, unless the person concerned could satisfy the Commissioners that he took all reasonable precautions to investigate the proposed transactions, he could not have absolution from the liabilities involved. All money which comes from a criminal transaction should be impounded by the Treasury. The hon. and learned Member who spoke at the beginning of the Debate raised the question of ignorance of what was taking place. There are many people in this country who are punished because they are expected to know the law. They do a thing innocently, but innocence is not taken as guiltlessness.

Mr. Craik Henderson

I think there is a very great distinction between the ordinary person who can be punished because he is expected to know the law and the case here, which is quite a different case. When a transaction takes place nothing has happened. When an offence is committed it is by people of whom nothing was known at the time.

Mr. Woodburn

Nobody would Want a person to be punished, but the point is that, if the Chancellor gives away his power to punish a person, the power to deal with such persons is considerably weakened. There is considerable diminution in the power to deter criminals under the present Amendment, and it will be assisting criminals if it goes through as it stands. The words that the Attorney-General read out did not seem to provide any barrier or protection at all against that happening. If the Chancellor keeps his powers in as strong a form as possible people who deliberately set out to advise others to avoid Income Tax, even though they only charge a fee, who are as much a party to the conspiracy, will be more careful and the so-called black marketeer will not be able to indulge in such transactions because he will not know the law sufficiently well to do it. The person who advises him is the person who makes his crime. Therefore, the Chancellor of the Exchequer or the Attorney-General ought to put something in the Amendment which will reserve to them the power to decide what is corrupt and what is innocent. There are analogies for this. In the election law the difference between legal practice and corrupt practice is made very clear. It is for the courts to judge whether a thing is done corruptly or not. I am satisfied that no court in this country will ever adjudicate a thing to be corrupt if it is satisfied a person is innocent. Therefore, the question of corruption ought to be introduced here to the effect that if an action was done without taking proper precautions and making the necessary investigations as to the purpose of a loan, such a person should render himself liable. If that were done a person would take care that he did not involve himself in any such action and much of the money available for these occasions would cease to be available and you would stop crime before it started.

Major Petheriek

The hon. Member has expressed his fear lest the Amendment may open the door rather wide, but he did not give any indication of the wording to carry out what he prefers. May I refer to the speech of the noble Lord which was couched in somewhat violent terms and was unnecessarily violent? He was good enough, it is true, to refrain from suggesting that those who on the Committee stage considered the Bill was too widely drafted were actuated by evil motives and did not wish to stop the black market, which was all to the good, but none the less he took up, I think, a wholly wrong line on this particular case. He and one or two other hon. Members on the Committee stage of the Bill suggested that in effect the Government, the country and the House of Commons were so anxious to protect members of the black market that it did not matter how widely the net was drawn. My hon. Friend the Member for North-East Leeds (Mr. Craik Henderson) endeavoured to interrupt the noble Lord and he refused to give way, as he did to me on the Committee stage, but he himself interrupted the Attorney-General in the middle of his speech to-day. I do not wish to be unkind, but he thinks that he is free to interrupt hon. Members in the course of their speeches and claims to be allowed to make his own speech in full without any interruption at all. I understand that my hon. and learned Friend wished to interrupt to point out to the noble Lord that in this whisky case—we have been talking a great deal about whisky and other kinds of commodities might be involved and guilty persons concerned in the transaction—the Commissioners, in paragraph 9 of the statement of their decision, said: Having heard the evidence of Mr. Herbert Ross we are satisfied that, so far as the Rosses and Ross and Coulter are concerned the sale by them of their shares in the company to Mr. Hogg was a bona fide sale, unconnected with any consideration of avoiding E.P.T. and that they knew nothing of the other persons involved in the subsequent transactions. Suppose the Noble Lord—if I may use an un-Parliamentary expression—had been Mr. Herbert Ross instead of Lord Winterton and he had been mulcted of large sums although he was an innocent person. We took the view on the Committee stage of this Bill that it was wrong to throw the net so wide that it caught the perfectly innocent people as well as the guilty. I believe this is an example of the working of the Parliamentary system at its best. The Government rightly wish to catch certain persons engaged in the black market. In order to do this, they put down a Clause on the advice of their legal advisers and Parliamentary draftsmen, a Clause which they thought was sound. When it came up for examination in the House of Com- mons many persons outside pointed out to Members—as happened in my case—that absolutely innocent people might become involved, quite unwillingly, in transactions at some point in a transaction. On the Committe stage the Government defended their Clause as originally drafted, but said they would have another look at it, and now they have come to the conclusion that it was too widely drawn. Everybody is anxious to stop the black market in its various forms, but what we are anxious to do as Members of the House of Commons is to see that innocent persons do not, behind these stringent methods, get mulcted in fines or imprisoned for offences which they have not committed or which, if they have committed them, they have done so entirely innocently. I welcome the Amendment which has been put down, and I hope the Committee will realise the reasonableness of what the Government are doing.

