Clause 22. —(Treatment of certain payments made under redundancy schemes.) (Hansard, 28 November 1945)

§ Sir Peter Bennett (Birmingham, Edgbaston)
On this Clause my hon. Friends and I had an Amendment down which has not been called, and I would like in a few words to explain the difficulty in which we find ourselves. This Clause has been inserted in connection with certain redundancy schemes. Under Section 25 of the Finance Act, 1935, certain taxation reliefs were granted under schemes which were initiated for eliminating redundant plants. These schemes have to be submitted to the Board of Trade and certificates granted before they are put into operation. A loophole has appeared and the Treasury have very rightly decided that it is not fair for a taxpayer to make payment to these redundancy schemes, if such payments are treated as charges liable for taxation, and then, 1423 later, to receive them back as capital sums when they scrap certain plant, and receive compensation and charge it to capital. In that way they would have the best of both worlds. We quite agree. The Revenue authorities have drafted a scheme by which they provide various ways of preventing this. But we feel they have gone out of their way to make the scheme very complicated, whereas it might have been done in a very simple way under the existing law by using the 1945 Income Tax Act which provides that if plant or buildings are sold at more than the written down value the excess amount will be taxable. This applies similarly to buildings destroyed. We believe they had to hand a ready machinery for dealing with this subject, and that they have adopted a very complicated one instead.
It may be argued that people are used to dealing with complicated machinery in connection with Income Tax law, and that a little extra will make no difference. The trouble is that if people do not understand this they will not join these redundancy schemes. They will say "This is so much trouble and so complicated that I will not trouble about it. I will sell the surplus plant in the open market and then I shall get the result of the Income Tax Act, and I need not worry about this complicated machinery." If that happens, we have defeated the object for which these redundancy schemes were put into operation, because they were started so that plant which is not wanted shall be taken away, sterilised, scrapped, not used again. If a man says, "I shall not trouble because of the difficulties and complications," his plant will go into the market, and what was intended to be for the national interest will be lost. We think it is possible to achieve the desired object by a more favourable method. We agree that the 1935 scheme was too favourable, but we think this is too complicated. I should like a word from the Solicitor-General as to why this difficult scheme has been adopted, and why it cannot be done by a simpler method which would avoid the difficulty and danger which we foresee under the present scheme.

§ Sir Arnold Gridley (Stockport)
I am sorry that the Amendment on the Paper has not been called, and that we are now discussing the Question, "That the 1424 Clause stand part of the Bill," because if I am rightly informed, my constituency is very much concerned in this matter. I refer to the cotton industry, which has been concentrated and has a redundancy scheme concerning spindles, and the same applies to the hatting industries, of which Stockport is a famous centre. Manufacturers in my constituency, under this very complicated Clause, do not know where they are. The sole object of the Amendment is to qualify and put in simpler terms what we understand the Government are anxious to achieve, and if that simpler method were adopted, we should get rid of Subsections (2), (3) and (4) of this Clause and also the fourth Schedule, which are infernally complicated, as so many of the provisions of these Finance Bills are. Surely we could simplify it without asking the Government to concede any financial advantage to industry in so doing? The objective of the Amendment was quite friendly, and purely for clarification and simplification. For that reason I should have thought that the Chancellor would have seen his way to give us what we want.