Dr. Russell Thomas (Southampton)

I will not keep the Committee for more than a few minutes, but I, too, would like to refer to the speech of the Noble Lord the Member for Horsham and Worthing (Earl Winterton). I note that he rebuked the hon. Member for The Wrekin (Mr. Colegate) by saying that new Members are far too fond of getting up on their feet and interrupting. I would remind the Noble Lord that they merely follow the example which he so badly sets. I observe that he is not listening now, but perhaps he will read in the OFFICIAL REPORT what I have just said. I certainly will not repeat it, as he wishes, for his benefit now. The Noble Lord enunciated a doctrine which is disastrous and which I very much deplore. He said that it did not matter if a few innocent people suffered, or words to that effect. That was the sum total of what he said. Well, if we all thought as the Noble Lord thinks on that point I, for one, would not want to continue fighting this war. We want to sustain the form of society in which the innocent should always be protected against any form of what my hon. Friends opposite always call Fascism. The Noble Lord seems to be joining the legion of dictators which are so numerous both in this country and throughout Europe.

Now I want to bring the Committee back to the seriousness of the Clause itself, because I was one of the leaders of the agitation against it, not from any ulterior motive but from the purest, because I felt that it was loosely and obscurely drawn. The object of the draftsmanship of the Clause should be that it should catch the guilty while leaving the innocent outside the net. I much appreciate the gesture of the Chancellor of the Exchequer in meeting us to-day. I do not pretend that the Amendment is perfect, but, nevertheless, it goes some way towards meeting us in this respect. I regret that some hon. Members opposite have taken bhe view that they have taken in this matter. I believe that if the learned Solicitor-General had not brought up the whisky case, which tended to prejudice their minds, they would not have adopted the attitude they have shown throughout. They forget the old maxim, "Hard cases make bad law." The hon. Member for East Stirling (Mr. Woodburn) talked about barristers and solicitors being involved, but we must surely by no means interfere with the confidential and sacred relationship between client and solicitor, and solicitor and barrister, which cannot be challenged in a court of law. I can go to my solicitor and tell him anything without fear even if it being incriminatory. That has always been recognised as one of the finest principles in the administration of justice. The hon. Member attacks, to use the phrase I used in the Committee stage, the citadel of liberty itself.

I was interested in the pontifical speech of the hon. Member for East Birkenhead (Mr. Graham White), who suggested that these guilty people should not be allowed to exist. If the hon. Member has the experience of life which I should have thought he has, he must know that this sort of people do exist in society, in every occupation and every profession. It is useless for him to talk in the high priestly way he did to-day—time must be spent in drafting clauses to deal with them. I agree with the hon. and gallant Member for Penryn and Falmouth (Major Petherick) that this Debate shows the Parliamentary institution at its best. It also shows the attitude of mind of certain Members of Parliament like the Noble Lord, who do not appear to be so democratic and so moved by the interests of justice as they always will pretend. I hope the Committee will accept the Amendment which has been brought forward by the Chancellor.

Mr. Denman (Leeds, Central)

I would like to recall the Committee to the purpose of our discussion, which is to find the right size of mesh for the net which is to catch the villains and let out those who are innocent. In doing that, I must, after the attack which has been made by the hon. Member for Southampton (Dr. Russell Thomas), express the debt that the Committee feels now, and which it felt on a previous occasion, to my Noble Friend the Member for Horsham and Worthing (Earl Winterton), who has expressed most excellently the view that we must not do anything to make it easier for those who attempt to evade tax law. One question is whether the Amendment does not go too far. I think the hon. Member for East Stirling (Mr. Woodburn) made an extremely good case, one which I would like to have made myself. There are solicitors and accountants who make it their chief task to advise clients on tax avoidance and how this can be done in most ingenious ways. These methods do not occur to the normal business man, who has not the knowledge or time at his disposal. It does not occur to him that there are these possible ways of escape. Does this Clause unduly release these advisers on methods of tax avoidance instead of catching them as: they were caught by the original Clause? My Noble Friend, in interpreting this Amendment, implied that these people would not escape if they knew that the purpose of the transaction was to avoid E.P.T. I do not see anything in the wording of the Clause against that limitation. It seems to me a question of whether they are conscious of an offending purpose or not. If they disclose, I suggest that words might be added to make it clear that they are withdrawn from the main Clause only if they disclose that the purpose of the transaction was to escape liability for tax. I make that practical suggestion, and I hope it will be carefully considered.

Mr. Benson (Chesterfield)

This Clause is an excellent example of the difficulty we are always in, and always shall be, in dealing with tax evasion so long as we deal with it by the process of narrow definition as to what is and what is not a taxable subject. So long as we have to define clearly and definitely what is taxable and what is not and so long as the Commissioners of Inland Revenue have to decide whether a particular sum of money comes inside or outside a given group of definitions, then it will always be necessary for us to put in some safeguard for the private individual. I have no objection to the Amendment which the Chancellor has brought forward to give protection to the private individual. We shall only be able to avoid the need for the protection of individuals if and when it is found possible to hand over to the Commissioners of Inland Revenue or some special committee power to look behind the form of transaction in order to decide whether evasion was the intention. Hitherto, we have never adopted that policy, but our law has become so complicated, particularly in regard to Surtax, that sooner or later we may have to drop the practice of depending on rigid definition and have to give discretion to some body of persons to look behind our definition and to the intention. That, I know, may be difficult The hon. Member for Central Leeds (Mr. Denman) referred to the possibility of dragging into this Clause the lawyer who designs and originates methods of tax evasion. In no circumstances could that lawyer be dragged in for that particular offence. A lawyer or a banker is dragged in only if he has been a party to the machinery, as apart from the design, of the transaction. There are so many transactions of a border-line nature that for a lawyer to be held criminally responsible for giving advice, even of a subversive nature, would be a very serious step for the House to take.

Mr. Colegate (The Wrekin)

As one of the original movers of the Amendment on which this subject was discussed, I should like to say how much I welcome these Amendments. Undoubtedly the original Clause —we may be certain of it since these Amendments have been brought forward—brought a number of innocent people within the danger of being dealt with severely for a crime which they had neither the knowledge nor the intention of committing. I have been strongly confirmed in the attitude that I took up in the original Debate by these Amendments and also by the speech of the Noble Lord who put forward the extraordinary doctrine that a few innocent people suffering did not really matter at all. In fact, had he applied his argument further, he would have shown that it would be better to abolish trial by jury in the case of particularly atrocious murders. He did not confine himself to the arguments which we used for protecting the innocent. He confined himself to attacking the original crime in which we were all with him. It is true that he added a discourteous sneer at some of us for not having been for very long Members of the House, but the Noble Lord has been a Member for so long that he ought to know by this time that a sneer of that kind is utterly unworthy of one who sits on the Front bench and takes every advantage of it to interrupt. I am sorry he has absented himself when he must have known that I would reply to his sneer. The object that we had in moving this was to protect innocent people, and it is very clear that that is necessary because the hon. Member for East Sterling (Mr. Woodburn) even talked about the position of solicitors giving advice. If he looks at his words in Hansard, he will see that according to him a solicitor or barrister who defends a murderer deserves to be punished if his client is convicted.

Mr. Woodburn

A solicitor or barrister who defends a murderer is carrying out the law of the land in giving everyone the right to equal defence and equal trial. A person who takes part in a conspiracy to defraud the Treasury is corrupt and is a party to breaking the law, and he ought to be punished.