§ The Solicitor-General
I sympathise with the desire for simplicity. I accept at once the fact that the Clause and the Schedule do appear to be complicated at first sight. I fear it is quite unavoidable in the case of this financial Clause as it is in the case of so many other financial Clauses. Obviously, clarity and simplicity are highly desirable in so far as they can be obtained, but when one is dealing with a highly complicated subject in respect of which there has to be introduced a large number of qualifications, and provision made for a number of alternative sets of circumstances, it is often not possible to make the result easily and readily comprehensible at first sight. The hon. Member for Edgbaston (Sir P. Bennett) suggested that it might be a solution — since we are arguing upon the question "That the Clause stand part the Bill" and the Amendment has not been called —simply to leave "the law as it is, and leave the matter to fall to be dealt with under the provisions of the Income Tax Act, 1945. I gathered that the hon. Member for Stockport (Sir A. Gridley) rather assented to that view.
If it were left in that form there would, so far as I can see, be at least five fatal objections. It would take some time to 1425 recount them and to indicate exactly what objections would be present but there would be live, at any rate. That may be taken as a measure of the difficulty of providing a Clause which introduces the necessary machinery to deal with the situation that arises. If I might deal with the suggestion to leave the matter to the 1945 Act, I would point out firstly that it does not provide for the position which arises before that Act comes into force. Any payment received between now and then would not be accountable to tax at all, because the operation of the 1945 Act does not, so far as these provisions are concerned, begin until April, 1946, so that anyone fortunate enough to receive payments up to then would not have to subject them to tax at all.
Another objection is that it would be grossly unfair to the taxpayer if it were left to the 1945 Act and for this reason: The Fourth Schedule to the present Bill is so drafted as to dissect the payment. By that I mean that when payment is received under the scheme, if the provisions of the present Bill are being applied, one has to see what part of the payment should fairly be brought in as a trading receipt, and one has to discard from that payment those portions which could not also have formed part of an allowance under the Income Tax Act. Under the terms of the Bill the taxpayer is only required to bring in the residue which properly could have formed an allowance under the Income Tax Act if it had been sought to set it up as a trading outgoing. If the matter is left to be dealt with under the 1945 Act, one is met with the serious objection that it is grossly unfair to the taxpayer, in that it results in the position that he is required to write off the payment against allowances which he is given under the 1945 Act and is required to submit to the balancing charge which is provided for in Section 3 and Section 17 of the 1945 Act, and he is obliged, in arriving at the figures of the cancelling out of the allowances and of the balancing charge, to bring in the whole of the compensation payment, whether It is a payment which might properly have been an allowance as a trading outgoing or not.
He will be placed in a position of great disadvantage. Suppose he receives £1,000 under the scheme set out by the Act. Suppose £500 of that sum represents the loss which he could have treated 1426 as a trading outgoing in making up his accounts. It is provided under this Bill that the £1,000 is dissected, and in effect the person concerned is told, "You shall in any event only be called upon to bring into your trading accounts that 500, and as to the balance which under the Acts could not have formed the subject of a trading outgoing, we disregard that." If the 1945 Act is applied, the whole of that £1,000 has to be brought in wiping out the allowance that has been given year by year and by way of an initial allowance under that Act, and then the balance of the £1,000 has to be treated as a balancing charge which has to be submitted in the accounts as a charge on which tax has to be paid. That is a complete and fatal answer because it is grossly unfair to the taxpayer.
In some respects it would be equally unfair to the revenue, because the 1935 Finance Act says that contributions paid under a scheme are to be available as an outgoing in making up one's trading accounts.
8.30 p.m.
What we are trying to do is to see that, correspondingly, payments received under the scheme must be brought in as trading receipts. That being so, one has to dissect it. If you did not dissect it, it would lead to the Revenue finding itself in an unfair position because justice as between the taxpayer and the Revenue requires that the taxpayer should have to bring in at least so much of the payment, as is equivalent to the contributions which would be deductions when he paid them under the scheme. If you left it as under the 1945 Act, and if it transpired that there was an inequality between those two, you might have a position in which the allowances in the way of contributions were very substantial and at the same time the taxpayer was being allowed to treat as an outgoing too much of the receipt he gets from the scheme. I adduce those two points as being very nearly fatal objections to the proposal.
How do the Government, in the scheme as it is framed, attempt to deal with that situation? Admittedly in complicated language, and I regret as much as hon. Members the complicated language, but it is unavoidable. You get your £1,000 under the scheme. First we are going to say you must find out how much you, the trader, had been allowed to deduct in 1427 your trading accounts by way of contributions paid under the scheme, and in respect of the whole of that account, in any event you have to submit to treating the payment you have received as a trading receipt. Then they say that that does not conclude the matter, because, having been fair to the Revenue, we want to make sure we are not unfair to the taxpayer and so we say in respect of the excess of the payment, supposing the contributions were £500, and the payments £1,000 we are going to apply this process of dissection. In regard to the excess of £500, how much can we call upon the taxpayer to bring in as a trading receipt? We are going to say he is liable to bring in as a trading receipt so much of the £500 as may be said to be a sum which might have been granted either in the 1945 Act or under the Income Tax law apart from the 1945 Act. Supposing that sum turns out to be £250, the net result is that the taxpayer is called upon to bring in £750 which I ask the Committee to say is a perfectly fair result, and although it is desirable to bring that about by simpler language, if one analyses the Clause, one finds that one cannot do that simply and provide for the contingencies that have to be taken into account in any other form. I ask the Committee to say that no reason has been shown to displace the Clause as it stands in the Bill.

§ Sir A. Gridley
I have listened with the closest attention to the reply of the learned Solicitor-General and I am sure his arguments are as clear to every other Member of the Committee as they are to me. All I can promise to do is tomorrow when I get HANSARD, to put a wet towel round my head and re-read what we have heard from the Solicitor-General. I thank him for the very great trouble he has taken in the explanation which I, if I had his intelligence, would have been able to follow more readily than I have been able t6 do. In the circumstances, I desire that the Clause stand part.