Mr. Colegate

That is exactly the point. We want those who take part in a corrupt conspiracy to be punished. But no solicitor who is consulted by anyone, even if that person unknown to him may intend to commit a crime, should be in any danger whatever of being brought under the penalties for that crime. That is what we have secured by this Amendment. I think it will be seen that the position of those who are anxious, as we are, that the criminal should be punished, so far from having been weakened, has been made very much stronger. If you want to punish anyone, you always make your position stronger if you run no risk of attacking the innocent. Many people who might under the original Clause have been somewhat doubtful as to proceeding with the utmost severity against the original criminal because they might involve innocent people can under the Amendment see the road clear to press with all severity against the criminal because we now know that no innocent person will be included. I therefore thank the Chancellor of the Exchequer for the way he has met us.

Mr. Pethick-Lawrence (Edinburgh, East)

I think this Debate is one of considerable importance, affecting, as it does, in the first instance the particular question that we have under discussion, and having a very much wider bearing. I am not going to enter into the discussion raised by the last speaker, but I am not quite sure that he is right in law, and perhaps the Attorney-General will consider the matter. A barrister or solicitor who assists a person who may or may not have committed a crime may not be liable, but if a person, wanting to commit a crime, went to a lawyer in advance to find out how he could do it, and came less badly off as the result, I am not quite so sure that the lawyer who gave him advice in that way would not be an accessory before the fact.

Coming to the main issue, I would make a considerable distinction between the two Amendments that we are discussing. I think the first is in every way commendable. It is only right that a person whose innocence in this transaction cannot be disputed should not have to pay back more to the Exchequer than he has reaped as an advantage through his innocent partaking in a transaction which in itself was dishonourable. The Clause as it originally stood made it possible that a perfectly innocent person might have to pay back a great deal more than he had gained in advantage. So far as that is concerned, I do not think anyone could take any exception to that Amendment. With regard to the second, I feel a little less happy. We all know that these devices are put up to individuals—laymen.—by professional people, and this Clause seems to give carte blanche to dishonourable professional people to go ahead with their nefarious trade. It is true that under the Clause as it originally stood they might have been mulcted to a very much greater extent than any pecuniary advantage that they reaped because transactions involve hundreds of thousands of pounds, possibly even more, and I do not suppose the fees of these people would run into very large figures. On the other hand, I hope it is clear that a professional person who is given a nice little sum, £1,000 or £2,000 it may be, or even more, for very useful advice which the promoters hoped would render them immune from E.P.T. will not get away with that swag and that the word "such" in the fourth line—" any such transaction "—could not be construed to mean that when he gave shady advice of this kind he usually got £2,000 or £3,000 as a pourboire. I take it that it means advice for which in the ordinary course he would earn a reasonable and modest fee. If that is understood, it is true that the matter is really hardly worth worrying about. If it is only £20 or £30, whether he is to take a share of that is not important, but the risk was that a man getting £20 or £30 for giving this undesirable advice might have had to pay tens of thousands of pounds.

Some people have talked about this being a penal Clause. That word is used rather vaguely in popular language. As I understand it, it is not a penal Clause. It is an attempt to recover money which ought to have been paid. Perhaps it takes on a penal character if someone who had only a small part of the swag, owing to the words "joint and several," should have to pay a very much larger proportion, but I do not think in the main that is going to happen. Therefore, rather reluctantly, I am not disposed to quarrel with the second Amendment, though I think we shall have to wait and see whether it lets people off who ought not to have been let off. I hope it will be very carefully construed. A bank which lends perhaps £1,000,000 to someone who has no money at all must really know that that money is going to be nefariously used and I hope it will not get away with the 5 per cent. which may be the normal transaction of a somewhat speculative character by a rather loose construction of the Clause. If it is found that there are professional persons or banks who are getting away with it on those lines, I hope the Chancellor will come to the House for a strengthening Clause for future use.

Beyond that—and I hope, Mr. Williams, you will allow me to go to this further extent, because it arises directly out of this matter—I think that this Clause and the necessity for it arouse in the minds of many of us doubts whether our legislation with regard to tax avoidance really is quite strong enough. The time may come when we ought to be in a position to consider the extension of the idea of fraud from merely defrauding individuals to defrauding the State under conditions that, though not exactly illegal, are nevertheless intentional avoidance and evasion of payments which other individuals are forced to meet. It would be out of Order for me to go into any detail as to how that should be done, but the House of Commons is getting to a point when it will be prepared to consider carefully any proposal which this or any future Government may make to bring into the mesh people who have quite clearly deliberately attempted to escape their just share of taxation. I believe that a Government which without animus seeks to deal with people of that kind will not find an unsympathetic House of Commons prepared to carry into law properly considered proposals of that character.

Mr. Benson

I cannot allow the remarks of my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) to pass without some protest. Nobody in the last few years has been more interested in stopping up holes in our Income Tax legislation than I have, and no one has taken more interest in tax avoidance. But I should view with horror the idea that this form of legislation should carry with it a retrospective penalty other than the liability to the tax avoided.

Mr. Pethick-Lawrence

I never suggested that.

Mr. Benson

The major cases that come before the court are types of evasion which are themselves legal until we have made them illegal. Our whole legislation for the past 20 years since Sur-tax became a serious burden has been to make certain types of transactions not evasive in their results but at the same time leaving them legal. Certain transactions may still be done but the income still remains liable to tax. We are continually having to broaden our legislation and cast our net further afield as more elaborate schemes become evolved. If we wish to strengthen the hands of the Exchequer, the way to do that is not to impose a retrospective penalty as for fraud but to make any such legislation as we pass retrospective in its tax effects. That these ingenious gentlemen should be retrospectively punished for fraud is something very contrary to English law.

The Attorney-General

If it is the test of a good Amendment that some people think it goes too far, that some think it does not go far enough and that some approve it, this Amendment passes with flying colours. There is about an equal number of my hon. Friends who fall into each of these categories. I want to say one or two sentences on the general topic. I have been asked by successive Chancellors of the Exchequer for nine years to play some part in what are called tax evasion Clauses in Finance Bills, and I welcome the general attitude to what I may call tax evasion schemes which was exemplified by the remarks made by my hon. Friend the Member for East Birkenhead (Mr. Graham White) and others and by the Noble Lord the Member for Horsham and Worthing (Earl Winterton), although I disagree with him if he suggested that one ought not to be too anxious about the effect of the Clause on innocent people. It is the business of the Government and this House to see that as far as possible that does not happen. Speaking generally on the Amendments—and nobody has taken a violent point against either of them—the problem which confronted my right hon. Friend arose from the fact that the Clause imposed a joint and several liability. That was why my right hon. Friend came to the conclusion that it would be right to insert certain safeguards for what has been called the innocent classes—classes, at any rate, which might contain wholly innocent people and whose financial benefit could be evaluated and limited. I think that that was right, and I hope the Committee will think so too

I agree that it is easy to put forward on one side of the argument a banking institution, accountant, solicitor or barrister who knows what is going on. He might be asked for his advice, and if he gets no more than his normal fee, he is not brought under joint and several liability. On the other hand, it seemed to us that there might very well be a number of cases where professional service had been rendered, possibly cases in which there was absolutely no reason to suppose that they knew about the ultimate destination, and we are told—and I believe it of course —that many of the original shareholders in some of these concerns were quite innocent of the purposes for which the original offer was put forward. A professional person might have been em- played in drawing up the original offer and might equally not have known what it was proposed to do at a later stage. Therefore, although you cannot get in these things an absolute line with the white on one side and the black on the other, because there might be a lot of grey and speckled in between, we did our best not to go too far but to provide first for the compulsory apportionment to the original shareholders and then to exclude professional men and the classes who could show they got no more than a normal return. I agree with my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) in hoping that if one of these professional men get a special fee or a fee of a special size because this sort of thing was in the wind, the Clause will be construed as not protecting him.

My hon. Friend the Member for North East Leeds (Mr. Craik Henderson) raised the point about the whisky being sold at once, but that is what has happened. The whisky has in fact all been sold.

Mr. Craik Henderson

But not by him.

The Attorney-General

The whisky has in fact all been sold, and the extra money which has gone in part to him and in part to other people results from the fact that there was an intention to sell the whisky in accordance with the scheme. In some of the cases we have had the whisky was sold on the same day as the shares were transferred. Though I agree that notionally you can say that if that had not happened the selling of the whisky might have been spread over a number of years and that this might have affected the value, there is a good deal to be said for saying that, limiting as we have done the original shareholder's liability for the excess amount as between him and the others, we must take facts as they are and the facts as they are, are that the whisky has been sold.

My own view is that this Clause will kill this type of transaction. It will take the money out of it, and it will do more than that in the sense that the "joint and several liability" remaining for all concerned apart from the original shareholders, not only would they be in jeopardy of handing back what they had in fact kept in their pockets but they will be liable to have to hand back profit which has gone into the pockets of others. It is true that there is provision that one individual can sue for a contribution if he has had to pay more than he got, but I think the fact that there is this joint and several liability does make the Clause in that sense a penal clause and will I believe make 't effective in stopping this type of transaction. It is retrospective and applies to all these past transactions. If I am right in thinking that it will stop these transactions for the future I think that that is perhaps an added reason for those who were inclined to think that our Amendment -might go a little too far for reconsidering their attitude because the Amendment will if that is right operate in the main on what has happened in the past when the scheme was legal, although I agree that everybody ought to have known that it was an extremely discreditable thing to do.

In reply to the point raised by my hon. Friend the Member for East Birkenhead about a professional man not within the Amendment, there is a power to apportion and that power includes the power not to impose any liability on a person who might be within the words of the Clause. Therefore, if one can imagine some innocent broker who just passed the whisky through from A to B and took the ordinary percentage whatever the broker's percentage is, there is every reason to be confident that the Commissioners will exercise their powers and would not attempt to apportion to him any of the financial benefit which it -was intended should descend on those who profited by the transaction.

Mr. Woodburn

Do the words "by reason only" still leave the Government with a considerable amount of power even in the case of people who are exempted and still leave an apportioning power with the Chancellor?

The Attorney-General

You have to read the following words. If the person crops up later in the proceedings, you can hit him.

Mr. Ivor Thomas (Keighley)

May I ask what it is that makes this Clause retrospective? I can see nothing in the Clause itself to make it retrospective. Can the right hon. and learned Gentleman assure us that if cases come before the courts there will be no doubt about its being retrospective?

The Attorney-General

The whole purpose of the new Clause is to deal with past transactions. Under the original Clause it is retrospective. The hon. Member will not find any reference to it in this addition.

Amendment agreed to.

Further Amendment made: In page 16, line 14, at the end, insert: (5) For the purposes of this Section, a barrister, solicitor or accountant shall not be treated as having obtained financial benefits by reason only that he received in the ordinary course of his profession remuneration in respect of ordinary professional services rendered in connection with any such transaction as aforesaid at a rate not greater than that customary in the profession for services of such a character, a person who carries on a banking business shall not be treated as having obtained financial benefits by reason only that he received interest at not more than the normal rate on a loan made by him in connection with any such transaction as aforesaid, and a person who carries on a business which includes dealing in stock of the kind to which a direction under Sub-section (1) of this Section relates shall not be treated as having obtained financial benefits by reason only that he bought some or all of the stock in question at a price representing the full market value thereof and disposed thereof at a profit."—[The Attorney-General.]

The Attorney-General

I beg to move, in page i6, line 25, after "and," to insert: on any such appeal any other person specified in the direction shall be entitled to appear and be heard and. This Amendment is moved to meet a small technical point. As the Committee will realise, if one of the persons to whom the liability is apportioned appeals on the ground that too much has been apportioned to him, a decision in his favour would increase the liability of the others, and the purpose of this Amendment and the one which follows is to provide that the others will have a right to appear and will be bound by the decision given.

Amendment agreed to.

Further Amendment made: In page 16, line 26, at the end, insert: The decision of the Special Commissioners shall (subject to any appeal therefrom which is competent under the enactments relating to excess profits tax) be binding on the Commissioners and on the appellant and on all persons entitled to appear and he heard as aforesaid."£[The Attorney-General.] Clause, as amended, ordered to stand part of the Bill.

Bill reported; as amended (in Committee and on recommittal) considered.